Social Question

Bill_Lumbergh's avatar

Why am I required to obtain credit?

Asked by Bill_Lumbergh (1468points) November 3rd, 2010

I understand that credit cards can become hazardous, and I simply want to avoid them all together. Regardless, I need to obtain “established credit” and develop a credit score to request a loan from a bank for a car or home.

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13 Answers

mrrich724's avatar

It’s all part of the game.

WestRiverrat's avatar

The lending institution wants some idea of whether or not you will pay them back. If you have established that you pay on time with smaller debts they are more comfortable giving you a loan for a larger amount.

So really you are just building trust with the bank.

mrrich724's avatar

What @WestRiverrat is what I meant ;) LOL

tedibear's avatar

A credit card is only hazardous if it’s abused by the holder. Get one, use it and pay it off every month. Don’t use it if you don’t have the money to pay cash for what you’re buying. This way you build credit and hold onto your money until the bill comes. Keep it in a savings account, then transfer it to your checking when it’s time to pay the bill. You won’t earn a lot of interest, but it’s something. Once you’ve used one or two cards responsibly, you will start to build good credit.

wundayatta's avatar

You’ve got some great advice from @WestRiverrat and @tedibear. In order to be a good risk (that you will not default on your loan), you need to demonstrate you are reliable and can handle your money. Using a credit card in the manner that @tedibear describes allows you to compile a history of paying back your loans.

Let me emphasize—always pay off in full, every month. Carrying a balance on credit cards is what is dangerous. Paying only the minimum each month is what is dangerous. That’s when interest and fees start accruing very, very quickly. That’s how people end up with twenty thousand or forty thousand in debt. They’ve financed their lives with credit cards and pay 25% per annum for the pleasure.

It’s much better to be the lender than the loanee, but if you are borrowing, make sure you use your money wisely and don’t lose control. I think with your attitude, you’ll do fine.

YARNLADY's avatar

Lenders are only interested in one thing – will you pay them back. One way to have evidence is your prior credit, which shows you have before, and probably will again.

What would you think if a stranger asked you to lend them money, and they would expect you to take “I promise” as evidence they will pay you back?

Paradox's avatar

Actually lack of credit is worse than poor credit. Paying your bills and loans on time is actually a very small factor here. You can pay all of your bills on time but if you do not make enough interest payments your credit score will still be low.

This credit rating system is really about punishing people for not making interest payments to the banks, lenders and credit card companies. Afterall interest is where these institutions make their profits. Holding on to your vehicle, paying with cash/debit instead of credit and generally not taking out enough loans means you aren’t filling these assholes pockets up with cash. This credit rating system has nothing to do with responsibility but everything to do with punishment. You basically have to choose between saving money at the expense of having a poor credit score or being broke with a better credit score.

YARNLADY's avatar

@Paradox Just send $1,000 to me at me home address. I promise I will pay you back, really I will.

Paradox's avatar

@YARNLADY I would rather give a friend a loan if they already paid me back once or twice on time. The problem with the credit system is if you do not consistently make interest payments in some form they punish you. I’m a very responsible person who has payed all of their bills on time, and I’ve paid the few loans I did take out on time as well. Yet I still can’t buy a vehicle without getting a co-signer and with monstrous interest rates.

You didn’t comprehend my post did you? The credit rating system has nothing to do with responsibilty (lack of credit is worse than poor credit) but all about punishing people who do not make consistent interest payments in some form.

wundayatta's avatar

@Paradox I think you’re wrong about how to get good credit. I believe I read in Consumer Reports that it’s a myth they look at how much interest you pay. Don’t believe it.

All my life I have attempted to pay off my bills in full every month. I think there were two or three times when I forgot and had to pay interest or some other fee. I fought those vigorously. Once I double paid, accidentally, to try to catch up. Even though they had my money on tap for a while, they didn’t pay me interest. The just charged me a fee.

But I digress. I have excellent credit. I have never had a problem getting a home loan or a car loan or a new credit card. They just look us up and leap to their feet with enthusiasm. And I essentially have never paid any interest.

See credit card companies love it when you spend. They get three or four percent of everything you spend. Five or six percent if it’s Discover card. The more we spend, the more they make.

All they want is to see you making regular payments. Of any kind. You can pay in full or not, but if you’re regular and you never go above your spending limit, you’re gold. I’ve always paid in full. The only things I’ve ever borrowed for were education, car and mortgage. Those debts are gone now. Although we spend more on the house now than we did when we had a mortgage. It is a very old house.

Paradox's avatar

@wundayatta Some of us do not want or need credit cards. I’m one of those people who prefers to pay for things with cash in full without using credit cards because it’s cheaper this way considering these rough times for not just me but many others I know.

This is my whole point, you shouldn’t have to put yourself in debt to have good credit. Being responsible by paying bills on time along with the few past loans I have paid off should count as being reliable to a loaning institution but unfortunately it’s not. You shouldn’t need a credit card or have to trade in for a different vehicle every few years. Some of us like to save our money and hold on to our vehicles for a while.

I’m one of those people who does not like using any type of loan unless I absolutely have to. I do not want to keep taking out loans, getting a different vehicle every 3 years and using any type of credit card whatsoever. The fact that I was responsible enough to pay my bills on time and the few loans I’ve taken out (all paid in full and early) should count as good credit but unfortunately the credit rating system doesn’t work that way. I’m just speaking from my own experiences I don’t know about other people.

YARNLADY's avatar

@Paradox My experience is the same as @wundayatta We pay all our revolving credit accounts in full every month and almost never pay interest. The only interest accounts we have is the house and the car. Like @wundayatta stated, when we buy a car, or when we bought our rental house, they practically fall all over themselves to get us to buy. We also demand various concessions.

wundayatta's avatar

@Paradox You don’t have to have a credit card. You can save up your money for thirty years and then buy your house with cash. Some people are only comfortable if they do it that way.

You may also be able to persuade your lender to trust you even though you don’t have a credit history. You could try.

Also, I don’t think you heard me. You said, “you shouldn’t have to put yourself in debt to have good credit.” I didn’t. I paid off my bill in full each month. I never went into debt on my credit cards. Oh, and the last vehicle I had, I owned for 13 years, and probably would have owned it longer, except it got totaled. The one before that lasted five or six years, and we would have kept it longer had it not disappeared one day.

Finally, I’ve been saving money since grad school. I went into the black (paid off student loans) around 1993. We’ve been saving ever since, putting as much as we could into retirement and education accounts. My wife and I are savers, and you might be surprised how much we’ve improved our net worth since 1993.

Credit cards, for me, are a convenience and a protective measure. I don’t have to carry around so much cash. If my credit card is stolen, I’m not out for any of the purchases the thief makes. If my wallet is stolen, I’m only out my walking around money. I can also buy things online, so I don’t even have to leave my house to go shopping.

You don’t need credit cards. Just like you don’t need a cell phone. My cell phone tunes my trumpet, take photos and video, keeps my shopping lists, gets me to places I’ve never been, surfs the internet which allows me to find stores nearby selling what I want at the time, amongst many other things. It records my gigs, shows me maps for the entire world, lets me email and listen to any radio station anywhere. I don’t need that stuff, but it has more than paid off it’s cost in just a few months with the convenience it provides. My credit cards do the same kind of thing. But I don’t need it.

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