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The big banks are terrible if you fall outside their algorithmic expectation. My partner and I were trying to get a mortgage and despite near perfect credit, l

• tester756 3y ago
  Is this why some people recommend to take loan for something that you have money? Like - you wanna spend 30K on a car and you have it in cash? take loan you'll lose a some $$, but you'll be building your history.
  • JohnFen 3y ago
    I think that the usual rationale for taking a loan out to pay for something you can afford without a loan is that you can take the money you have and invest it in something that pays more than what the interest on the loan is. It's a kind of arbitrage. If you're losing money overall, you're doing it wrong.
    • drivebyhooting 3y ago
      There’s no free lunch. You will be taking additional risk by doing this even if the downside seems unlikely or remote.
      • ericpauley 3y ago
        If the loan % is lower than a savings account then there is no/0/zero risk, so long as you stay under FDIC limits. Your deposit earns money and is backed by the full faith and credit of the United States government.
        • deleted 3y ago
          [deleted]
        • stanleydrew 3y ago
          The loan will usually be at a fixed-rate, while the interest paid on your deposits will fluctuate. So there is still risk that your net interest margin will go negative at some point.
          • ericpauley 3y ago
            Get a CD or buy treasuries with a matched maturity date. Or if you don’t want that and the savings rate goes below you can pay off any time (check your terms).
      • imtringued 3y ago
        Yes, this is just a roundabout way to invest into stocks with borrowed money. There is probably an optimal portfolio for this strategy to minimize the risk but then it is no longer the obvious win that so many people think it is. If we assume 8% returns and you only put 50% in the stock market and your loan costs 2% interest then your total benefit is only 4%. Putting all of it might get you 6% but you are now taking a significant amount of risk.
      • HWR_14 3y ago
        The last few times I remember, the interest charged on the loan was less than that generated by T-bonds of the same length.
  • toast0 3y ago
    I don't know what factory car loans look like now, but for my last new car, they offered me a 5-year 0% loan vs a $500 incentive if I paid in cash. Safe interest rate paid for the missed incentive. It's a smidge less convenient to have a loan, but no big deal.
    • voakbasda 3y ago
      In the face of persistent annual inflation, a 0% loan ends up yielding a net discount when compared to saving your money over the same time span and paying cash. Of course, that's only true if you're diligent about paying on time, but automatic recurring payments can take care of that problem.
  • now__what 3y ago
    You also want to consider whether it's more valuable to you personally to have that cash in hand. Are you going to roll it into another investment? Then maybe a low enough interest rate on the loan will put you out ahead despite paying interest.
  • tiedieconderoga 3y ago
    Nah, you can easily get a residential mortgage from smaller lenders with just proof of income/savings, and the sort of light credit usage you get from monthly CC payments, rent, utilities. That will net you a solid credit score, too. The issue is with very large banks. They have rigid underwriting deparments and poor CS, so if you approach them as a first-time buyer who isn't already leveraged to the hilt, they will make it a long and painful process. Mortgage agents are a prime target for AI replacements, because all they do is relay information between you and the underwriting departments that make the real decisions. Other people have pointed out that when you take a loan for something you can afford, you can use the money you would have spent on other things in the meantime. (As long as you're confident that you'll keep making enough money to make your payments for the life of the loan.)
    • HWR_14 3y ago
      Rent and utilities rarely report to credit scores.
      • no_wizard 3y ago
        There's been normalization around using rent as additional inputs into a credit score: https://www.cnbc.com/select/your-rent-payments-can-raise-your-credit-score-with-experian-boost/ https://www.cnbc.com/select/your-rent-payments-can-raise-you... I'm not sure they're all that available or popular (they're highly dependent on your landlord having the correct paperwork and such) but the place I rented an apartment last year had this available and it did get reported
        • HWR_14 3y ago
          Yes, that's been a push for a while. I'm glad to see it's becoming more popular. But it doesn't work if unless the landlord opted into their payment system.
      • nickjj 3y ago
        That's such a strange system if common routine things aren't counted towards your score. Is this a ploy to get you to buy things you don't need just to prove you can pay it back? Personally I've never owned a credit card, I always pay with a debit card or cash. 20 years ago I refused to participate in the credit scoring system and still stand by it.
