I'm gonna have to see this kind of stuff in writing to believe it. It just makes no sense to me that two people, one with excellent credit and the other with no credit, will get the same rate assuming all other variables are considered equal. If it's possible then that's great I guess, but it's just one of those things which I need to see to believe especially considering how often lenders are deceptive when it comes to the promises to their clients until you got it in writing. I'm sure you can understand my position on this one.
I'm gonna have to see this kind of stuff in writing to believe it. It just makes no sense to me that two people, one with excellent credit and the other with no credit, will get the same rate assuming all other variables are considered equal. If it's possible then that's great I guess, but it's just one of those things which I need to see to believe especially considering how often lenders are deceptive when it comes to the promises to their clients until you got it in writing. I'm sure you can understand my position on this one.
That is correct. Purchases made on a CC are not taken into consideration as "bad debt" until a full billing cycle takes place in which a payment is not made on at least part of that purchase.
I am assuming you've had poor experiences with credit cards? Maybe a family member or close friend got caught up in a lot of debt so you've written them off entirely?
Regardless of what you argue, if you are responsible with your finances, credit cards are fantastic.
Also, to comment on your "wealth is the opposite of debt" claim. That is not necessarily true. Debt is not always bad. The basic principal is very simple - money now is more valuable than money tomorrow. If I were to offer you $100,000 today at 2% APR, would you reject that offer merely because it would put you in $100,000 debt? If yes, then you need to reevaluate how you perceive investments. Most people also don't buy homes in straight cash, but accept the terms of the mortgage because the assumption is the house will appreciate in value more than the interest rate paid.
Debt can be bad, though - in particular going into debt for things which depreciate in value - and more so when you can't afford to buy said things in the first place. Getting into debt to buy a new luxury car is a good example of this - buying a house you can't afford is another.
Big loans - like student loans, mortgages, car loans, etc - have a much greater impact on your credit score - that is for sure. But starting young, and being responsible with a credit card has a big upside and essentially no downside.
Can you survive without credit cards? Yes. But if you don't change your spending habits and manage your finances properly, why would you want to? Aside from giving you a grace period to pay off your debt (which you can use to your advantage by keeping the funds in a savings account until it is time to pay, accumulating a bit of interest) - credit cards also give some slight rewards (1-5% back is better than 0% back), extended warranties (my card extends the warranty of anything I buy by a year), and gives you a great deal of fraud protection as well as other small perks like rental car insurance and exclusive store discounts (I get a coupon book in the mail every few months). All this while building credit for the future.
I'm not even going to get into the 0% interest for 12 month deals many cards offer.
There is no reason whatsoever to use a debit card over a credit card - and especially not using cash over a credit card (if for nothing else, the ability to easily track and document every purchase made is reason enough).
Don't sign up for every credit card offered. Get a good one and stick with it. Pay off your balance every month (or the minimum if you have a 0% interest promotion - then pay the balance off when it ends). Pay the bill a week before it is due.
If you do all of those things, you'll be set. If you don't think you are capable of doing so, stick to paying cash.
:beer:
Also, to the subtitle in the OP - no, bad credit is not better than no credit.
The secret - don't get bad credit.
The secret - don't get bad credit.
MattCo
Platinum Member
- Jan 29, 2001
- 2,198
- 2
- 81
What if the investment you put that $100,000k in has a few bad months/years and you default on the big loan. Of course you could put some of it in more fluid investments, but the return might be less and the reward not so much.
It is all risk vs. reward, but there is risk.
There is no risk if you put the money in an FDIC-insured account. The trouble is coming up with a loan at a low enough interest rate such that you would actually make money on the spread between an FDIC-insured account and your loan.
For an example of this refer to the app-o-rama, although with the recent credit crunch and interest rate cutting bonanza, AORs are not nearly as attractive as they used to be.
Who said, "bad debt". Money you owe that you haven't paid is debt. When you make the purchase you owe the money. Bad debt is just debt that wasn't paid under some terms.
Not at all. In fact I have a credit card (though I barely use it) and a mortgage. I just have been presenting the opposite side of this argument where everyone was telling the OP that he needs a CC to live when in fact there's nothing that you really need it for. He said that he couldn't stand the idea of debt but his friend told him that he couldn't live without it. Everyone else was supporting that incorrect assumption.
This is true. If you can get a loan at 2 percent and invest that money at 12 percent then you can make a 10 percent spread. That's not bad. The problem is that you can't do that. You can get a 6% mortgage and if instead of paying back the mortgage you get 11-12% on an investment you made like 6%. Subtract taxes and risk and you are even. And your house has a mortgage. That's a worse position to be in.
Which is a terrible deal. If anything happens and you pay a bill late and universal default kicks in then they charge you the interest retroactively on the entire balance. Or maybe they "lose" your check and charge you that interest. What you gain, (basically nothing) is not worth the risk of someone else screwing up and costing you money.
We already went over this and how a debit card is exactly the same as a credit card.
Good advice.
Wait, you want to borrow money at 2 percent and save it in an FDIC insured savings account where you could make what, 3-4 percent? You are making less than inflation at that point.
nerp
Diamond Member
- Dec 31, 2005
- 9,865
- 105
- 106
You need credit.
