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Don’t you think it’s bad for a society to have a system that encourages people to get loans? I know for the businesses, it makes perfect sense to have a credit

Don’t you think it’s bad for a society to have a system that encourages people to get loans? I know for the businesses, it makes perfect sense to have a credit system, it’s just that I appreciate it’s not a thing over here: people should incur as little debt as possible.

ghaff 7y ago
I think that, in general, it's bad when people take out loans for things that they don't need and can't really afford. I'm mostly not a fan of, say, buying a big screen TV on credit. However, although some will overspend, it's mostly a positive that home ownership isn't limited to the wealthy (and even the moderately wealthy may not have sufficient cash on hand in high CoL areas). Furthermore, even those young people with great jobs probably need to borrow for purchases like cars. So I don't think people should overextend themselves but I don't have a problem with people using debt sensibly as a tool.
- kenhwang 7y ago
  I bought my first big screen TV on Amazon store credit back when I was in college with a typical college student income. 18mo/0% APR is awesome when your credit limit and bank balance is $700.
- Sohcahtoa82 7y ago
  > buying a big screen TV on credit. I think it's fine as long as it's always kept within reason. If I have a disposable income of $500/month, and I want a $1,500 TV, I might just put that on the credit card. If I have a 20% APR on my card and pay it off in three months, I only pay a little over $50 in interest (Note for someone else that decides to check the math: Remember that many cards have a 30-day grace period on purchases before they start collecting interest). I might think it's worth it to pay an extra $50 to get that $1,500 TV now rather than 3 months from now. Maybe it's actually a $2,500 TV and it's on sale for this week only. Better yet, maybe the store is offering 0% financing for 12/18/x months, which is far longer than it'll take me to pay it off anyways. Of course, the "within reason" part is what kills people. If my disposable income is under $100/month, then purchasing a $1,500 TV on credit is probably a bad idea. Heck, even saving for a $1,500 TV is probably a bad idea.
  - im3w1l 7y ago
    > If I have a disposable income of $500/month, and I want a $1,500 TV, I might just put that on the credit card. If I have a 20% APR on my card and pay it off in three months, I only pay a little over $50 in interest Why don't you take it from the pile of money you are sitting on? And if you don't sit on a pile of money, should a new TV really be what you are worrying about?
    - adventured 7y ago
      > And if you don't sit on a pile of money, should a new TV really be what you are worrying about? Absolutely, if the person wants to direct their resources toward a new TV. Generally speaking, people should spend their money on whatever they want to. The inherently subjective matter of what to do with one's life and time is properly entirely up to the person in question.
    - deleted 7y ago
      [deleted]
ilikehurdles 7y ago
I think it is. I only spend what I can afford to, and I have never carried forward a credit card balance. The only reason I use credit cards is because of the consumer protections, benefits, and cash back I get from them. Assuming spending behaviors are fixed, one can make more money buying things with a credit card than buying things with any other payment method. That said, none of those aspects _should_ in any way be inherent to holding debt, but so it goes. I don't object to _all_ debt. Yes, I took out a loan to buy a home and pay for my education. But the former made more financial sense for me than renting, and the latter is paid off and a big reason why I have the income to afford a home in the first place. It's problematic how normalized holding credit card debt is in the US (at least, it is more so normalized than elsewhere in the world).
mpolichette 7y ago
I would agree with the complaint, but I'm surprised, and somewhat can't believe you don't have something similar "over there". (I don't know where over there is, of course.) The problem is that the credit system was not designed for society, it came out of a business need. In reality, you don't need a good (or any) credit score if you don't need a loan... but if you do need a loan, the person giving a loan wants to know if you're likely to pay them back. The credit agencies decided they were scummy enough to collect as much personal info as they could, and sell it to those companies so they could asses that risk... When you get a full credit report, its actually data about you and your accounts, the score is just the distilled version of that data to make it "easier". Finally, credit score is not always the last straw, depending on what kind of business you're working with. Many smaller companies might be willing to work with you regardless of your credit score, however, they might adjust the terms of the deal...
- stingraycharles 7y ago
  I’m from The Netherlands, so actually fairly close. I also know France doesn’t have a credit system as described, and wouldnt be surprised if that’s the case for a large part of the EU. I think in general it’s a matter of philosophy: so you think that loans are there to serve society (mortgage is a good example of a “necessary” loan), just like banks have a function to society. I personally can see both sides of the argument, but am I really not feeling like I’m missing out on something without it. Just checking your current financial status rather than historical seems sufficient to me.