  • nicholasjarnold 3y ago
    Reasons other than "it helps me build a credit history": * you think you can make more money by investing your 30k and letting it grow and compound * you are very prudent with your cash on hand and would rather have immediate access to liquid cash than save a little bit on interest which you pay down over the course of <term> Some of the dynamics here are a bit different when market returns are not looking great/steady and money isn't cheap anymore.
    • chickenpotpie 3y ago
      > you think you can make more money by investing your 30k and letting it grow and compound Mortgages especially. Mortgage interest is tax deductible and makes it easier for high tax bracket individuals to outperform their loan by investing.
      • supportengineer 3y ago
        > Mortgage interest is tax deductible Since 2017, not really, due to tax law changes. Cap of $10k but that includes state taxes paid also.
        • toast0 3y ago
          I was under the impression that the $10k cap is for SALT and mortgage interest is separate? The mortgage interest deduction was reduced, interest on new loans is only deductable for the first $750k of debt, instead of $1M, and mortgage rates were really low in 2017; capped SALT + a relatively low interest rate on $750k might not combine to more than the standard deduction if you're married filing jointly. Certainly on my ~ $350k mortgage @ 3.15%, I stopped itemizing after the tax changes.
        • chickenpotpie 3y ago
          Absolutely not. That's property tax, not mortgage interest.
        • jdmichal 3y ago
          The bigger change for mortgage interest was the massive increase in the standard deduction in 2018 to $24,000 from $12,700. We were barely doing better than the standard deduction prior to that, and the increase put us pretty far into "just take standard" territory.
  • andirk 3y ago
    No. You need 2+ credit cards and ~2 bank accounts all that have existed for several years. "Carry a balance" of ~15% of your total credit limit BUT you need only _for the owed money to show up on the paper statement_. It's weird but if you pay off the thing you bought immediately that day, it's as if it never happened. It needs to be recorded on a statement, then pay 100% off before due date and don't owe anybody shit! Curious how the parent commenter had great credit with no seasoned lines of credit. It's one of the biggest factors in the score. Months before seeking a mortgage loan, learn the score's equation and appease it.
• inconceivable 3y ago
  never buy a mortgage through an app. use a human broker or if you're rich enough, a bank salesman. and for those of you who refuse to talk to people when spending multiple hundreds of thousands or even millions of dollars, well... this is what you get to deal with.
  • nitwit005 3y ago
    The human will type your information into the same system.
    • mauvehaus 3y ago
      The human can likely also pick up the phone and talk to another human if the system is spitting back something obviously stupid. You don't need the human for the typical case; you need the human for the atypical case.
      • s1artibartfast 3y ago
        They also usually have a monetary incentive to make the deal work, which you cant get from a app.
    • inconceivable 3y ago
      okay, sure and probably half a dozen other systems you don't have access to. this is wholesale debt brokering, it's not available on a public website that you found on google with creative out-of-the-box keywords like "best mortgage rate <zipcode>" the first step to not being a mark is understanding what you don't know, and working with people who do. you may still get marked to a certain degree, but at least you'll end up with a 2.x% interest rate like i did and no messages from the computer saying "you're too poor to buy this product, so run along now little man" when it clearly isn't true.
  • dghlsakjg 3y ago
    Everyone's downvoting, but this is what did it for me. Especially if you have an unusual situation, brokers and personal bankers will know how to handle it. I had 0 credit history in Canada (literally a completely blank printout), but wanted to buy a house now that I'm a PR. A personal banker was able to work with a copy of my US credit report (Canadian banks don't/can't pull this on their own), and proof of assets in the states. The first item on my Canadian credit report was cosigning a mortgage at prime rates.
