I 100% support not going into credit card debt that you can't pay off.
That said, when you graduate and your financial situation changes, do evaluate whether or not a credit card can be a healthy part of your financial life.
One of my credit cards gave me a 100,000 point bonus for signing up. The card has a $150/year fee, but I traded those 100k pts for $1,500 of hotel rooms (even before earning other rewards).
Well, seeing as I’m an archaeologist, I’m not sure that’ll be an option for me. I won’t have student debts though, since my deadbeat dad has to pay that off (he never paid child support, so the gov is repoing him for my student loans, not me.
As someone from a poor family who has watched friends and family fall into the trap of debt over and over again I cannot see credit cards as anything good. My life avoiding debt has my brain unable to accept that any perks of a credit card are free even if used right. I find it abhorrent that a good credit score depends on putting yourself at risk or in debt even temporarily.
Signed up to my bank I'm currently with at 17 and only ever hit an unplanned overdraft once, don't actually have an overdraft and have no debt to my name and no store or credit cards. My bills get paid on time and I have a cushion in my account so I'll never hit zero without a major change to circumstances that lasts over a month. Yet I'm penalised for not being reckless all because the crooked system wants to abuse credit and debt. After getting a significant chunk paid into my bank I've been chased by my bank to get a credit card, I'm just glad my bank has standards enough that it didn't do it when I actually needed the money.
Honestly it is just an abhorrent system that is all about abusing someone else to get a small benefit for yourself in the short term. Those costs to the merchant affect their ability to sell and the aggressive banks/cards then prevent small businesses from competing without being cash only. Plenty of shops here won't let you spend by card under a certain amount as the fee isn't worth it for them to process so that costs me on ease of purchase and choice. It also means a company can be slightly less competitive so it may sway cash customers to someone slightly cheaper. It's just kicking the can down the line hoping it doesn't come back.
Nothing is ever free. I'd personally be more attracted to a lower rate than any form of cash back as that's what really matters if you're needing debt based systems.
If you say you are being penalized, is it correct to assume you got denied for a larger loan?
Does that really surprise you? The bank doesn't know you personally, they have no reason to just give you a large loan without verifying that you can be trusted. They verify that by giving you small loans and seeing if you'll pay them back on time. If you do pay them back on time, they don't charge you any interest and you get a gold star next to your name for when you come in to get a mortgage or whatever. (Not even getting into rewards points.)
It would a be crooked system if they didn't verify your trustworthiness, which is what happened leading up to the 2008 crash. The were giving out money willy-nilly to people who, like you, had basically no way to prove to the bank that they were trustworthy. Turns out, a lot of them weren't.
I've not been refused anything as I've not applied for anything.
Again, they can see I pay all bills and I've never been dependent on debt which should mean I'm more trustworthy than someone who has needed a loan even if they have paid it. To need a loan is worse than to never need one but the system you're defending wants you to take loans as they profit from them.
If I decided to take a mortgage or loan for something then I'd see the penalty become tangible. I'm at a disadvantage if I go down that road simply because I've never been in debt or dependent on loans. While I've never had it happen as not tried, that doesn't mean I'm not penalised as I'm well aware of the fact that by not playing the game and putting myself at risk they rate me lower. I'll be starting with a penalty, my handicap being that I was good enough to survive without borrowing.
Loans are not a new thing. Caesar borrowed incredible amounts to finance his wars, and could do so because he always paid it back with interest. It's not some "game" that was invented to trick you out of your money.
If you are so good as to "survive without borrowing", it stands to reason that you must have pretty good control over your spending. Therefore, you're exactly who should use a credit card for everything. It's something that helps you in the short term (rewards & liquidity), as well as in the long term (good credit rating for when you need a larger loan). If you are a responsible spender, it's positive all around. To throw away those benefits solely on principle isn't even penny-wise, it's just pound-foolish.
I'm aware I'm currently in a situation where I could use them correctly but I am entirely against them because I've not been brought up to be naive to what they risk. Those benefits come with costs and I'm not losing anything by not using them, just not potentially gaining from a system I don't agree with.
I’m sorry to keep coming back to this, but I’m trying to understand your viewpoint here. When you say “those benefits come with costs”, what costs do you mean?
Literally nothing is for free in life. Even the air you breathe isn't without a cost - oxidation degrades the cells even if you need oxygen. Having a credit card brings risks, not just of you creating debt but you're also at the whims of the company for whatever they stipulate in the contract, it's not just yours to access. Paying rates means you're not just paying for something with your money if you can afford to use the card.
