Wealth Club: Suze Orman Talks Credit Scores, Occupy Wall Street, and the American Dream

Financial guru Suze Orman has been helping people manage their money since she wrote her first advice book in 1995, after more than a decade of work as an investor. This week, she’s introducing a new kind of pre-paid debit card that she hopes will overturn the common practice of rewarding those debtors who maintain a high credit score while paying only the monthly minimums. GOOD financial advice columnist Michael Fleck talked to Orman last week about her new card and career. An edited transcript follows.

GOOD: How did you come up with the approved card? What first put this idea in your head?

SUZE ORMAN: The credit score is an important thing that every single one of us needs to know about, we need to know how it affects our lives, and how we affect it. It started years ago, with me being absolutely outraged with the fact that people who use cash for items, people who use debit cards because they do not want to get in trouble, or they just simply use a debit card, would never even have a credit score. They wouldn’t even be considered.

Years ago, it was okay: You didn’t have a credit score, so you weren’t able to qualify for a loan, or get a good interest rate on a mortgage or credit cards, I could let that go. But when credit scores started being used to get a job, to rent an apartment, to pay your car insurance premiums, to pay health and life insurance and all the premiums that you paid … It wasn’t fair that so many people out there who wanted to pay using cash or debit were penalized for doing so, while the truth of the matter is that those who paid on credit cards and therefore had a credit history were being rewarded.

I started to get on this thing in about 2006: How could I create a debit card that could create a score? I didn’t want a secured credit card… and I didn’t like any of the alternatives out there. But I started to do more research on the prepaid debit cards. [Y]ou will find it’s a travesty. Many of the prepaid debit cards that are out there charge $35 to $50 a month in fees to the people who have them. They charge $9.95 a month. One dollar every time you use your card, fifty cents every time you pay a bill, $2.50 every time you take money of an ATM, one dollar if you want to see how much money you have online. Ten dollars if you want to shut the card down. People who want to help themselves cannot afford $35 a month just simply to have a card.

The majority of people who have these cards are called the unbanked and the underbanked. They do not have a bank account at all—unbanked—and even if they do have a bank account, what’s then happening is that they’re not using all the services that the bank is providing.

GOOD: Was it hard to get TransUnion on board with developing a system where these cash transactions would positively affect people’s credit scores?

ORMAN: I would say, ‘Yes, it was hard.’ But, no it was not hard because it was Suze Orman.

I’m sure people had gone to them before and have asked ‘will you do this?’ and I’m sure they said no because I’m sure the people that probably asked prior to me would use this as a marketing gimmick.

When TransUnion heard the idea that what I wanted to experiment with, and I also met with FICO on it, they knew that I would tell the people exactly how it was…the first prepaid debit card in history that would share information with a major credit bureau in the hopes that two years from now, we could evaluate the data and determine if it does in fact predict future behavior.

I want everyone to simply get this card and pay their bills on this card. Just do that. Then we will aggregate the information, and possibly we could be part of changing the scoring system to be relevant, rather than irrelevant, which is what I believe it is today. … Remember, none of this will actually be reported on your actual credit report. We’re just sharing the aggregate data with TransUnion, we’re going to evaluate the aggregate data over two years, and if, God-willing, and I hope Experian and Equifax joins us with this, I have a feeling what you’re going to see is that we will have started to … to create a new score that takes into consideration people who don’t want to have a credit card, people who want to pay for things with cash, people who just want to use debit cards. So now we’re reevaluating and recreating the new American Dream all over again.

GOOD: You’ve seen a lot in this industry, you’ve certainly seen your fair share of recessionary periods, and you’ve talked about the American Dream going off track. Do you think there’s a fundamental difference in the current recession than what’s happened in the past, or are we just seeing the same things over?

ORMAN: I don’t see a difference. For those people who were seriously hurt, and they lost their home, and they lost everything, those people will probably change in life. But for those that didn’t see that, none of this will have affected them at all, and they will not even have a clue that this even happened.

GOOD: Do you think that is why so many people feel jaded—as evidenced by the whole Occupy movement, and this 1 vs. 99 mentality?

