Credit score system.. is just a big scam?

[ccastro02]

So as i'm on the train home from work, i figured i'de take the opportunity to make a credit card payment. So i call chase to make a payment and the lady tells me i'm available for a credit card upgrade. So i'm like how, i barely even use my card. According to her they (chase) recently reviewed my account and said i qualified for a lower interest rate and a higher credit limit if i open up a new card. The whole time i'm on the phone the lady is telling me how i can get x amounts of points towards my account if i spend x amount of dollars if i use my new card.

So i weigh my options and i bite, considering it's just an upgraded version of the card i already own. I'm like w/e i'll take the card it's not like i'de be using it anymore than i already have anyways... when it hit me, all chase is really trying to do is get me into more debt... They gave me a higher credit limit, lower interest, and an attractive points/ dollar ratio.

Than i started thinking a little deeper. Poor credit or great credit, it really doesn't matter.

As an example, a person that avoids debt and does not take out credit has a weak credit score or no score at all. Yet they seem to be conducting their financial affairs with the utmost of prudence.

A good credit score gives people access to credit when they need it or want it at the lowest rates. Since the credit score is indicating the person is a low risk of defaulting, lenders want to get that person to buy their loan product and attract them with cheap interest rates or access to their product.

When deciding how to deal with issues in life, and especially financial issues, falling a slave to your credit score is a bad idea. I’ve watched so many people make really bad decision because they are afraid it will hurt their credit score. At times like that the more appropriate answer should be “Who cares about the credit score.”

A great credit score only means you qualify for a $10k credit limit as oppose to those who with a low credit score who may only qualify for a $300 cred limit. Who's really winning at the end? The person that'll potentially only be $300 in debt or the person who'll potentially be $10k in debt?

The only time it kinda matters is when when you're going mortgage shopping. And not even because you can always re-finance your mortgage at a later time, thus allowing you to get a better interest rate.

You can also get great interest rates on a car loan even if you have a low credit score. Depending on what time of year you buy and how big of a down payment you leave you can potentially get your car financed with 2.9 apr.

So what's the bid deal about credit scores?

Why do people become slave to their credit score??

Thoughts??

 

[jrp44]

Don't feel like replying to everything, but the people that say "f my credit it dont matter" and never pay their bills/ car notes are the same people that are going to be crying when no car dealership will finance them without a big *** down payment and their interest rate will be around 20%

Credit also helps out with not just car notes/ mortgages, but also insurance rates, utility companies, etc... Sounds like you personally know what you're doing by not over spending though

 

[nazdrowie]

unfortunately its engrained in the systems. hell they often do credit checks for employment. they ran one for me. to the establishment, good credit deems you as responsible for some reason.

 

[jking0821]

Its assumed the people that have good credit scores and have a 10k credit limit are responsible. So if you have good credit its for a reason. You have proven over time you know how to manage your finances that is all it shows really. It is the easiest way for lending companies to see if you are responsible without asking for your Income Statement and Balance Sheet.

But i hear you to an extent OP. You can be rich with terrible credit. You can also be poor with great credit.

 

[johnnyredstorm]

Money's the ultimate scam. So many people do such vile things for something that doesn't exist.

 

[devildog1776]

I have no credit therefore I have bad creditl. cash has been good to me and i've never needed more than I already have,,, I'm 29 yrs old with no debt whatsoever but I cant even open up a best buy account,,, lol

but I got that VA home loan on standby .... 0 down payment....... "take that take that"

 

[scarsorscabs]

I think there's a lot of truth in what you posted but...

I’ve watched so many people make really bad decision because they are afraid it will hurt their credit score.

How?

And increasing your credit limit + lowering your rate could very well be done to entice you to spend more on that card but it also comes down to your own financial responsibility. It's ultimately not the credit card companies fault if having a $10k limit made you think you have $10k to spend. The ability to make larger purchases can be an advantage...as long as you pay that amount/your balance with no or little accrued interest. If you absolutely NEED to pay for something that is $8k but for some reason your money is tied up at that moment, it can act as a small loan...once again, as long as it's paid off ASAP.

We all know that's generally not how it work and tons of people just throw anything and everything on credit. That's where the banks win.