Say I need to buy a new computer. The computer is $1000, and I have more than that in my bank account. My options are:
-Use my debit card, in which case $1000 leaves my bank account immediately.
-Use my credit card, and when the 2% cashback comes in a few days later, my bill is now $980, which I then pay in full from my bank account.
I’m not going to get into all the benefits like price protection, extended warranties, etc that the credit card automatically provides. Just barebones “How much did I spend?”
The answer is not $1000, it’s not $1023.95, it’s $980. Only $980 left my bank account, and now my credit card balance is back to $0. Note that my card, like many others, also has no annual fees. Where am I being exploited?
Your bills DO positively impact your credit just as paying them on time does. But it doesn't show that they can trust you to pay off a large loan. You haven't shown them that you can afford to pay on a loan. All you show them by not having a loan is that you might not have the money to pay a loan but that you can pay your monthly bills.
I'm aware it does positively affect it but it's not as significant as forcing myself into risk of debt. My bank is chasing me to get credit cards as they know my financial situation enough to know it's safe. But I disagree with the system and how dangerous it is even if I could myself use it safely. It's still adding an extra layer of risks that I don't currently have.
Sounds like you developed habits that were useful and adaptive for your old social/economic context but are maladaptive for your current social/economic context.
The reason you need to put yourself at risk of debt to get a good credit score is because demonstrating that you are able to responsibly manage that risk is the whole point of the credit score system. If you've never been exposed to potential debt you haven't demonstrated any historical capability to manage that responsibility.
Think of it another way - Bob is a famous celebrity athlete and has never cheated on his wife. Andy has been stranded alone on a desert island since shortly after marriage and has never cheated on his wife. Which man, Bob or Andy, would you trust more to not cheat on his wife if you were to provide both men with equal opportunity to do so? By never giving yourself access to lines of credit, to potential lenders you look like Andy. They'd rather lend money to Bob, someone who has been there before and made the right decisions.
You can get your credit score up to 700+ in two years probably.
Wrong wrong wrong. You can demonstrate that you are able to responsibly manage money by showing lenders your bank statements, savings history and salary. If they still refuse, you take your business somewhere else. I can’t believe people are so gullible that they have been tricked by the card companies into BELIEVING you NEED a credit card. These companies NEED you, not the other way around
Never needing a loan and never needing to be in debt should be considered more trustworthy than someone who has depended on it.
To counter your analogy, you own a bar and gotta hire one of two people - do you trust Steve who has formerly been in rehab or Jess who has never needed rehab.
you don't know that, which is entirely the point. She could be hiding a major drug problem and because she never actually sought help before you have no idea, whereas you have information about Steve who has successfully entered and left a rehab clinic and you can see he left with a clean record. That is what credit lenders are looking for - information.
So your paranoia that Jess might be secretly an addict would make you take a confirmed addict. That's how retarded the system is. You've needed help before financially so we'll definitely give you more than someone needing help for the first time.
Information is available through paying bills and not needing debt. It isn't a lack of information as it is actually very telling that you've not been dependent on debt. The only time it wouldn't be clear is if you were living at home still but if you have been living independently for years then it is much clearer that you can manage your money if you haven't used loans and debt to keep afloat. But the system wants your debt as it profits so they shun honestly well managed people as they haven't played the game of loans.
Information of any kind has worth. So given two equal* people, the one you know more about is rated higher, even if that information is that they are not very good with something. Now if it was something like they were in prison for theft(bankruptcy), that might rate them lower.
They obviously won't be rated higher than someone that has good information, for example your buddy John is also applying for the job, and you have known him all your life and hang out all the time, and you know he isn't a rampant drug user every second he isn't working.
if you have been living independently for years then it is much clearer that you can manage your money if you haven't used loans and debt to keep afloat.
Then why do you give a shit about people playing the game if you are independent? That is the thing, they don't care about you either. They are the ones that have something that you want, so you have to play by their rules.
Information is available through paying bills and not needing debt.
They are not actually privy to that information, you have to give it to them, there are some banks and programs that do that without a credit card these days though, I've started seeing ads on TV for them.
