Another good way to protect yourself is to save money, and avoid needing to rely on banks for a credit lifeline.
Do you want to rent an apartment in the United States? You will, in many geographical markets, expect to have credit pulled as a matter of course. This is partly to determine ability to pay and partly to determine whether you are socially established; "I have mountains of money, why would I need credit?" is something which is often said by people who operate meth labs.
Do you want to work in a job which requires a background investigation? Expect a credit pull.
Do you want certain varieties of insurance policies?
Expect this list to get longer as time goes on, because "credit" encodes a lot of things which are stupefyingly useful in predicting outcomes in advance. Like any bit of code which is stupefyingly useful, get_fico_score() is going to find its way in all sorts of places you'd never naively expect to see it.
Additionally, if someone comes to the mistaken conclusion that you owe them money, the harassment which likely accompanies that is a nuisance even if the dings to your credit score are not.
I have a car which I own completely (no loan) and I pay the absolute minimum amount of insurance required in California, which amounts to about $264/year.
I'm not saying credit doesn't matter, but the more you can do to limit your attack surface, the less likely you are to be harmed. The absolute best way to protect yourself is to not need to play along in the credit rat race.
I keep a security freeze on my credit reports, and never lose sleep. I can safely publish my SSN without giving one single fuck.
You should do so right here.
Used to be pretty common to have SSN pre-printed on personal checks, also. It wasn't until the rise of online fraud that SSN became such a sensitive piece of information.
EDIT: Though it looks like it didn't necessarily turn out so great for him.
Both of these things were made much more difficult, even with just a 50 point ding. The score recovered quickly and I learned my lesson. It was somewhat eye opening for me. One thing I do wish: after tons of research and discussion with "experts" it seems pretty difficult for the average American to predict a rise in their credit score once it takes a hit.
Sure, paying bills on time and carrying low or no balances help, but at the same time, paying off a loan can either help or hurt you, being added as an authorized user to a partner's card can be beneficial or not even acknowledged. I wish the algorithm for determining this was a bit more transparent, i.e. What are the mechanisms at work behind that credit report? Not some vague "your score may have fallen because of..." Or "doing this might help your credit..." I feel like the lack of transparency makes people fear credit to a degree.
It's like that story about robbing the bank. First, we get jobs at the bank. Then we go in and work the jobs every day... (spoiler: we never actually rob the bank, because we get cushy jobs with benefits, and retirement plans. That's brilliant!)
Anyone with a good credit score can decide to burn their credit at any time. Loss prevention can also step in and cancel your cards at any time if they decide that you've gone off the deep end. They probably won't... but they could.
Imagine Google made its own credit score, based on your searches, social contacts, etc. It turns out that someone clicking on ads for product X have a very high likelihood of repaying their debt. This information ends up publicly leaked.
What do people start doing? How does this affect the quality of Google's credit algorithm?
It shows that the person is planning ahead, is careful with not overspending even if they have cash available, is organized enough to make all the monthly payments on time. To me that seems like a better signal than someone who does need the loan.
How would a person who takes out the same loan, but actually spends the money be a better credit risk?
This leads people to do something they don't want to do, and is no more informative than paying all those other bills would have been, merely to increase their score. That's a kind of gaming.
If the way they have allowed you to "game" this metric results in you signing up for some credit in order to improve your credit score, that's nothing but a net win for them. They got you some credit, that's definitely a score for them.
(I'm not saying that credit card companies would prefer all of their customers to default, they would never be able to buy insurance again... I just want to put it out there that maybe the system works exactly this way, 100% deliberately, because it benefits them too.)
A reliable indicator of whether you will pay your bills in the future might be whether you paid your bills in the past. There is no way to game this metric, other than by paying your bills.
You just chose a metric that would be easily gamed and said that any metric is gameable.
Except the exact situation outlined above, in which a person generated bills that they otherwise wouldn't have needed, for the sole sake of having more bills "paid on time".
Having said that, I'm tentatively going to disagree.
I made a conscious, somewhat coerced choice in my early 20s never to rely on revolving credit. A combination of random course-of-business (of course resolved) delinquencies and no history of revolving credit resulted in my having relatively poor credit. Compounding this, my disinvestment from my own credit score has led to a new dispute resolution strategy for e.g. medical billing mistakes, which is "ignore mistakes and disputes forever" --- you can imagine the resulting impact on my credit score.
The net effect on my life has been minimal.
It was comically difficult for me to obtain an actual bona fide credit card (which I wanted in order to broaden my choice of car rental agencies --- a problem that has become less important over time as more and more rental agencies accept debit cards). A few weeks after I got the first wire transfer from the sale of Matasano, calling Chase with a checking account balance that could fairly be called "moronic", I had to argue for about 30 minutes for them to issue me a credit card with an extremely minimal monthly balance.
That's about the extent of my problems.
Every landlord I've rented from has pulled my credit. My credit has always been bad. But my landlord references were spotless, and that's what landlords seemed to care about.
It's more than likely that if I was in a different career, and particularly if that career was in a lower-paying sector where workers have less leverage, my credit score would be a real concern in finding a job. But in this industry, my general response to being declined for a job as an adverse decision relating to my credit score would be to do to the reputation of the hiring firm on Twitter approximately what the lawyers at the Bank of Bigness believe their regulators will do over an FCRA violation.
I would almost certainly have a hard time getting a loan for a car. But then, see "revolving credit". Don't get a loan for a car. I had one once in my 20s and remember it being a pretty miserable experience. Until very recently, every other car I'd driven since was (a) worse than that car and (b) on balance a more pleasant experience for not coming with a Significant Monthly Bill. Obviously, in this industry, you will eventually reach a point in your career and your personal financial maturity where "obtaining what you believe to be a car commensurate with your status" will stop being an interesting problem.