• toast0 3y ago
  > The big banks are terrible Fixed that for you. The big banks have one thing going for them, they're big. That means they will have a wide network and a large service organization, but most feel no need to meaningfully compete for your business. You're going to use them because they're big. You're not going to get meaningful interest on your deposits at a big bank, because they don't need your deposits; bankrate shows me rates up to 4.75%, with banks I've heard of at 4.3%, Ally at 3.75%, my credit union at 2.5% (at least it's moving up, although the pace of increases is a lot slower than the decreases were :/), and Chase is at the national average of big banks: 0.02%. Certainly, 0.02% was understandable in the zero-rate environment, but I'm pretty sure it's been Chase's interest rate for the last 30 years (no data, just a hunch). Mortgage rates float in and out of competitiveness, especially if you jump through the hoops for a relationship discount; that's a good business where volume means profit at origination, and it's easy to sell the loans if they want to (that's part of why their underwriting is so cookie cutter; gotta make it easy to resell). If you're in the SF Bay Area, you should really check out the local credit unions; some of them are pretty decent. Co-op/shared branch banking takes care of most of the access issues, but you might want to be aware that after hours telephone service is directed to a shared branch call center. My credit union holds and services the mortgages they originate, which means you don't have to deal with the servicing changed dance, and also they're able to do limited paperwork rate adjustments for a reasonable fee; much simpler than a refinance.
  • zamnos 3y ago
    Even if you're not in the bay area, you should check out credit unions or really anything else (Wealthfront, betterment, withcompound, just buying bonds/tbills, etc), so you're not getting approximately 0.0000% on CDs.
  • zamnos 3y ago
    As for the limited paperwork rate adjustment, the word you're looking for is recast (instead of a refinance), and it's fairly common
• HWR_14 3y ago
  > despite near perfect credit Your credit wasn't near-perfect. You hadn't defaulted, but that's far from proving that you can manage your credit/money and make payments on time. A hobo who lived in the woods would also have never missed a payment.
  • IvyMike 3y ago
    Would that hobo have used a CC that he immediately paid off? That needs to count for something.
    • HWR_14 3y ago
      It counts for something, it's just not enough by itself normally.
  • llsf 3y ago
    But he said that he used credit cards and never missed a payment. That should count, right ? I can relate, as I came in US from Europe. I arrived, opened a bank account in a big bank, I could only get a debit card, because I had not credit history. After few months I could get a credit card, but with a $500.00 limit! I needed a car, so I bought one cash. When came the time to buy a home, I was asked to open more credit cards (one was not sufficient) and come back in a year or so later, to see how my score would improve.
    • HWR_14 3y ago
      You never proved you could handle more than $500 in debt. You then asked for maybe three-orders of magnitude more debt. Surely you can appreciate that difference.
      • Spivak 3y ago
        There's no difference at all for someone who works a dayjob. The only thing that matters is that you have you demonstrated that you can make a fixed monthly payment reliably. Paying your bills, paying your rent, paying your CC all demonstrate that. If you rent a $1500/mo apartment you actually have managed $18k of debt. Doing the same thing but this time with interest proves nothing the others don't. Borrowing history makes sense for businesses or people who with complicated cash-flows. But if you're stably gainfully employed the only things that matter is how you manage your external financial risks (which banks don't check for) and your ability to not over spend (which banks also don't check for). Combine this with the your typical mortgage is overcollateralized means the magnitude of the loan is essentially meaningless outside of "is the monthly payment something you can afford."
• Rebuff5007 3y ago
  > you immediately see the need for breaking these banks up. Why exactly is this the conclusion, as opposed to suggesting the big banks need better evaluation of borrowers (whether thats with better metrics or humans in the loop)? All the problems being brought up seem like they could happen to banks of any sizes...
  • reb 3y ago
    Something something "free market" something something "competition" something something "creative destruction"... It's nice to believe throwing more greedy people at a problem will fix it, and hey, sometimes it works.