  - mpolichette 7y ago
    I see both sides also, I think its probably not good for society to be able to amass huge amounts of debt, I think the ability to get large mortgages is part of why housing prices are so astronomical. People are buying and selling at huge values, and maybe winning a little here and there on upswings in the market, but the banks win either way with their steady monthly payments.
  - chimeracoder 7y ago
    > I’m from The Netherlands, so actually fairly close. I also know France doesn’t have a credit system as described, and wouldnt be surprised if that’s the case for a large part of the EU. The Netherlands has the Bureau Krediet Registratie, which is pretty similar to the credit ratings in the US. (Arguably, the credit rating system in the US is slightly more forgiving than the BKR, but that's a separate matter - the Netherlands definitely does have this system). France is actually the outlier for not having one - Germany and Spain both do, for example, as does the UK. And of course Canada, the US, and Australia have similar systems as well.
aphextron 7y ago
>Don’t you think it’s bad for a society to have a system that encourages people to get loans? Not really. Credit fosters growth. It's creating money out of thin air. It allows me to exchange rapid growth right now for interest payments later. If I'm young and want to buy a house, the time advantage of buying now versus buying when I have $100,000 saved in the bank far outweighs the fees and interest payments over time. Same goes for the utility value of a car or the ability to spend on a credit card for expenses incurred to go after a new career opportunity. So long as you have things planned out, credit is a very very good thing.
- DiogenesKynikos 7y ago
  The types of expenditures you give as examples are not what make the American credit system strange and questionable. Yes, it makes sense to take on debt if you want to buy a house and you have a steady paycheck. However, it's not obvious that it makes sense to take on debt to pay for things you already have money in the bank to afford. Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor. This really becomes a problem when people use credit to pay for things they can't afford, of course. Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd.
  - Sohcahtoa82 7y ago
    > Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor. I do it because I get a 1-3% rebate on all my purchases. That's free money for me. Before I had a credit card that gave me a rebate, I bought everything with a debit card. I still had a credit card, but it was only for emergencies. > Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd. You don't really need to use the credit card to establish credit history. Simply having one is enough. A lot of people believe that to maximize the boost to your credit score, you shouldn't completely pay off the card, and instead carry a small balance every month, but that's a myth.
adrianmonk 7y ago
There is bad debt and good debt. Getting a credit card and spending up to the limit while only making the minimum payments is bad debt. Buying a luxury car that's more expensive than you can really afford because the car dealer talked you into it is bad debt. On the other hand, if you need a car to get to work, getting a car loan for a practical car is probably good debt. If you're married and about to have your second child and need a house, a mortgage is probably good debt because you're building equity, the house might appreciate, and anyway the alternative is throwing away a similar amount on rent. Point being, it is probably not best to always seek to minimize debt. There are trade-offs to consider. Often, avoiding debt is better, but sometimes the negatives of debt are more than outweighed by some opportunity it unlocks. So is it bad for society? It depends on how much bad debt it encourages and how much good debt it encourages.
- lostphilosopher 7y ago
  Where this becomes "bad for society" is when the customer _has to_ take on debt for the sole purpose of building a credit score. Some of us would prefer not to utilize debt at all, but if we want to (for example) rent an apartment we may be _required_ to have a credit score. Even if we offer to pay the full term's rent up front. Source: Experience.
  - lotsofpulp 7y ago
    There are certain transactions that don’t begin and end with the payment of the cost of the service. When renting an apartment, you are able to cause far more damage to the apartment than the rent you pay, hence the apartment owner has an incentive to also consider what kind of person they are renting an apartment to. A credit check serves as a proxy for someone who cares about their future reputation and hence is less likely to cause damage to an apartment, and if they do, then they will pay for it. Similar reasoning applies to other rental businesses such as hotels, cars, tools, equipment, etc.
    - lostphilosopher 7y ago
      To be clear - I 100% understand why people who want to do credit checks like credit scores. It's not that they have no value, it's that they have too many down sides and it bothers me that it's increasingly difficult to "opt out."
gnode 7y ago
> Don’t you think it’s bad for a society to have a system that encourages people to get loans? It's more nuanced than that. It encourages people to get a line of credit and demonstrate that they can be responsible with it. There's no need to actually be in debt, and this doesn't help your credit score. In the UK, I can build an excellent credit history by having credit cards, but paying them off within the month, incurring no interest whatsoever.