Get a discover card, you'll get like, $300 limit. Buy a bottle of wine and pay it off at the end of the month. There's no rule that says you have to go terribly into debt just because you own a credit card. I have a slight amount of credit card debt (about $500) on purpose and could pay it off instantly but choose to maintain some debt to build the score. If you're good about not living beyond your means, you should have no problem using a credit card.
If you're THAT worried, just buy a bottle of wine, come home and pay off the balance the next day with your checking account online. Boom. Done. No interest, nothing.
Get a discover card, you'll get like, $300 limit. Buy a bottle of wine and pay it off at the end of the month. There's no rule that says you have to go terribly into debt just because you own a credit card. I have a slight amount of credit card debt (about $500) on purpose and could pay it off instantly but choose to maintain some debt to build the score. If you're good about not living beyond your means, you should have no problem using a credit card.
If you're THAT worried, just buy a bottle of wine, come home and pay off the balance the next day with your checking account online. Boom. Done. No interest, nothing.
OutHouse
Lifer
- Jun 5, 2000
- 36,410
- 616
- 126
also you should not be more than 1/3 of your credit limit on the card. if you have a card with 10K on it you better not have over 3K on it or your credit score will take a hit.
also do not ever get rid of credit cards that you have had for a long time. if you have had a AMEX for 10 years that is the card you should keep. get rid of your newer cards they do nothing but hurt your credit score.
OutHouse
Lifer
- Jun 5, 2000
- 36,410
- 616
- 126
you forget one thing. if your checking account gets cleaned out by a thief that is real money they just took and it will take weeks for the bank to investigate to get your money back. meanwhile you got food, gas, bills to pay for.
so what are you going to do?
i never ever ever use a debit card online or give it to waitstaff. the only time i use my debit card is to get cash at a atm or when I swipe it buying food.
Just to clarify, revolving a balance from one month to another DOES NOT improve your credit score. You could open the credit card account and never use it and it would still have the same impact on your credit score.
So you don't trust the system? Are you sure you haven't had a bad experience with it? If you pay your bill on time (which you should be doing anyway), there is no risk. I wouldn't know about "losing" a check, as I pay everything online. What you gain is an interest free loan, which in my opinion is far, far from "basically nothing".
Again, I will reemphasize my point - money now is worth more than money tomorrow.
You didn't, really. Aside from claiming that your liability is the same (if within a 2 day period - hopefully you check your balance daily and have no pending payments within that period).
Credit cards give you a 30-day grace period. It is essentially a 0% interest loan so long as it is paid in full by the due date. Again, if you see no worth to that, you are clearly misinformed about investments. You also ignored the extended warranties on items (which debit cards do no have), as well as the ability to refuse payment of a charge for various reasons (poor service, faulty product, etc). Once the charge is made on a debit card it is money out of your pocket.
You're obviously set in your ways and if you can get by, more power to you. But be assured, credit cards are by far better than debit cards or cash. Credit is a great thing to build. Credit cards aren't the "best" way to do it (as I said, mortgages, car loans, student loans, etc are), but they help. You need to be independently wealthy, insanely frugal, or flat-out lucky to never be in a position where you need to pay for something which costs more than you have (home loan, car loan, medical bills, etc).
No debt is good. Having debt on an appreciating asset like your home is acceptable because a) it appreciates, and b) coming up with hundreds of thousands to buy outright is hard. Other than that, the article is basically right.
Also, under the "bad debt" section of that link it says that using a credit card for buying anything that loses value (anything you'd by with a cc loses value) is bad. That's even more strict than what I said.
This is wrong/completely off topic. You don't need credit and if as the OP said, he hates debt there's no reason for it.
That actually isn't entirely correct. I asked a lot of questions about this topic to a guy who has been working with banks and credit for many years. The way that he told me how it works is that once a month a credit card company will report the current state of your credit card. That time of the month is different for every company and does not always occur at the end of the billing cycle. However, if you have a zero balance on the card, nothing gets reported which is the same as not having the card at all.
So, basically what it comes down to is that ideally you would want to make purchases on your credit card which equates to an amount that is around 25%-30% of your limit and pay it off every month. You do not have to do that to get an excellent credit score of course, but we are talking about the ideal behavior here.
You are misinterpreting the article. Yes, pretty much everything purchased with a CC falls under "bad debt". However, as long as you keep the balance on your CC below 33% of its maximum and you make regular payments, your FICO score will not be negatively effected. It will be positively effected because you are building history and showing that you are responsible enough to pay off your debt. Bad Debt does not always equal bad credit history.
It's important to remember that the way FICO scores are calculated and the things that lenders consider when determining who gets what kind of loan does make sense. It exists to determine how trustworthy "the other guy" will be in terms of paying back the money you are lending him. If someone has a recorded positive history with a lot of activity then it stands reason to believe that this person can be trusted more than a guy who has little to no history to base that trust on. This is also why credit history which is more than 7 years old (I might be slightly off there) does not get considered. The data is too old to be reliable.
It's fine to give the debit card to the waitstaff. If they steal the number and use it for offline transactions (check card) then the protection you get from the bank is exactly the same as a credit card as long as you dispute within 60 days. Secondly it takes 3 days for any transactions made on that check card to clear the bank, so you wouldn't be out any money to begin with.
A lot of banks have a next day guarantee that they will put the money back in your account for check card transactions. A thief can't make online (debit) transactions without your PIN. And even those will be reimbursed if they are fraudulent.
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