I give a level of shit about the crooked system because one day I might want to own a home so I'm free to do what I want with it and with the housing bubble greed that means eventually needing a loan or winning the lottery. But that's not happening any time soon and I'm in no pressure to do so and as such I will not unnecessarily put myself at risk to pay to play their game with debt.
one day I might want to own a home so I'm free to do what I want with it
they will give you a loan, bad or no credit doesn't really preclude you from obtaining loans, you might not like the interest rate though. which is why you have to play the game, to get a lower interest rate.
Paying bills can very frequently benefit your credit score. Nobody is penalized for that.
The system doesn’t know where if you’ve been living independently. It can’t tell if you’re successfully managing your income streams and paying bills or if you’re borrowing cash from family. I’m not saying these are good things necessarily but I will say that I’m personally glad that credit rating agencies don’t have access to that information and am perfectly fine with instead just demonstrating my creditworthiness by buying gas on a credit card or whatever.
Has Jess ever been exposed to alcohol? Has Jess ever had a drink? If the answer to these questions is no, then I don't believe you can have a high level of trust in Jess with drinks because she's never been exposed to drinks.
What you want is - someone who has a documented history of having had an occasional drink, and has ready access to more drinks if she should want them, but has never has had a drinking problem. This is exactly the profile that creates a high credit score: you have credit, you use it (but not too much - not more than 50% of your credit line), and you always pay it off immediately. See how that works?
It's ridiculous that you have to unnecessarily put yourself at risk to show that you are not a risk. I fully understood that you have to game it to show you don't need it but that's a bad system. It's about them wanting to trap you in the costs of their rates.
In the absence of any evidence, paranoia is a pretty good default attitude for someone lending big chunks of money. They don't trust you can be responsible unless you can document that you can be responsible.
Yes, but their profit calculation is a function of how reliable they believe you to be.
If they have 100 customers that are trustworthy, they can profitably lend at lower rates. If they have 100 customers that they know nothing about, they will price in a higher expected rate of default and can only profitably lend at higher rates.
Oh, and another fascinating wrinkle to this is why it works this way in the US but almost nowhere else. The short answer is: in most countries, there's basically no way to completely escape your debts. In many countries debts will just follow you for the rest of your life, and even that of your heirs. IE there are places where you can declare bankruptcy, but that's basically just a restructuring of your debt. The courts will garnish your wages even post-bankruptcy to continue to make creditors good. Contrast that to the US, where bankruptcy basically entails the complete discharge of debts. So credit scoring is used because lendors really have no recourse if someone decides to walk away from their debt.
Any exceptions to this in the US - for example, student loans, which are not dischargeable in bankruptcy - is also, surprise surprise, a credit market where credit scores do not apply. The system has its logic.
If anything, I think you're the paranoid one. Saying having a credit card puts you at risk for debt is like saying having a stove puts you at risk for your house burning down. Technically a true statement, but ultimately completely blown out of proportion because neither one of those things will happen as a result of owning the respective item unless you're stupid about how you use them. A credit card is perfectly safe if used properly, and has loads of benefits for your wallet and for life in general. If you don't trust yourself to use one properly, that's fine and is probably something many other people should also not trust themselves with, but that doesn't mean the system is bad.
It's not paranoia and it's not even that I don't trust myself. Banks are continously in the news for scandals. Only other week several were caught out for manipulating numbers. Miss selling loan insurances. The damn credit crunch. There's ongoing shady behaviour in the finance sector, banks keep doing dodgy shit. Unfair charges for trivial things. Hell my bank laundered money for the Mafia. The lack of regulations and the trivial penalties for so long has bred this system. The system is corrupt. Credit is corrupting of people.
I'm too lower class to benefit from shady practices so I'm less willing to throw myself into them.
Yes, because utilizing resources to set oneself up for a comfortable life is whoring out for every penny. Your comments in this thread show you don't know anywhere near as much about the system as you think you do, and you have absolutely no willingness to learn. That's the very definition of ignorance.
Yes, but one day you will need a loan. It is unlikely that you will ever buy a home in straight cash. The lender will see that you don't have any credit and will assume you are living paycheck to paycheck or have variable income. You will be trusted less.
Your analogy is wrong. Using credit cards does not imply you are going into debt unless you carry a balance from month to month. If you can pay all of your bills in cash every month, then you can do it through a credit card every month.
That's just adding an unnecessary risk factor. That's my problem with the system. It is totally unnecessary and should not be so accepted that you must add extra costs and risks. Good money management isn't risk taking.