 

[ccastro02]

Don't feel like replying to everything, but the people that say "f my credit it dont matter" and never pay their bills/ car notes are the same people that are going to be crying when no car dealership will finance them without a big *** down payment and their interest rate will be around 20%
Credit also helps out with not just car notes/ mortgages, but also insurance rates, utility companies, etc... Sounds like you personally know what you're doing by not over spending though

You are right. However, many people have weak credit because they've never actually took out credit before. I feel like there should be another way to prove you're a responsible person to insure. Tract record of accidents, or a debt to money in the bank ratio. Not just credit score.

 

[ccastro02]

I think there's a lot of truth in what you posted but...
How?
And increasing your credit limit + lowering your rate could very well be done to entice you to spend more on that card but it also comes down to your own financial responsibility. It's ultimately not the credit card companies fault if having a $10k limit made you think you have $10k to spend. The ability to make larger purchases can be an advantage...as long as you pay that amount/your balance with no or little accrued interest. If you absolutely NEED to pay for something that is $8k but for some reason your money is tied up at that moment, it can act as a small loan...once again, as long as it's paid off ASAP.
We all know that's generally not how it work and tons of people just throw anything and everything on credit. That's where the banks win.

An example of which are people who jump on every credit offering that's given to them solely for the point of boosting their credit score. I know people that have a macy's card, jcpeenys card, MasterCard, visa, American express, toy 'r' us card. Plus they have student loans, car payments, utilities, insurance and mortgages. I'm like why do you have all these cards you don't use, to which they reply it looks good on their credit report and boosts up their credit score.

The risk of defaulting on one of your payments is higher i feel because it makes it harder for one to keep track of payment deadlines.

I would think that having one or maybe two cards, plus student loans, plus car payment, plus insurance would be good enough to boost your credit score.

 

[crcballer55]

Great post! Just got done teaching a class full of people with many of the same beliefs and were drowning in debt. One of the problems with the current system is that the reporting is one way. While the reporting on your credit gets reported when you make a payment or not, you get hit for missing a utility or phone payment, but don't get credit if you've paid on time for your entire life.

While my credit score is supurb, I swore off credit last year and my financial picture is looking better than ever. Once you realize that you spend more using plastic and waste many useless hours worrying about a score that for all intents and purposes is worthless unless you intend to go into debt. The only thing anyone should go into debt for is a home, and even then you can get manual underwriting to complete. While it may be harder to get a loan, the stress should only last about 60 days. WELL worth it IMO to stay out of debt. PLUS... you've not going to get a loan through a large bank, which is another plus since you'll be dealing with incompetence if you have a problem.

Don't feel like replying to everything, but the people that say "f my credit it dont matter" and never pay their bills/ car notes are the same people that are going to be crying when no car dealership will finance them without a big *** down payment and their interest rate will be around 20%
Credit also helps out with not just car notes/ mortgages, but also insurance rates, utility companies, etc... Sounds like you personally know what you're doing by not over spending though

You are right. However, many people have weak credit because they've never actually took out credit before. I feel like there should be another way to prove you're a responsible person to insure. Tract record of accidents, or a debt to money in the bank ratio. Not just credit score.

There is another way. Check out Ecredable.com. They calculate all forms of payment that show a potential creditor that you're responsible by showing them your entire payment history.

 

[mojodmonky1]

I have no credit therefore I have bad creditl. cash has been good to me and i've never needed more than I already have,,, I'm 29 yrs old with no debt whatsoever but I cant even open up a best buy account,,, lol

but I got that VA home loan on standby .... 0 down payment....... "take that take that"

There is nothing wrong with having this personal finance strategy as long as you have the means to do it. I wish I was cash liquid enough to live without the use of credit/debt, but unfortunately my situation does not allow it. Not that I live beyond my means, but it just wasnt worth it for me to save up $500K to buy my place, when I could easily get a sub 4% mortgage loan from a bank.

If anything, living the cash and carry lifestyle requires just as much responsibility and dedication as maintaining good credit. Its just a different school of thought.

An example of which are people who jump on every credit offering that's given to them solely for the point of boosting their credit score. I know people that have a macy's card, jcpeenys card, MasterCard, visa, American express, toy 'r' us card. Plus they have student loans, car payments, utilities, insurance and mortgages. I'm like why do you have all these cards you don't use, to which they reply it looks good on their credit report and boosts up their credit score.

