Really, I don't need a Home Depot credit card, because I shop there infrequently and almost always for small stuff that will never justify a dedicated store credit card. But I was buying some paint last week and was told that the $20 can of paint (the most expensive item) would be free if I opened an instant credit account.
I tend to be fairly strategic about applying for credit. As a non-homeowner, non-student loan holder, and generally non-debtor in most ways, I have found that keeping my credit score up in the mid-700s takes some effort. Why care if I don't use credit much? Well, because someday I will want to buy a place, or have an employer check up on me, or do something that will require a good score. So I make some effort to keep things in good standing, usually by taking loans I don't quite need or opening credit facilities I'm rarely going to use. For example, the past couple of times I've bought vehicles, I've taken on small auto loans at super-low rates just to have some longer-term credit activity in addition to my credit card accounts that are paid off monthly.
This is one of the more moronic aspects of our system. If you have no credit accounts out there, you're considered a bad risk even if you do have the income and/or assets to support whatever loan you want to take out. If you have lots of credit cards but a history of not using them much, you're considered a good risk because you have supposedly shown that you know how to manage (ie, not use) it well. No matter that in case of a life-changing event all those credit cards will be drawn on to the max, maybe to the point of your being unable to pay for anything. If I were a banker I'd be looking for people with lots of assets and income, but with as little outstanding credit as possible that might impair their ability to pay me back. But finding such people would require real work, like detailed examination of income and asset records for several years. Compare that to just looking at a credit score which is mostly automated and work-avoiding. Whatever else has happenned in the past 20 years, bankers doing everything possible to avoid real work is an immutable constant.
The Home Depot offer seemed like just the kind of "strategic" credit I tend to apply for sometimes. Since I don't have much reason to go to Home Depot for anything more than the occasional tool or light bulb, I wouldn't use it much. And it would pad out my "available credit" so as to lower my "credit utilization," which over the long haul will make me look like one of those "responsible managers" of more credit than they need. Getting a free gallon of paint was a nice thing too.
The card, pictured above with the number redacted, arrived two days ago. Not surprisingly, it isn't actually issued by Home Depot or any entity they own, but instead by Citi (NYSE:C, rated "F" by Institutional Risk Analytics). I already have one Citi Mastercard (originally issued by Sears then sold to Citi) with a credit limit in excess of $10,000, but the geniuses at Citi decided that another $5,000 in the form of Home Depot store credit was appropriate. In this economic climate, I was expecting a fifth of that, even with a pretty good credit score. But as I got into the details, its clear that Citi isn't looking to make money off my regular use of the card.
The Citi Hook
The front of the letter (again, redacted) that came with the card is pictured to the right. Several things stood out about it as well as the sticker on the card itself. You'll notice that while it looks like one of the "call to activite this card" notices that are often stuck to new credit cards, it actually is not. I didn't even bother to read it, I just called because you seem to always need to call to activate. Turns out it's just a sales line, and what they're selling you is "protection."
No, not the kind of "protection" you might purchase from your friendly neighborhood Godfather type. The mafia doesn't come close to the scamminess that Citi inflicts. They will "protect" you from having to pay the balance on the card if you lose your job, or get sick, or die, or something.
The letter highlights the same "protection," under the heading "shop with confidence."
The price for this protection? Only 99 cents a month for every $100 of outstanding balance. Or .99% monthly. Which is 12.55% annually, on top of the 25.99% of normal interest, bringing your total interest rate for the year to 38.54%!
But you're protected, or so they say. Yeah right. Raped is more like it.
And they tout another benefit. "NO PAYMENTS AND NO INTEREST IF PAID IN FULL WITHIN 6 MONTHS" it says, noting in much smaller letters that this applies to "all card purchases of $299 or more." And there's a little asterisk next to the statement, which is never a good sign.
The Citi Catch
There's always a catch with such things. The details require you look at the far less colorful but far more important back of the letter. This is the consumer equivalent of my finance professor's recommendation that financial statements always be read from the footnotes backwards, getting to the earnings/loss number last, rather than the way they are normally trumpeted by CEOs and TV talking heads.
We'll start with the "protection" package that Citi offers you. You'll note there are 4 terms for unemployment protection. The first and the fourth are reasonable enough, focusing on the length of you prior employment and current unemployment. The second is far more difficult. You must be eligible for state unemployment benefits. For the many of us who are self-employed, that's a non-starter. While the letter does state that "If you are self employed you can still be eligible for benefits," it is unclear as to how.
Finally, in condition number three, you must register with a "recognized" employment agency. I'm not sure what qualifes as "recognized," but I am sure that for myself and many other professionals, the notion of an "employment agency" as Citi probably defines it just doesn't exist. We may use recruiters and marketing agents of various sorts to help us find employment, but I can't think of any "recognized employment agency" that I could register with or that would even know what to do with me if I showed up at their door.
All of this ensures that for a large percentage of the people who might try to take them up on the offer, such benefits will be unavailable.
The second big catch relates to the "no payments and no interest" on big purchases. This is an old one that I've taken advantage of in the past, but has a major catch to it. They will continue to accrue any interests that you owe for the six month period, and if you miss anything or have any problems during that period, they'll hit you with all of them all at once. Oh, and you must qualify for the extended payment option seperately, presumably at the time of purchase, you can't just go six months without paying and be OK. What are the terms under which you might qualify? Who knows?
The only way to take advantage of this is very carefully. They make the offer, knowing that enough people will misunderstand and screw up to make them a nice tidy profit. Guys like me who set up a six month automatic payoff plan the minute the first bill arrives are probably the exception that they hate but tolerate in order to hook all the other fishies.
The Long and Short of It
Citi and their ilk only know one way to make money anymore: Take cheap money from the Federal Reserve or Congress, lend it to the stupid at rates that would make any loanshark blush, charge even more for "protecting you in times of need." Managing their loan portfolios carefully and judiciously is not an option. They've become too big to do that.
If you're worried about getting sick and missing your bills, look into much cheaper disability insurance. That's what the annoying AFLAC duck is selling, though it's also available through other companies to the self-employed or to those who work for companies without AFLAC as an available benefit. Whatever other problems I may have with him, the duck doesn't charge 12.55%.
For guys like me who are looking to "bulk up" our available credit and bump up our credit scores as well as score a free can of paint, offers like this work out well enough and may even be a money-loser for the banks. Everybody else needs to beware. That free gallon of paint can turn out to be very expensive indeed.
mg
