How a $2 debt almost turned into $90,000

  @Money November 13, 2013: 11:14 AM ET
sheila bair store credit card

Former FDIC chair Sheila Bair is putting her store cards under lock and key.

NEW YORK (Money Magazine)

It's certainly fashionable to beat up on banks these days (not that some don't deserve it). But when it comes to the most outrageous lending practices, I'd like to call out a far worse group.

I am referring, of course, to women's clothing retailers pushing their credit cards.

No matter how hard I try to avoid them, the pushers are always there, lurking behind the checkout counter as I patiently wait to pay for a new winter suit or spring dress.

After cooing over my selections and great taste in clothing, the saleswoman whispers, "Would you like to get 15% off?"

Before I can respond, she whips out a one-page application form and tells me, "Just sign here. All we need is your address and Social Security number."

She assures me that there are no annual fees and promises more discounts in the future.

As I struggle to collect my thoughts, she moves in for the kill: "Apply today and I'll knock off another 10%."

Related: Credit score killers

It is truly a wonder that I only have three of these store cards. I hardly ever use them, because I lead a hectic life, and the fewer monthly bills I have, the better. But even three is too many, as I recently learned.

Last January, I was shopping at a store I'll call Predator X.

As part of its post-Christmas clearance sale, Predator X was offering big discounts on store card purchases. After digging around in my wallet, I found the card stuck between a dry cleaner receipt and old grocery list. I slapped it down on the counter to buy a half-price St. Johns suit.

The next month the credit card bill arrived. I wrote the check promptly, but sloppily. What was meant to be a "9" was read by Predator X's computer to be a "7". The following month, I received a bill for $2.

Not wanting to waste a good check and postage stamp on a $2 debt, I let it slide. Thirty days later, I received another bill. This one for $12 -- the original $2 debt plus a $10 late fee.

This was annoying, and I ignored it for a few more months.

Ultimately I paid the 12 bucks, deciding it wasn't worth an hour on the phone with customer service to waive the $10 fee.

Related: Sneaky credit card charges can cost you

But I wasn't done paying, as I discovered when my husband and I applied for a loan to build a house.

We both pride ourselves on our stellar credit histories. Our idea of fun is to compete with each other over who has the best FICO score.

But when our lender called with a rate quote, he gave us a half percentage point above prime. Outraged, I demanded to know why. While my husband had maintained his 800'ish credit score, it turns out mine was approaching subprime territory. Apparently, a 4 month delinquency can do a good bit of damage, even if it is only a $2 debt.

Needless to say, as instructed by my bank, I was on the phone the next day with Predator X's customer service.

Once I reached a human being who saw what had happened, she profusely apologized and promptly requested a correction on the credit report, though it has taken the credit reporting agency forever to update the report.

Good thing it's getting fixed. A 1/2 percentage point on our loan would increase our monthly payment by $250 a month, or about $90,000 over the life of the loan.

So I have learned my lesson. My store cards have been removed from my wallet and placed under lock and key. Never again will I succumb to the siren song of 15% discounts. My one, bank-issued credit card is really all I want to handle and that one, I pay online.

Sheila Bair is a former chair of the FDIC, and the author of the New York Times bestseller "Bull by the Horns, Fighting to Save Main Street from Wall Street and Wall Street from Itself." To top of page



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