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Comment by anexprogrammer | Hacker News Reader

The old, and conveniently oft forgotten, advice applies: Never borrow against a depreciating asset. If you need to clear down you may have a problem. A job loss, recession, illness could all mean you want to clear the debt. Selling the now second hand TV is not going to clear the debt. Add in a few more debts justified thus and you have a bankruptcy or house loss on your hands. Perhaps you can guarantee you will not get ill or lose your job during the loan?

So many of the people bitten hard by the 2008 recession applied logic such as yours, and often drew down on their mortgages (cheaper than credit card) to buy TVs, cars and holidays.

Borrowing against a growing asset is different.

I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either!

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>I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either!

I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :)

However, what's your experience with taking out that home loan? I'm worried that I might one day ask the bank for a serious loan (with a suitable amount of pre-savings) and be informed I cannot be lent to because I have no credit history at all. I know I can get a credit card and always pay it off at the end of the month to get a credit history, but by golly does playing that game sit ill with me.

Capital One has a 1.5% cash back on all purchases card. I put everything I can on it, and pay off in full very month on time. Does the prospect of paying only 98.5% of almost every price before your eyes not interest you? If not, then I don't know much what will. Your financial prudence will be rewarded with these residuals if you help the banks get their merchant fees. Over a lifetime, it can add up, and the fraud protection is great peace of mind.

That's got to be some sort of opportunity for arbitrage.

Check out https://www.reddit.com/r/churning and specifically look out for "manufactured spending".

yep, and Citi has a 2% cash back (1% at purchase, 1% when paid). Discover is 5% back on a different category each quarter (and Q4 is Amazon), and Amazon's store card gives you 5% statement credit on everything you buy.

Citi has a 2% card. If you spend a lot in a particular category such as gas or groceries it isn't hard to find a card that will beat this.

Paying phone and utility bills counts towards you score as well. We've bought two cars and a house with near zero (or zero for many years) credit card useage. No problems at all.

Our credit score were upper good before and near perfect now. We've not used a credit card in eight years.

You can get a free copy of your credit report once a year from each major company - you could go ahead and order them just to see where you are at.

I've never seen a phone company or a utility company report payment history on my credit report.

You've basically swung too far to the other side of the spectrum, and you will be penalized for not having a credit history if you ever seek a large loan.

If you consider your credit card to be a no-fee (or low-fee) payment mechanism that aggregates your monthly expenditures into a single bill, you can have savings theoretically (though in reality, probably not usefully) appreciating over the course of the month in a bank account, and then pay the bill for your expenditures at the end.

This simple money management technique reduces fees paid for ATM access, allows your assets to maximally appreciate, and builds up a very solid credit history. Credit Cards and Lines of Credit aren't evil; they're useful, but they're not hard to use in a manner that will bite you.

enough credit card programs out there provide cash back (1-5%) on purchases, for no annual fee. that ought to make using it for a monthly purchasing conduit ideal (your real cash can be collecting interest between monthly payoffs, and your transactions get a nice 1-5% haircut usually at the end of the year).

>but by golly does playing that game sit ill with me.

Why? They are giving you free money for your trouble (1.5-2% back, a proportion of the transaction fee they've effectively baked into the price of all consumer products) and offloading the risk of having your bank account drained through a debit card or getting mugged for your cash.

I have a credit card that needs to be paid off in full every month. Zero-interest 1-month loans are very handy to iron out any behavior or income fluctuations.

Get and use a credit card (or two), but pay it off every month. Every year or so, ask them to raise the credit limit. You'll be in fine shape when it comes to getting a mortgage.

"Not paying interest on any card" is desirable. "Not having any card" works against you in your situation.

If you can play the game to your rules, not theirs, having a single credit card can be ok:

* Pay the entire balance every month, ideally by direct debit (they don't like doing this) * Ignore offers to increase credit limit * Actively reverse automatic credit increases. My card company tried ridiculously hard to talk me out of reducing my credit limit.

This type of credit card customer is by far the minority (10% iirc), and least welcome to the card companies. Their ideal customer has multiple cards and pays minimum balance every month.

Student loans also count towards credit worthiness.

For a home loan, having little or no credit, isn't necessarily a deal breaker, but does limit lender choice. At least in the UK.

I dislike the game partially because the more indirection between spending and the actual money, the easier it is to overspend or lose track. This is the whole point, of course! So I just stick to the debit card for net, and actual cash from ATM when out shopping.

Why ignore offers to increase credit limit? I keep accepting higher credit limits because I was under the impression there is no down side. (I only ever use a small fraction of my limit and never carry a balance.)

Because I didn't want the temptation to use it. Especially if I found myself in a challenging position. I'd far rather have it brought down to a limit I would choose. They increase it precisely to tempt you to use it, after all.

At one point I had as much available credit across two cards as balance on the mortgage, whereupon I decided it was silly and I'd like them to reduce please.

OK thanks. I was worried I was negatively impacting my credit rating somehow. My few minutes of research indicate that having a higher limit may actually be beneficial to someone like me who never utilizes my available credit.