The risk of defaulting on one of your payments is higher i feel because it makes it harder for one to keep track of payment deadlines.

I would think that having one or maybe two cards, plus student loans, plus car payment, plus insurance would be good enough to boost your credit score.

How is this a bad thing? Your argument of "its harder for one to keep track of payment deadlines" if you have too many different credit cards is weak at best. Someone with deep credit and a good score (not all 700+ scores are equal) HAS EXHIBITED AN ABILITY TO KEEP TRACK OF THEIR PAYMENTS DEADLINES. Thats why their score is what it is, and thats why they keep getting more credit offerings.

You are right. However, many people have weak credit because they've never actually took out credit before. I feel like there should be another way to prove you're a responsible person to insure. Tract record of accidents, or a debt to money in the bank ratio. Not just credit score.

As someone who manually underwrites credit applications for a living, do you know how much of a pain in the butt it is to do so, rather than basing credit decisions on credit scores? It is a highly inefficient way for lenders to make credit decisions. I manually underwrite my applicants because I deal solely in the sub-prime sector. I do what you are basically asking lenders to do (look past the score and actually look at someones history, their bank deposits, their p&l, balance sheet, and other financials, etc.. etc...). If every company that offered credit did it this way, the entire credit system would be run so inefficiently that the cost of credit would be sky high just to cover the overhead required to evaluate each applicants credit situation.

Its assumed the people that have good credit scores and have a 10k credit limit are responsible. So if you have good credit its for a reason. You have proven over time you know how to manage your finances that is all it shows really. It is the easiest way for lending companies to see if you are responsible without asking for your Income Statement and Balance Sheet.

But i hear you to an extent OP. You can be rich with terrible credit. You can also be poor with great credit.

THIS.

The way to prove that you are a responsible person is for you to develop a track record of borrowing money and paying it back as agreed. Like Jking said, its assumed that people with good credit scores are responsible because they have exhibited their level of responsibility by borrowing money and paying it back.

At the end of the day, credit is a tool, nothing more nothing less. Its not a scam. It is a system that you can take advantage of to make your life easier if you just know how.

 

[crcballer55]

You are right. However, many people have weak credit because they've never actually took out credit before. I feel like there should be another way to prove you're a responsible person to insure. Tract record of accidents, or a debt to money in the bank ratio. Not just credit score.

As someone who manually underwrites credit applications for a living, do you know how much of a pain in the butt it is to do so, rather than basing credit decisions on credit scores? It is a highly inefficient way for lenders to make credit decisions. I manually underwrite my applicants because I deal solely in the sub-prime sector. I do what you are basically asking lenders to do (look past the score and actually look at someones history, their bank deposits, their p&l, balance sheet, and other financials, etc.. etc...). If every company that offered credit did it this way, the entire credit system would be run so inefficiently that the cost of credit would be sky high just to cover the overhead required to evaluate each applicants credit situation.

Has easy access to credit actually made us better off? We complain that the banks are screwing the little guy, yet we make no attempts to fight the system and just play along because we think that borrowing money is the way to get rich.

We should ask ourselves, has easy access to credit actually made our lives better? Is this efficiency worth it? I worked in the REO & Modification industry for a while and I can tell you that a good portion of the housing crisis was caused by MERS because it improved the efficiency of title distribution and allowed homes to sell MUCH faster than they should have when the counties were recording the deeds. I'm all for improving efficiencies under certain circumstances, but when it comes to credit and the ability to make impulse purchases, sometimes it's best to have people "sleep on it" for a while.

 

[Extrait de Minimalisme]

 

[mojodmonky1]

You are right. However, many people have weak credit because they've never actually took out credit before. I feel like there should be another way to prove you're a responsible person to insure. Tract record of accidents, or a debt to money in the bank ratio. Not just credit score.

As someone who manually underwrites credit applications for a living, do you know how much of a pain in the butt it is to do so, rather than basing credit decisions on credit scores? It is a highly inefficient way for lenders to make credit decisions. I manually underwrite my applicants because I deal solely in the sub-prime sector. I do what you are basically asking lenders to do (look past the score and actually look at someones history, their bank deposits, their p

Has easy access to credit actually made us better off? We complain that the banks are screwing the little guy, yet we make no attempts to fight the system and just play along because we think that borrowing money is the way to get rich.

