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10/29/07

Should the Rules on Applying for Credit Cards be Tighter?

This is a question of much debate among people of all kinds of financial and educational levels. The proponents of such a measure believe that “tightening” the requirements to apply for and obtain a credit card will help protect people against irresponsible credit card use. These people think that credit is evil and that only a select few, if any, should possess it.

The opposition to such a measure believes that credit itself is not evil and that financial education is the means by which to prevent credit misuse. These people also believe that restricting the means to obtain credit will have an overall negative economic effect.

I agree with the latter. Restricting the means to obtain credit effectively prevents poor and middle class people from obtaining credit. One cannot restrict the obtainment of credit based upon credit score because one cannot have a credit score until one obtains credit. Additionally, one cannot restrict the obtainment of credit based upon monthly or yearly income because, as stated above, this effectively prevents the poor and middle class from having credit.

The truth is, I have yet to hear one good reason as to why credit requirements should be “tightened.” Some people point to the current real estate market and credit crunch as reasons why credit card obtainment should be restricted. This is a very unreasonable way to think. Basically, these people have concluded, “it is bad, therefore, is should be taken away.” The first flaw in this conclusion is that credit is not bad; credit is a powerful financial tool that can help you achieve monetary success.

The second flaw in the conclusion is the remedy (that credit should be taken away). If this is the case, how are people supposed to purchase a home, a car, or pay for college, to name a few. The people that propose such a remedy do not consider all of the good things that credit can provide (most notable a place to live, a car to drive, and an education).

The point is, credit card requirements should not be “tightened.” In my opinion, the answer is to better educate people as to the dangers of credit misuse and as to the advantages that credit can provide if proper credit use is practiced.

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