ghaff 7y ago

I think that, in general, it's bad when people take out loans for things that they don't need and can't really afford. I'm mostly not a fan of, say, buying a big screen TV on credit. However, although some will overspend, it's mostly a positive that home ownership isn't limited to the wealthy (and even the moderately wealthy may not have sufficient cash on hand in high CoL areas). Furthermore, even those young people with great jobs probably need to borrow for purchases like cars. So I don't think people should overextend themselves but I don't have a problem with people using debt sensibly as a tool.

kenhwang 7y ago
I bought my first big screen TV on Amazon store credit back when I was in college with a typical college student income. 18mo/0% APR is awesome when your credit limit and bank balance is $700.
Sohcahtoa82 7y ago
> buying a big screen TV on credit. I think it's fine as long as it's always kept within reason. If I have a disposable income of $500/month, and I want a $1,500 TV, I might just put that on the credit card. If I have a 20% APR on my card and pay it off in three months, I only pay a little over $50 in interest (Note for someone else that decides to check the math: Remember that many cards have a 30-day grace period on purchases before they start collecting interest). I might think it's worth it to pay an extra $50 to get that $1,500 TV now rather than 3 months from now. Maybe it's actually a $2,500 TV and it's on sale for this week only. Better yet, maybe the store is offering 0% financing for 12/18/x months, which is far longer than it'll take me to pay it off anyways. Of course, the "within reason" part is what kills people. If my disposable income is under $100/month, then purchasing a $1,500 TV on credit is probably a bad idea. Heck, even saving for a $1,500 TV is probably a bad idea.
- im3w1l 7y ago
  > If I have a disposable income of $500/month, and I want a $1,500 TV, I might just put that on the credit card. If I have a 20% APR on my card and pay it off in three months, I only pay a little over $50 in interest Why don't you take it from the pile of money you are sitting on? And if you don't sit on a pile of money, should a new TV really be what you are worrying about?
  - adventured 7y ago
    > And if you don't sit on a pile of money, should a new TV really be what you are worrying about? Absolutely, if the person wants to direct their resources toward a new TV. Generally speaking, people should spend their money on whatever they want to. The inherently subjective matter of what to do with one's life and time is properly entirely up to the person in question.
  - deleted 7y ago
    [deleted]

ilikehurdles 7y ago

I think it is. I only spend what I can afford to, and I have never carried forward a credit card balance. The only reason I use credit cards is because of the consumer protections, benefits, and cash back I get from them. Assuming spending behaviors are fixed, one can make more money buying things with a credit card than buying things with any other payment method. That said, none of those aspects _should_ in any way be inherent to holding debt, but so it goes. I don't object to _all_ debt. Yes, I took out a loan to buy a home and pay for my education. But the former made more financial sense for me than renting, and the latter is paid off and a big reason why I have the income to afford a home in the first place. It's problematic how normalized holding credit card debt is in the US (at least, it is more so normalized than elsewhere in the world).

mpolichette 7y ago

I would agree with the complaint, but I'm surprised, and somewhat can't believe you don't have something similar "over there". (I don't know where over there is, of course.) The problem is that the credit system was not designed for society, it came out of a business need. In reality, you don't need a good (or any) credit score if you don't need a loan... but if you do need a loan, the person giving a loan wants to know if you're likely to pay them back. The credit agencies decided they were scummy enough to collect as much personal info as they could, and sell it to those companies so they could asses that risk... When you get a full credit report, its actually data about you and your accounts, the score is just the distilled version of that data to make it "easier". Finally, credit score is not always the last straw, depending on what kind of business you're working with. Many smaller companies might be willing to work with you regardless of your credit score, however, they might adjust the terms of the deal...