We should ask ourselves, has easy access to credit actually made our lives better? Is this efficiency worth it? I worked in the REO & Modification industry for a while and I can tell you that a good portion of the housing crisis was caused by MERS because it improved the efficiency of title distribution and allowed homes to sell MUCH faster than they should have when the counties were recording the deeds. I'm all for improving efficiencies under certain circumstances, but when it comes to credit and the ability to make impulse purchases, sometimes it's best to have people "sleep on it" for a while.

for me personally. yes. as a collective group, maybe not.

that being said, i think the problem lie with the people, not with the credit system. the majority of people seem to lack self control. i mean it can become a broader topic of why people lack self control, but thats another 100 page NT topic on its own. i personally dont believe that everyone should be punished because some people (even if it is the majority) cannot control themselves. (to go off on a tangent) its like the idiotic ban on supersized sodas in NYC. i mean, its braindead common knowlege that copious amounts of sugary soda are bad for your health, but no one should take away our right to indulge in said soda if thats what we want (or if we can do so in a reasonable controlled manner).

 

[the nomad]

Credit and banking institutions are a joke, only reason I keep my business account open is to disperse direct deposit payments. The bank is  a rip off because you have to maintain $7000 in checking at all times to avoid carefully scheduled mystery fees that have to charge you fee for hidden fees. 

I disputed those fees once by threatening to take legal action, after four 3 hour phone calls and about 3 weeks, I got my money...but time is money and I invested 12 hours into doing the bank's job for MY OWN MONEY.


Only buying what you can afford up front >
 

You have to pick the lesser of the evils...

Money > Pre-paid debit > Lay-Away > burnt by a prostitute > banking institutions > credit agencies 

 

[mojodmonky1]

Credit and banking institutions are a joke, only reason I keep my business account open is to disperse direct deposit payments. The bank is  a rip off because you have to maintain $7000 in checking at all times to avoid carefully scheduled mystery fees that have to charge you fee for hidden fees. 


I disputed those fees once by threatening to take legal action, after four 3 hour phone calls and about 3 weeks, I got my money...but time is money and I invested 12 hours into doing the bank's job for MY OWN MONEY.



Only buying what you can afford up front >

 

You have to pick the lesser of the evils...

Money > Pre-paid debit > Lay-Away > burnt by a prostitute > banking institutions > credit agencies 

just want to clarify, so as long as you maintain $7,000 in your business checking account, they dont charge you any account management or servicing fees?

i understand that the bank benefits by holding your deposits, but they are also providing a service. do you think that they are not entitled to charge for those services?

its not like its a one way street. im pretty sure you take advantages of the services offered by the bank like direct deposit, ATM's, checks/ACH, etc... etc... If you have no use for the services the bank is offering, why not just go full blown cash and carry?

 

[crcballer55]

Has easy access to credit actually made us better off? We complain that the banks are screwing the little guy, yet we make no attempts to fight the system and just play along because we think that borrowing money is the way to get rich.

We should ask ourselves, has easy access to credit actually made our lives better? Is this efficiency worth it? I worked in the REO & Modification industry for a while and I can tell you that a good portion of the housing crisis was caused by MERS because it improved the efficiency of title distribution and allowed homes to sell MUCH faster than they should have when the counties were recording the deeds. I'm all for improving efficiencies under certain circumstances, but when it comes to credit and the ability to make impulse purchases, sometimes it's best to have people "sleep on it" for a while.

for me personally. yes. as a collective group, maybe not.

that being said, i think the problem lie with the people, not with the credit system. the majority of people seem to lack self control. i mean it can become a broader topic of why people lack self control, but thats another 100 page NT topic on its own. i personally dont believe that everyone should be punished because some people (even if it is the majority) cannot control themselves. (to go off on a tangent) its like the idiotic ban on supersized sodas in NYC. i mean, its braindead common knowlege that copious amounts of sugary soda are bad for your health, but no one should take away our right to indulge in said soda if thats what we want (or if we can do so in a reasonable controlled manner).

