A credit card linked to my home equity line? No way!
I had an online payment snafu the other week, and so I spent some time talking on the telephone with a very nice Wells Fargo representative.
We straightened out the problem -- I had forgotten which checking account linked to my PayPal account -- and then the nice banker asked if he could tell me about some products that might interest me.
I don't usually listen to these spiels. I figure that, if I don't notice that I need a product on my own, without any help, then there's a good chance I don't need it at all.
But hey, he was nice. So I let him talk.
He offered me a credit card linked to our home equity line of credit.
You read that right. He offered me a credit card that would allow me to go shopping anywhere that accepts credit cards. With every purchase I made, I'd be taking out a little loan against our house.
I'm not against using the home equity line. We tapped it to put new windows and insulation into our little castle. I'm self-employed, so I'm not above using home equity to solve a temporary cash-flow problem.
But the home equity line as a way go shopping? Borrow against the house to get a cute new pair of shoes? Really?
I can see why the bank thinks this is a good idea.
Most credit cards are unsecured. This means that, if you don't pay the bill, the credit card company will report it to the credit bureaus. Your credit score will drop, and you'll find it more difficult to get new loans.
The credit card company will also call you and send you letters and generally make a nuisance of themselves, and eventually it, or the collection agency to which they've sold your bad debt, may take you to court to recoup the money you owe.
But the company can't react to your nonpayment by coming and repossessing your car or taking away that iPad you bought, because there's no collateral backing your debt.
The bank, on the other hand, has a pretty big stick at its disposal if I don't pay back the home equity loan. It would foreclose on our house.
Of course, bad mortgages -- which included home equity lines -- were a big factor behind the recent economic meltdown and ensuing recession.
Wells Fargo isn't thinking about that.
We have good credit, and the big bank probably figures we'll pay back the loan. Or maybe it just isn't looking beyond its immediate profit motive.
I told the banker that his offer was the worst idea I expected to hear that day. At least he was savvy enough to laugh.