  • than3 3y ago
    There are a lot of good reasons for it. First, centralization and consolidation increase the risk of fraud and corruption, and malign influence with regards to antitrust. Second, almost no new banks are being chartered. What do you think typically happens when you go from Many -> Few (single digits) -> 1. If something happens because they play the bailout game, the only real option is for nationalization. Third, their sector mandate is to loan money to businesses that can use that money to turn a profit and feed the economy. They've stopped doing that outside a few corrupt friends(entities). What you often don't hear about is what happens when they are the only game in town, they know your business is stressed, and they refuse to loan to you on arbitrary grounds (behind closed doors) knowing they can buy it up in bankruptcy for pennies on the dollar for a larger profit. Like what Amazon did to the baby diaper companies. https://arstechnica.com/tech-policy/2020/07/emails-detail-amazons-plan-to-crush-a-startup-rival-with-price-cuts/ https://arstechnica.com/tech-policy/2020/07/emails-detail-am...
• lowkey 3y ago
  I feel it is important to call out the one’s credit score is not a measure of creditworthiness. It is a measure of an individual’s potential profitability to a creditor. These two are not the same thing.
• TexanFeller 3y ago
  Credit scores make more sense if you think of them not as scores of your ability to pay back debt, but as scores of likely profitability for the creditor. Someone who never carries a balance and never will pay the occasional late fee is less profitable and thus has a lower score.
  • merek 3y ago
    I think you need to factor in risk. This is a simplistic example but demonstrates the influence of risk. Who would you rather lend a mortgage to? - Group A, consisting of people who prudently pay debts early - Group B, consisting of people who pay debts on their due date, and sometimes after Let's say you lend $100B to each group A and group B. Historical data might show that in aggregate, group A has a default rate of 1% and group B 5% (there's 5% chance that a person from group B defaults on the loan). Because of defaults (risk), you expect to lose $1B of principal on group A and $5B principal on group B. To break even, you need to charge group A interest that would at least offset their $1B loss, and charge group B interest to offset their $5B loss, hence group B's higher interest rate. One group is not automatically more profitable than the other. Group B might incur more costs such as late fees, but this only works against their ability to make future payments.
    • TexanFeller 3y ago
      Risk is for sure a large component of profitability, I didn't mean to imply otherwise. But risk is not the only factor and credit scores often seem to track the total profitability curve better than the risk curve.
    • orbisvicis 3y ago
      Totally outside my wheelhouse, but I'd imagine that interest on debt could eventually make group B more profitable if the default rate isn't too high. Or perhaps have group A partially cover the interest of group B because they're lower risk and likely have higher income. I imagine that late fees increase the cost of repayments while debt interest increases the number of payments thus not hindering the ability to make future payments.
    • 3y ago
• teekert 3y ago
  I always find this to be a baffling thing about the American system. Where I live we never take out a loan (except for houses) and most cards are debit cards. The American system seems to punish the way we act here, like you, you can be perfectly credit worthy but you have not been a good loan-taking rent-paying citizen? It feels dirty to me.
  • WaxProlix 3y ago
    What metrics do they use there to determine your loanworthiness?
    • hectormalot 3y ago
      Where I live there is a central register that identifies total exposure as well as red flags (late payments). Exposure is weighed differently. E.g. a 25k car loan might lower the acceptable mortgage by 25-100k because it’s backed by a depreciating asset and has higher interest rates. Similarly, a 5k credit card limit can have 2-5x the impact on a mortgage application. loan/credit application is mostly based on your income (you can maybe borrow up to 4.5-5x your gross income for a mortgage), how certain your income is, for example whether you have a temporary or permanent contract, and if there are no red flags in the last few years.
      • teekert 3y ago
        Sounds like my country, but, I don’t know anyone who has a credit card to increase their funds nor do I know anyone with a loan for a car. It also sounds to me that the difference between how we live here and the American system (I feel most people have loans for stuff in the 1–10k €/$ range in the US?) is a couple of months of living a bit more frugal, and the result is a lifetime of profit because you avoid all this interest everywhere. Here it is common (and recommended by the government and banks) to have a 5k buffer. It could be my bubble but most people I know maintain that buffer. It pays for a new washing machine or even a new (crappy) car if needed. Is it my view of the US based on Netflix that everyone has loans for the smallest of thing (like TVs) or is it really true?
• EVa5I7bHFq9mnYK 3y ago
  When taking a mortgage you should prepare in advance. I took a couple of unneeded 2-year $500 loans, three unneeded credit cards and a car lease, all to jack up the credit score.