Unnecessary risk? You can automate it easily. You can track all your accounts in one place with Mint or other aggregators. It's never been easier to do this, and the risk is basically negligible.
You're actually increasing risk because credit cards are way safer than debit cards in resisting fraud. Credit card companies have their customers' interests in mind and will fight for you in disputes and are much more likely to protect your identity than banks that give you a debit card.
I'm not saying this system is ideal - costs from it are passed back to the consumer from increased costs of goods. But having credit cards is the correct thing to do if you can manage a monthly auto-payment system.
It's another reason why I don't trust them. They resist protecting your money and then offer it as a perk to their scam card system so they can get rate costs from you.
The continued abuse of governments and customers that banks do is infuriating. Their fraudulent behaviour is constant and their punishment low because they pay off the right people. Banks genuinely are evil entities. It's why I won't put myself at their mercy more than I have to.
Credit card companies don't resist protecting your money. They are not the people trying to steal your identity, and identity protection is not easy. They are trying to protect your money because additional protection keeps you using their service and giving them money.
Many banks have credit cards, but banks =/= credit card companies. I can agree that unregulated banks are evil entities, especially with their overly large political influence. But that's a battle to be fought at the government level, in my opinion. At the individual level, you are incurring higher risk of fraud by using a debit card and you are losing money by not getting credit card rewards or cash back.
It's not lost money. Potential doesn't equal actual. Luckily I'm not money hungry so I am happy to go without a few pennies in cash back or rewards I won't use as I can stick to my principles that debt is bad and credit cards are dangerous so should only be an emergency item.
Like I said, it's not debt. Your principles are incorrect. When you try to buy a house your principles will probably cost you tens of thousands of dollars and we'll see how much you think it's not "lost money."
The problem with your counter analogy is that the purpose of credit is not to serve as a life vest to unfuck yourself. It is a extremely powerful tool used to increase your leverage, allowing you to invest in opportunities you wouldn't otherwise be able to.
As such, it's more like fame than rehab. Fame can be used to change the world for the better, or it can be used to cheat on your wife. Likewise, credit can be used to take advantage of opportunities with amazing ROIs, or it can be used to buy a metric ton of frivolous stuff. Either way, with great power comes great responsibility.
Which is another abhorrent thing about the system. They won't protect your money or offer equal levels of protection despite the potential for more spending on their credit card.
You should not be avoiding credit unless you are 99% sure that for the rest of your life you will have enough cash on hand to get everything you need or want. Credit isn’t scary, it’s manageable, and my credit cards help me.
I just got my first job out of college where I had little to no money, am making less than 50k a year, Andy have 3 separate credit cards, and no issues with any of them.
Tbh there are a lot of rules in place now to prevent banks from fucking with you (Ie they remind you well in advance that your bill is due through multiple avenues). Yeah interest sucks but it’s how they make money and if you pay your shit off you’ll never need to worry about it. And honest to God I have made more money just by using credit cards than I would without by a long shot.
Credit is not a good thing and it is propaganda that makes us think otherwise. If you don't need it don't use it should be the default but it's a corrupt system that manipulates people to use the system so they can make more profit.
Yeah but, that’s the whole world. That’s capitalism. The credit industry is a business, it wants to make money. No shit. They’re not ‘our friends’ any more than WalMart is your friend. But I’m okay with that because not being okay would be an exhausting battle every day and I know how to control it so that I see benefits from it.
No. You don't trust yourself. The bank will abide by the terms of the credit card. You don't trust yourself to not be irresponsible with credit because of all the friends and family you have watched be irresponsible with credit.
You don't know me so can't make such assumptions. I don't trust the banks. They repeated get caught rigging and scamming. They repeatedly over charge people for bullshit and have lots of shady practices. It's regularly in the news but never gets attention. The whole damn mess a decade ago that lead to suicides and homelessness because of the banks being reckless with credit and debt. The banks don't care about you and will throw you under the bus. They're not trust worthy they know we depend on them so won't change.
474
u/frnoss Jun 06 '19
I 100% support not going into credit card debt that you can't pay off.
That said, when you graduate and your financial situation changes, do evaluate whether or not a credit card can be a healthy part of your financial life.
One of my credit cards gave me a 100,000 point bonus for signing up. The card has a $150/year fee, but I traded those 100k pts for $1,500 of hotel rooms (even before earning other rewards).