4 ms·

> If you've a history of living within your means that should be a good thing, not a bad thing. How is always paying off a credit card not living within your m

by esrauch 15y ago

> If you've a history of living within your means that should be a good thing, not a bad thing. How is always paying off a credit card not living within your means though? Maybe this is some US-centric brainwashing, but it seems to me that someone who has never had a credit card is less trustworthy than someone who had it and didn't overspend; it proves that the person had the opportunity to do something really dumb and didn't. The person who never had the credit card might have done something dumb if they were ever given the chance. It's interesting that your credit checks are so decentralized, but it seems unlikely to me that would cause them to consider no history to be the same as known good history. That said, I'm not even sure how much impact properly paying credit cards has versus not having one, but even with a minor difference there is practically no advantages to using a debit card instead of a credit card that you always pay off in full from your checking account. Even excluding credit, certainly you must get additional fraud guarantees and possibly rewards programs with credit cards in the UK?

salvadors 15y ago
But if you're always living within your means, why would you ever want to have a credit card at all? Things like reward programs certainly aren't universal (or even common, I believe, though they do exist), and pretty clearly only exist to try to get people to use the card in the first place, on the basis that it's to the credit card company's advantage, in that enough people won't pay off in time to justify the rewards. (I should also note that it's more common in UK/EU for credit cards to also have a monthly or annual fee.) I'm not sure what additional fraud guarantees exist. I had fraud on my debit card once, and it was resolved much easier and quicker than the time I had fraud on my credit card. The UK does have a slightly odd additional consumer protection law in that if you buy anything over £100 on a credit card, and the goods turn out to be faulty, you can claim the cost back from the credit card company, rather than the retailer. That's certainly vaguely useful, but I've never heard of anyone choosing to have a credit card just for that reason. I think there's potentially a different worldview at play in the "had a chance to do something dumb and't didn't" approach. To massively overgeneralise, I'd say the European way is to simply not put that temptation in front of people, whereas the US way is to deliberately encourage it, so as to massively profit from it (with the UK constantly torn between the two!) :) So I'd say pretty much the opposite of your final conclusion: There are so few advantages to using a credit card rather than a debit card that why would you bother with the hassle/risk?
- mikeash 15y ago
  If nothing else, a credit card gives you a month-long interest-free loan when used properly. That's money in your pocket if you keep the difference in an interest-bearing account. Why wouldn't you take advantage of this? I'm not sure what hassle/risk you're talking about with a credit card. The hassle factor is the same (approximately none) and the risk is lower, not higher.
  - salvadors 15y ago
    People always say this "interest-free loan" thing, but it doesn't make a lot of sense to me. In an average month I spend under €1000 a month on my debit card, but let's round it up to that just for an example. My bank doesn't pay interest on current account balances. Even if I were to go through the hassle of setting up a term deposit for that, the total interest I'd receive on that in one month is 78 cents. I can think of any number of reasons why I wouldn't bother taking advantage of that. The question as to whether a credit card is more/less/even risk to a debit card is pretty much the issue at hand here, but even leaving aside the slightly odd issue of psychological risks and hassles, I've heard plenty of horror stories from people in the US where something went wrong to make their monthly payment late (including the credit card company just deciding to change the due date), thus triggering all sorts of badness.
    - mikeash 15y ago
      Well, get a better checking account to start with! Yeah, the money is small, but it's also free. I mean, $10-20/year for doing nothing? Why not? So as you say, it comes down to the risk differential. If you believe a debit card is less risk, then certainly a tiny amount of interest won't change your mind. For what it's worth, I've heard far more horror stories about debit cards than credit cards. The major difference is that with a debit card, any company that gets your card info can screw you over. You place an order online, and the company charges you $1000 instead of $10 by mistake, leaving no money in your account. Your next transaction then overdrafts, leaving you with a fat fee. In theory, it's not your fault and you should be able to get the bank or the merchant to cover it, but they'll all be pointing fingers elsewhere.... And of course, if you can't get the money refunded immediately then you spend a great deal of time with no money in your account. Now you may have trouble buying necessities etc. until the situation is fixed. Additionally, I have my credit cards set up to automatically pay off the full balance each month. If somebody tries to pull a dirty trick and the payment is made late, the blame is clearly and fully with them, so I imagine that would be quickly resolved. Beyond that, there really isn't anything to go wrong other than a major failure of self-control.

