the credit score is pretty much an enforcement system to ensure you're constantly in debt and most people I speak to think it's a good thing it exists. Americans have been thoroughly brainwashed and can't really think clearly about how screwed up their society is.
note: I'm also an immigrant, now citizen. I get the right to complain cause I pay taxes.
My wife tried to buy a new car with an extremely high credit score. They wouldn't give her the auto loan because of insufficient credit history, which acts as a second undisclosed factor in loan approval. I had to co-sign with my worse (~700) credit score because I had a history with student loans, credit card consolidation loans, &c
Yes, that’s how credit history works. You can’t expect to get a $30,000 loan at a reasonable interest rate without having at least some history of repaying smaller credit lines first.
But you don’t need to go into debt to have a credit history. Anyone with a credit card who pays it off monthly is building a strong credit history despite never paying any interest.
It’s standard practice to use credit cards for this reason. Credit cards also have a lot of buyer protections that debit cards and checks generally don’t.
In Europe I got approved for up to a 180k mortgage at 1.9% with no history (as is common here). Same goes for auto loans and leases. Nobody asks you to build and pay debt on a credit card.
> Same goes for auto loans and leases. Nobody asks you to build and pay debt on a credit card.
See, over here, banks treat it as a good thing that you never had debt on your name. Throw in a stable and reasonably high income and you can get loans basically on a whim. Because why wouldn't you, being as low risk as a person as you can be.
EDIT: Now that I remember. We have very fucked up quirk in the way credit scores are calculated in Germany. Asking for a credit has an impact on it already, because it is assumed that you need money which makes you a risky person because you obviously don't have enough of it. With the very "funny" side effect that shopping around for a mortgage can have a negative impact on the interest rate you can get, up to the point that it can be difficult to get one at all. The trick is to go through a broker that is not sharing his clients, your, name with lenders.
Not in the sense we're discussing here. Pedantically, yes. Practically-speaking, no. If you pay your monthly statement in full each month, you're no worse off than paying cash for those same things.
Or look at it this way, are you in debt to your electric company, cell phone provider, or water utility? You use those services but don't pay for them until a month or more later. Technically you are, but I doubt you'd feel the need to prepay for those services just to make sure you have no debt.
In this context of this thread, someone made the claim that credit scores are "an enforcement system to ensure you're constantly in debt." That's an overly-cynical look at it. I see them as a simple risk indicator.
A lot of people have this mistaken beleif that paying more interest on loans will "buy" a higher score. It's just not true.
Yeah, there is actually plenty of reason to criticize credit scores (do we really think it's good that if you struggle to pay off some debt you should also start getting shut out of job opportunities or housing?), but that's not a real issue with them.
Not if you have cash already in hand to pay off the debt.
(Then you can siphon back a fraction of the card interchange fees already baked into the price of goods sold via rewards/cash back. Just another regressive aspect of our financial system.)
This one is not a new SEC proposal, this one is just fun.
If you are a young person with no credit history, or a person with bad credit history, you will want to “build your credit.” This consists basically of creating a long record of reliably repaying your debts, so that credit reporting bureaus think you are a good credit, so that banks will happily lend you money, so that you can buy stuff on credit cards and get leases and mortgages and car loans. If you have no or bad credit this is hard, though, since no one will advance you any credit, so you won’t have any debts to pay, so you won’t build credit.
There are canonical approaches. Banks will give you credit cards with low credit limits so you can start small and build from there. Or they will give you secured credit cards: You put $1,000 in a bank account, you get a linked credit card with a $1,000 limit, the credit advanced to you is secured by the money in your account, the bank takes no credit risk but reports repayments to the credit bureaus, etc.
What if there was a simpler way? Yesterday reader Sark Asadourian sent me a link to a Credit Building product from Canadian fintech Koho, and I haven’t stopped laughing about it since. Here is the “How it works” section of the website:
1 Start by subscribing to Credit Building for $7/month in-app
2 Sit back. We'll report your progress to a major credit bureau and help you grow your credit score in just 6 months — without having to lift a finger
3 Ensure there’s $7 in your Spendable account each month to cover the subscription fee. That’s it!
They will demonstrate to a credit bureau that you pay your bills, by sending you a $7 bill each month, which you will pay. What is the bill for? For demonstrating that you pay your bills. They’ll charge you $7 a month for charging you $7 a month. What you get for the $7 is a record that you paid $7. Which could conceivably be worth $7 to you! Possibly this is good for the customers! I cannot stop laughing. This is maybe the best financial product I have ever seen.[13] “For the low cost of $7 a month, you can pay us $7 a month.” Everything else is so dull and overelaborated. Imagine being the person who came up with this. Imagine the bright wild gleam in your eye, coming in to work that day to tell your colleagues.
Also though imagine messing this up. You’re a young person, money is tight, you sign up for Credit Building, you pay them $7 a month for a few months but then life gets complicated, your account balance gets below $7 and you miss a payment. Do they report that to a credit bureau? Does it hurt your credit? Oh you’d better believe it:
Just as making your payments on time will positively impact your credit score, the inverse is true. Not making your payments on time will hurt your credit score.
To keep it simple: We advise you to let KOHO do all the work after you register. Just ensure there is $7 in your Spendable balance for the subscription fee each month and you won’t miss a payment!
Seems harsh!
[13] Exercise for the reader: What do you think are the margins on this product? My guess is “surprisingly low, depending on how you count.”
You said: "No debt here and my credit score is great. You don’t have to be in debt to have a good credit score."
Technically that's true but it leaves out the very major caveat that your credit score is not usable without accompanying credit history. What is credit history? Debt. It seems like you think it's OK for the system to force people to go into debt every month as long as they pay it off. What happens when one month they can't? They are then blamed for moral failing when probably they would have preferred to never use debt for regular payment in the first place.
I would say the cultural issue is more that the employer doesn't pay you immediately for your work. I understand there are regulatory reasons behind this, but still, this is what creates the dependency on credit.
There's nothing wrong with a credit card company giving out free 30 day loans with reasonable interest if they are not repaid on time.
If you're in a position where you find yourself needing payday loans, I think that shifting around the pay schedule is not going to help; you just have too little buffer for your expenses.
note: I'm also an immigrant, now citizen. I get the right to complain cause I pay taxes.