I'm not saying credit should be illegal. You can't legislate away stupid. People will always find a way to borrow money and there will always be someone to lend it to them. What I'm saying is that we have to change our mindset away from believing that credit is the way to build wealth and prosperity. You can't borrow your way to wealth. Free airline miles and credit card rewards come with hidden costs in the way of increased prices and interest rates. That car loan will increase the cost of your vehicle by at least 30% over the life of the car. Not to mention when you don't pay the full price up front, you're generally willing to pay more for the item because you don't factor in the total cost.

If we realize that we can actually live a good life by living within our means and using our own money to invest and spend, then we'll be much better as a collective group. We have asked Congress to protect us from predatory bank practices and where has it gotten us? There have been two financial crisis' in the past 30 years and financial institutions have only gotten larger and more destructive. It only gives us a false sense that someone is watching out for us and we don't do our due diligence before choosing certain services.

Actually... I do believe that one type of loan should be illegal. Payday loan shops do nothing for low income communities other than transferring wealth from those already without money to those who already have it. Same with the lottery (transferring wealth).

 

[twoonesicks]

I have no credit therefore I have bad creditl. cash has been good to me and i've never needed more than I already have,,, I'm 29 yrs old with no debt whatsoever but I cant even open up a best buy account,,, lol
but I got that VA home loan on standby .... 0 down payment....... "take that take that"

thats exactly how i am. i've never owned a credit card in my life because i've never felt the need to therefore i have no credit score.

why should i not be able to purchase something when i have the money for it?

 

[racingstripes]

I agree with you CRC. What advice would you offer some of the younger guys? I'm 22 I have no credit cards only debit and no debt. I've already told myself I'd never get a credit card which is possible but even still it seems as if I'm gonna need to build my credit in order to live fine in this country.

 

[hybridsoldier23]

At the end of the day, credit is a tool, nothing more nothing less. Its not a scam. It is a system that you can take advantage of to make your life easier if you just know how.

Totally agree with this. I have three credit cards and really only one of them gets used because on is a corporate card for expenses and the other is my original line of credit (oldest card). I only use the card to keep track of my spending, as I pay it off in full each month. With my cash back I actually make money from my CC company

No one is getting scammed from the CC companies. At the end of the day having credit should not be a license to go out and put yourself in massive debt. Speaking of that... let's talk about the American education system and student loans :x

 

[dajoka004]

You're an idiot if you don't have a credit card. It's FREE MONEY in your pocket for buying things you're already going to buy anyways. Why would you not want cash back on everything you purchase? Pay it off at the end of each month and enjoy leeching from the CC companies.

 

[kesp]

You're an idiot if you don't have a credit card. It's FREE MONEY in your pocket for buying things you're already going to buy anyways. Why would you not want cash back on everything you purchase? Pay it off at the end of each month and enjoy leeching from the CC companies.

Yep, pay it before the interest hits

 

[mojodmonky1]

I'm not saying credit should be illegal. You can't legislate away stupid. People will always find a way to borrow money and there will always be someone to lend it to them. What I'm saying is that we have to change our mindset away from believing that credit is the way to build wealth and prosperity. You can't borrow your way to wealth. Free airline miles and credit card rewards come with hidden costs in the way of increased prices and interest rates. That car loan will increase the cost of your vehicle by at least 30% over the life of the car. Not to mention when you don't pay the full price up front, you're generally willing to pay more for the item because you don't factor in the total cost.

If we realize that we can actually live a good life by living within our means and using our own money to invest and spend, then we'll be much better as a collective group. We have asked Congress to protect us from predatory bank practices and where has it gotten us? There have been two financial crisis' in the past 30 years and financial institutions have only gotten larger and more destructive. It only gives us a false sense that someone is watching out for us and we don't do our due diligence before choosing certain services.

Actually... I do believe that one type of loan should be illegal. Payday loan shops do nothing for low income communities other than transferring wealth from those already without money to those who already have it. Same with the lottery (transferring wealth).

but credit can be a way to build wealth and prosperity. sure its not the only way, but used correctly in a responsible manner, it can be a vital tool to building wealth.

its an overgeneralization as there are always exceptions, but i believe you can borrow your way to wealth.

one common example.

in my line of work, most of my customers are looking to borrow money to acquire heavy equipment (ex. a bulldozer). Say this guy is a wage earner. He gets paid $3,000/mo to drive a bulldozer around for the contracting company he works for. If he had his own bulldozer and got his own jobs lined up, he could easily gross $15,000/mo. The problem is, he doesnt have $100K to walk into the local CAT dealer to buy a bulldozer. What he does have is excellent credit that qualifies him for financing. Even if his bulldozer payment is $3,000/mo, overhead to run the machine is another $3,000/mo, he has just tripled his monthly earning potential. Without credit/borrowing, it would have taken him years to be in this position.