ORMAN: [T]he 99 % movement, the Occupiers, is a very valid movement. It’s a movement that is very necessary. By the way, this card was developed for them, because this card which I have now created is a way for you to carry a little bank in your pocket with you. I’m actually asking the 99 percenters, ‘you best join me with this movement, people.’ If you want to keep your money in big banks, if you want to continue to get fees, if you want to continue to get all those things, you leave it right where it is. If you want to make a difference in your own life, how you use money, the accounting of money, everything about it, I am telling you put your money on me.

GOOD: Do you think transparency is something that’s been lacking in a lot of personal financial decision-making?

ORMAN: You should know what’s happening in your life at all times. Every time you swipe one of my cards, you will immediately get a text and/or an email, you get to choose. You go to a movie theater, you hand your card in to buy three tickets. Before you get your card back, you will, on your iPhone or whatever, it will say to you, “a transaction for $21 just occurred. You have $80 left on your approved card.” You will know at all times how much you have in this account, what you have going on, you will wake up every morning to a text, email, and/or both of your daily balance that’s there. If money is deposited into your account, or if someone transfers money into your account, you get a text immediately of that as well.

We do not have small print. We have to put asterisks, because some things we’re going to explain to you can’t fit where they’re supposed to. But I have actually taped videos of me saying, “This is how you use this card. Don’t do this. Do this. Do that.” And it is in big print. Like, it will say to you “this card will only cost you $3 a month if you use it exactly how I tell you to.”

GOOD: That’s a good point—do people run the risk of lowering their credit score if they don’t use this card responsibly?

ORMAN: The American Dream that’s been created is that if you use cash, you’re penalized. If you charge on a credit card, and as long as you pay on time, you are rewarded. Something is wrong with that system. This is not something that can hurt somebody at this point. However, two years from now, if you’re late on your utility bill, yeah, it’s going to affect your FICO score. It’s gonna go down. Absolutely, and it should go down.

GOOD: You can get up to four cards, but when it comes to sharing the information with TransUnion, it’s all under one umbrella account?

ORMAN: Let’s say you had three kids, and they were going to college or they were going to high school. As long as they’re over 13, you can give them each a card in their own name, under your $3 a month umbrella, they all … get to see how much they have on their account and their transactions. They get to see at the end of every month what they spent their money on. They spent $300 on restaurants; they spent this on cloths, etc. So we categorize everything for them at the end of every single month. You would be able to watch the actions of your children. You could shut them off from them being able to eat at a restaurant. You could shut them off from them being able to go into a bar.

GOOD: Wow, you can cut it off from a specific category? That’s great.

At this point we get disconnected. It’s probably the most mortifying moment of my life. I wish I had a mini freakout recorded. I would have linked it to. Damn me and my Fleckian composure!

ORMAN: You betcha. The main cardholder has control over everything. You get to see all three separate cards. They only get to see their own. You can fund them, and it doesn’t cost anything. So if you have money on your card, and you want to send it to their card, you can just do a card-to-card transfer, and it just takes two seconds, and it’s there.

GOOD: You said it earlier, and I’d agree, I’d trust you with my money more than I would trust most large banks out there. What do you think makes you so successful? I know from reading your biography that you’ve overcome a ton of challenges. How do you think that has influenced you?

ORMAN: I do what I do because I really love the people. They’re my people. I was just like them. I’m no different from them. … Yesterday I was in this art gallery, and this woman invited me today to come and listen to ‘Art as an Investment’, and I could probably go and speak to all these really wealthy people who were going to be there. Essentially, what I said to her was ‘that’s not my interest.’ Those wealthy people have a million people who would die just to be able to talk to them and get a hold of their money. I’m more interested in dealing and talking with the people who wait on those people. Last November, I gave a talk at the resort here in Boca Raton to all of the staff. The only people that were allowed to come were the waiters, the maids, the cooks, people that nobody ever talks to. I did the same thing at the Peninsula Hotel in Chicago. The only time I gave a seminar was to their staff. So my love is in those that feel like nobody else cares about them. That’s my love.

Our financial advice columnist, Michael Fleck, is here to tell you how to get your money right. Send your queries to wealthclub@goodinc.com.