by esrauch 15y ago

salvadors 15y ago

But if you're always living within your means, why would you ever want to have a credit card at all? Things like reward programs certainly aren't universal (or even common, I believe, though they do exist), and pretty clearly only exist to try to get people to use the card in the first place, on the basis that it's to the credit card company's advantage, in that enough people won't pay off in time to justify the rewards. (I should also note that it's more common in UK/EU for credit cards to also have a monthly or annual fee.) I'm not sure what additional fraud guarantees exist. I had fraud on my debit card once, and it was resolved much easier and quicker than the time I had fraud on my credit card. The UK does have a slightly odd additional consumer protection law in that if you buy anything over £100 on a credit card, and the goods turn out to be faulty, you can claim the cost back from the credit card company, rather than the retailer. That's certainly vaguely useful, but I've never heard of anyone choosing to have a credit card just for that reason. I think there's potentially a different worldview at play in the "had a chance to do something dumb and't didn't" approach. To massively overgeneralise, I'd say the European way is to simply not put that temptation in front of people, whereas the US way is to deliberately encourage it, so as to massively profit from it (with the UK constantly torn between the two!) :) So I'd say pretty much the opposite of your final conclusion: There are so few advantages to using a credit card rather than a debit card that why would you bother with the hassle/risk?

mikeash 15y ago
If nothing else, a credit card gives you a month-long interest-free loan when used properly. That's money in your pocket if you keep the difference in an interest-bearing account. Why wouldn't you take advantage of this? I'm not sure what hassle/risk you're talking about with a credit card. The hassle factor is the same (approximately none) and the risk is lower, not higher.
- salvadors 15y ago
  People always say this "interest-free loan" thing, but it doesn't make a lot of sense to me. In an average month I spend under €1000 a month on my debit card, but let's round it up to that just for an example. My bank doesn't pay interest on current account balances. Even if I were to go through the hassle of setting up a term deposit for that, the total interest I'd receive on that in one month is 78 cents. I can think of any number of reasons why I wouldn't bother taking advantage of that. The question as to whether a credit card is more/less/even risk to a debit card is pretty much the issue at hand here, but even leaving aside the slightly odd issue of psychological risks and hassles, I've heard plenty of horror stories from people in the US where something went wrong to make their monthly payment late (including the credit card company just deciding to change the due date), thus triggering all sorts of badness.
  - mikeash 15y ago
    Well, get a better checking account to start with! Yeah, the money is small, but it's also free. I mean, $10-20/year for doing nothing? Why not? So as you say, it comes down to the risk differential. If you believe a debit card is less risk, then certainly a tiny amount of interest won't change your mind. For what it's worth, I've heard far more horror stories about debit cards than credit cards. The major difference is that with a debit card, any company that gets your card info can screw you over. You place an order online, and the company charges you $1000 instead of $10 by mistake, leaving no money in your account. Your next transaction then overdrafts, leaving you with a fat fee. In theory, it's not your fault and you should be able to get the bank or the merchant to cover it, but they'll all be pointing fingers elsewhere.... And of course, if you can't get the money refunded immediately then you spend a great deal of time with no money in your account. Now you may have trouble buying necessities etc. until the situation is fixed. Additionally, I have my credit cards set up to automatically pay off the full balance each month. If somebody tries to pull a dirty trick and the payment is made late, the blame is clearly and fully with them, so I imagine that would be quickly resolved. Beyond that, there really isn't anything to go wrong other than a major failure of self-control.