Again, the problem here is not with credit, but the irresponsible use of credit, and irresponsible use of many "tools" can make them seem like the devil.

 

[crcballer55]

You're an idiot if you don't have a credit card. It's FREE MONEY in your pocket for buying things you're already going to buy anyways. Why would you not want cash back on everything you purchase? Pay it off at the end of each month and enjoy leeching from the CC companies.

Like I said, you're not actually leaching off the CC companies. They win no matter if you pay it on time or not. The give you back 1% for your purchase and charge the retailer 3-5% for the convenience of accepting that card. As a result, the retailer increased their price by that percentage or more. Why do you think most retailers don't accept Discover? They offer the best rewards and as a result, charge the highest fees to retailers.

Also there have been many studies done that show you actually end up spending MORE when you use plastic, so any rewards are nullified by spending more. Here are just a couple articles:

Using a credit card induces euphoria, new research shows

Spend 'Til it Hurts: Researching the Pain of Paying

Stanford Marshmallow Experiment

Study: Credit Cards Cause More Spending

 

[crcballer55]

I'm not saying credit should be illegal. You can't legislate away stupid. People will always find a way to borrow money and there will always be someone to lend it to them. What I'm saying is that we have to change our mindset away from believing that credit is the way to build wealth and prosperity. You can't borrow your way to wealth. Free airline miles and credit card rewards come with hidden costs in the way of increased prices and interest rates. That car loan will increase the cost of your vehicle by at least 30% over the life of the car. Not to mention when you don't pay the full price up front, you're generally willing to pay more for the item because you don't factor in the total cost.

If we realize that we can actually live a good life by living within our means and using our own money to invest and spend, then we'll be much better as a collective group. We have asked Congress to protect us from predatory bank practices and where has it gotten us? There have been two financial crisis' in the past 30 years and financial institutions have only gotten larger and more destructive. It only gives us a false sense that someone is watching out for us and we don't do our due diligence before choosing certain services.

Actually... I do believe that one type of loan should be illegal. Payday loan shops do nothing for low income communities other than transferring wealth from those already without money to those who already have it. Same with the lottery (transferring wealth).

but credit can be a way to build wealth and prosperity. sure its not the only way, but used correctly in a responsible manner, it can be a vital tool to building wealth.

its an overgeneralization as there are always exceptions, but i believe you can borrow your way to wealth.

one common example.

in my line of work, most of my customers are looking to borrow money to acquire heavy equipment (ex. a bulldozer). Say this guy is a wage earner. He gets paid $3,000/mo to drive a bulldozer around for the contracting company he works for. If he had his own bulldozer and got his own jobs lined up, he could easily gross $15,000/mo. The problem is, he doesnt have $100K to walk into the local CAT dealer to buy a bulldozer. What he does have is excellent credit that qualifies him for financing. Even if his bulldozer payment is $3,000/mo, overhead to run the machine is another $3,000/mo, he has just tripled his monthly earning potential. Without credit/borrowing, it would have taken him years to be in this position.

Again, the problem here is not with credit, but the irresponsible use of credit, and irresponsible use of many "tools" can make them seem like the devil.

Why not rent something on a per job/month basis until the person can pay for it in cash? Doing a quick search, unless you're getting a heavy duty bulldozer (I'm assuming you're talking about medium size from your price), you can easily buy one outright for $40,000. By your numbers, the person would only need to rent for 4-5 months and could then pay cash for a used one. Plus, with cash, you have the ability to negotiate since there is no possibility of defaulting on a loan.

Construction and manual labor are some of the most volatile jobs, so taking out a $100,000 loan to buy equipment, even if you have the intention of paying it back ASAP, would show that that company/individual hasn't learned from the previous crash. Some of the best deals are when you can take advantage of someone else's mistake and buy up their used equipment at a bargain. Case in point... look at all the great furniture you can buy on Craigslist in Silicon Valley from the startups who have gone belly up.