The ratio of available to utilized credit definitely does impact your credit score positively. That's why for a while, I would periodically ask for limit increases 1-2 times per year on all of my cards even though I will never come close to the limits. You don't want to do this too often though; I think asking for an increase may incur a credit pull. Too many of those can hurt your score.

Accepting higher credit limits actually improves your credit score over time, assuming you do not actually use the credit. In my opinion, you should accept the credit limit increases when offered.

But what's the point? If, as the commenter asks, you're looking to cover yourself in the event of wanting a mortgage, perhaps car loan too, you only need good credit.

I do know the UK doesn't use credit score as the US does, so it may operate on a different premise where gaming the score matters.

Both the ratio of your amount of available credit vs. used credit and the total amount of credit that you have available feed into your FICO score. From the lender's perspective, someone with a lot of unused credit is a better candidate than someone without. One of my cards recently announced a change that caused me to start looking around and its replacement had a substantially higher limit which unexpectedly gave a significant boost to my score.

> This type of credit card customer is by far the minority (10% iirc), and least welcome to the card companies. Their ideal customer has multiple cards and pays minimum balance every month.

A card user who pays their balance every month is still valuable to the card company though, as it draws fees on every transaction. Someone who uses their 1.5% cashback card to pay for EVERYTHING and puts a couple thousand a month on the card brings in some cash too, and the day they lose their job they might start racking up debt.

Hmm. I'll also add that owning a house is not as it once was.

Time was you got tax relief on mortgage interest, and crucially there was enough inflation in the system that a mortgage was an insanely easy choice. A little inflation would deflate your mortgage payment down to truly trivial levels over the life of the mortgage. Because of the removal of inflation your mortgage payment is no longer an ever decreasing proportion of your income, ignoring pay rises, so the only remaining factor is what you believe will happen to rents.

For what it's worth, I recently bought a house. Having a rotating line of credit on a credit card that was paid off did not help with some loan history requirements.

The lender wanted to see loan with fixed payments in the past 3 years (which my wife had, a car loan). Sure, maybe we could have argued, etc. but a credit card paid off each month wasn't a magic bullet for building credit history. I'd say get a nominal loan (not simply a credit card) to build up credit.

This is terrible advice. Don't get a loan just to "build up credit."

I've never used a credit card

There are many reasons to use one. Others here have already given you some. But I want to add one more good reason: protection. So here you go:

- I try to pay for all restaurant meals with a credit card. Then, e.g. if I get sick eating at e.g. Chipotle, there's at least a record that I purchased something from them. If I lose the receipt I might not remember whether it was a taco or a burrito, but I'm still way ahead of someone who paid cash and doesn't have his receipt!

- If I have a dispute of any sort with the supplier, it really helps to at least have the threat of a credit card chargeback available. Too many disputes or chargebacks are bad news for vendors, and most will want to avoid those.

- Some cards will extend the warranty on a purchase, but I've never availed myself of that feature so I don't know how easy it is to use.

All US CCs (Visa, MC, AMEX, Discover) extend warranties. I used this feature sith American Express. Its as easy to use as can be. They just refunded my original purchase amount.

I've also used price protection with Discover. Also easy to use but they take a couple weeks to process the claim and mail the check (a third party processes it)

Price protection is pretty unique - not too many cards have it. If you find a lower price later on an identical item they refund the difference. I used it to get black friday sales before black friday.

>there's at least a record that I purchased something from them. I'm still way ahead of someone who paid cash and doesn't have his receipt!

Debit card?

You're a terrible person - why call me out for being wrong, then when I show you that you are wrong, just vanish? That's un-australian.

>A job loss, recession, illness

These are all great reasons to have an emergency fund which covers the payments on all your debts (and your other expenses) for a few months. Then if you're in a situation where you need to use it, you can make a decision about whether to try to offload the debt or just pay it out of savings.

I'd take $20,000 in savings + $20,000 in debts any day over $0 in savings + debt free. Obviously you need to factor in interest rates, but with cash and debt you have options. With no cash and no debt you are screwed should anything go wrong. (Although the best is still cash + no debt).

>>These are all great reasons to have an emergency fund which covers the payments on all your debts (and your other expenses) for a few months.

That's not what an emergency fund is for. An emergency fund is for essential expenses, such as rent (or mortgage), food, prescription medicines not covered by insurance, and so on. If you are in the "I'll just use my emergency fund to pay off my debts in case disaster strikes" you've already lost the game.

The internet personal finance community usually considers debt payments to be a fixed expense that you need to plan for in your emergency fund in addition to the other things you mentioned. I'm not sure where you're getting your "emergency funds can't cover debt payments" assertion from.

20k amount financed on a car @ 2% for 48 months: $434/mo. Save that (in addition to your other savings) for 6 months, then finance the car. Then you can absorb a 6 month unemployment stint out of savings, during which you can downgrade at any point if necessary. Or you can wait an extra 42 months to save $827 in interest if that's worth it to you, but either way the risk is managed.

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