stingraycharles 7y ago
I’m from The Netherlands, so actually fairly close. I also know France doesn’t have a credit system as described, and wouldnt be surprised if that’s the case for a large part of the EU. I think in general it’s a matter of philosophy: so you think that loans are there to serve society (mortgage is a good example of a “necessary” loan), just like banks have a function to society. I personally can see both sides of the argument, but am I really not feeling like I’m missing out on something without it. Just checking your current financial status rather than historical seems sufficient to me.
- mpolichette 7y ago
  I see both sides also, I think its probably not good for society to be able to amass huge amounts of debt, I think the ability to get large mortgages is part of why housing prices are so astronomical. People are buying and selling at huge values, and maybe winning a little here and there on upswings in the market, but the banks win either way with their steady monthly payments.
- chimeracoder 7y ago
  > I’m from The Netherlands, so actually fairly close. I also know France doesn’t have a credit system as described, and wouldnt be surprised if that’s the case for a large part of the EU. The Netherlands has the Bureau Krediet Registratie, which is pretty similar to the credit ratings in the US. (Arguably, the credit rating system in the US is slightly more forgiving than the BKR, but that's a separate matter - the Netherlands definitely does have this system). France is actually the outlier for not having one - Germany and Spain both do, for example, as does the UK. And of course Canada, the US, and Australia have similar systems as well.

aphextron 7y ago

>Don’t you think it’s bad for a society to have a system that encourages people to get loans? Not really. Credit fosters growth. It's creating money out of thin air. It allows me to exchange rapid growth right now for interest payments later. If I'm young and want to buy a house, the time advantage of buying now versus buying when I have $100,000 saved in the bank far outweighs the fees and interest payments over time. Same goes for the utility value of a car or the ability to spend on a credit card for expenses incurred to go after a new career opportunity. So long as you have things planned out, credit is a very very good thing.

DiogenesKynikos 7y ago
The types of expenditures you give as examples are not what make the American credit system strange and questionable. Yes, it makes sense to take on debt if you want to buy a house and you have a steady paycheck. However, it's not obvious that it makes sense to take on debt to pay for things you already have money in the bank to afford. Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor. This really becomes a problem when people use credit to pay for things they can't afford, of course. Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd.
- Sohcahtoa82 7y ago
  > Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor. I do it because I get a 1-3% rebate on all my purchases. That's free money for me. Before I had a credit card that gave me a rebate, I bought everything with a debit card. I still had a credit card, but it was only for emergencies. > Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd. You don't really need to use the credit card to establish credit history. Simply having one is enough. A lot of people believe that to maximize the boost to your credit score, you shouldn't completely pay off the card, and instead carry a small balance every month, but that's a myth.

adrianmonk 7y ago

There is bad debt and good debt. Getting a credit card and spending up to the limit while only making the minimum payments is bad debt. Buying a luxury car that's more expensive than you can really afford because the car dealer talked you into it is bad debt. On the other hand, if you need a car to get to work, getting a car loan for a practical car is probably good debt. If you're married and about to have your second child and need a house, a mortgage is probably good debt because you're building equity, the house might appreciate, and anyway the alternative is throwing away a similar amount on rent. Point being, it is probably not best to always seek to minimize debt. There are trade-offs to consider. Often, avoiding debt is better, but sometimes the negatives of debt are more than outweighed by some opportunity it unlocks. So is it bad for society? It depends on how much bad debt it encourages and how much good debt it encourages.

lostphilosopher 7y ago
Where this becomes "bad for society" is when the customer _has to_ take on debt for the sole purpose of building a credit score. Some of us would prefer not to utilize debt at all, but if we want to (for example) rent an apartment we may be _required_ to have a credit score. Even if we offer to pay the full term's rent up front. Source: Experience.
- lotsofpulp 7y ago
  There are certain transactions that don’t begin and end with the payment of the cost of the service. When renting an apartment, you are able to cause far more damage to the apartment than the rent you pay, hence the apartment owner has an incentive to also consider what kind of person they are renting an apartment to. A credit check serves as a proxy for someone who cares about their future reputation and hence is less likely to cause damage to an apartment, and if they do, then they will pay for it. Similar reasoning applies to other rental businesses such as hotels, cars, tools, equipment, etc.
  - lostphilosopher 7y ago
    To be clear - I 100% understand why people who want to do credit checks like credit scores. It's not that they have no value, it's that they have too many down sides and it bothers me that it's increasingly difficult to "opt out."

gnode 7y ago

> Don’t you think it’s bad for a society to have a system that encourages people to get loans? It's more nuanced than that. It encourages people to get a line of credit and demonstrate that they can be responsible with it. There's no need to actually be in debt, and this doesn't help your credit score. In the UK, I can build an excellent credit history by having credit cards, but paying them off within the month, incurring no interest whatsoever.