Which, I think, leaves us with home ownership. I don't have a good answer here. I bought my house in 2005, weeks after starting Matasano, a company which for all the intents and purposes of my mortgage lender did not exist. Suffice it to say I was not able to push that lender around with the contents of my bank account, which were in 2005 also "moronic", but in the other direction. I probably got a worse rate. And it was 2005, so it's possible that my only effective qualification for buying a house was "50.0001% likelihood of currently having a pulse".
My tl;dr here though is, at least in my case: if you don't use credit cards ever, your credit score doesn't much matter, and as it turns out credit cards don't much matter either.
You once mentioned you paid out of pocket to get your family member some kind of medical procedure. I think it was a CT scan? Anyone who can do that isn't really in the same class.
Here's one way it matters: every year, your entire well-being is determined solely by your landlord. You can be an excellent tenant and they'll decide not to renew your lease because reasons. Now you need to move your whole apartment in like three months, which means finding a new place. In some cases this requires a credit check. Not all, but that still limits your options in a tricky situation. Imagine if the place you lived was determined solely by that number you didn't pay attention to.
Want a nice car? Better have cash. Laptop? Cash. $3k to drop on a new laptop isn't feasible for the vast majority of people who aren't affluent.
I know you mean well, and I share your "fuck this broken system" feeling, but it can get you into trouble. Rebellion only works if you have the means.
Here's a concrete question: you need a laptop to do your job. How do you get one without credit? A second hand MacBook still costs >$1k. And yeah, we're talking sums of money that are tiny in comparison to what you're used to. It might be hard to believe that not everybody has $1k laying around. But paying $100/mo is far more pleasant, to say the least.
Here's another anecdote: new apartment in a new city. I was about 21 and had no credit history (bad or otherwise). I'm settling into my new apartment and call around to find out who the ISP is. It's AT&T. Call them up, ask for Internet. "No." "What do you mean 'no?'" "The system says 'unknown risk'. Our policy is to not do business in this situation."
I'm not exaggerating or making it up. There was no alternative, and I was completely screwed. There was no other ISP! We ended up using a family member to establish the account. But most people don't have anybody to fall back on. I don't know if AT&T still has that ridiculous policy, but there are other situations just like that.
1. You're right, in the sense that most people on HN with an established career in technology are, relatively speaking, "rich". That was my point: if you're stably employed in technology, your credit score might matter less than you think it does.
2. You're wrong, in the sense that with the exception of the credit card anecdote, which I related as a way of demonstrating that I had in fact had some interaction with my credit score, all of that post concerned stuff that happened long before we sold Matasano. By the standards of HN in 2017, in the mid-00's, I was most assuredly not rich (the way you mean it; I'm just stipulating your term). I've had terrible credit the whole time.
A big part of my point is that "just use cash" worked out much better for me than attempting to rely on credit. Obviously, if I worked as a retail clerk, that would a very problematic strategy. But I don't. If I had been able to resolve "need a new laptop" with credit instead of cash, I'd have been worse off.
I get that the rules are different for tech workers. Part of the point of saying this is to remind people that the rules may be more different for us than we think, which should have moral implications for us as well.
The credit system just sucks. It's a historical accident. But it's also not really realistic to say "In some cases you can get away with not worrying about your credit score if you're a tech worker."
As for "windfall vs. 9-5", I spent ~20 years in the latter category, a category which I'm not unlikely to end up in again, and I simply don't agree with you.
Maybe another way to put it is this: for all the problems you've had with personal finances, I assert that acquiring revolving credit is a good solution to none of them.
Finally: since litigating this further is inevitably going to involve getting into pretty squicky financial details and debates over personal financial decision-making, I'm going to stop here. Since I think you'll probably disagree with me, I want to be clear that I expect and will read any rebuttal to this that you write, but I'm not going to continue the debate.
It would be delightful to find an answer to some of the problems of bad credit. But it kind of matters.
To be clear: everyone should understand that it's MORE expensive to be poor than to be rich. The key is a BUFFER, just like the buffer loading a streaming video. Someone with a $2k buffer can weather most common issues that come up as long as they can fill the buffer up again each time it gets used. Someone with a $2k buffer is not a truly poor person who is in debt and gets payday loans or worries about whether they will eat, but a buffer like can be had WAY before you can be called "rich" (and some rich folks can be incompetent and not keep a good buffer).
The vast majority of people are in a position where they could keep some buffer if they learn to. The class difference here is whether or not someone gets the financial education to care about keeping a buffer.
But obviously, some items can come up and kill any normal person's modest buffer, and then things get painful. And the rest of your points about how the system works are valid.
That surprises me. I have relatives who have TERRIBLE credit. Reposessed cars, unemployed, a lifetime of poor financial decisions. They have had no trouble getting utilities or e.g. DirecTV service. They typically have to pay several months in advance as a "deposit" but they are not turned down flat.
Even "unknown risk" would be in the worst case approximately that. Doesn't seem to make sense.
It seems to me you are simply gloating in your ability to avoid credit. Those who are able to avoid credit have little interesting to add to the conversation about credit reporting agencies.
It is irrelevant whether you have any credit cards, or whether you have a bad credit rating, or whether you care. If you have a mortgage in the US, then Equifax, Experian, and TransUnion have your number. They have your number, they have mine, and they have brownbat's.
Now, other people have my number. And the only way I could have avoided that was to have paid cash for my house and/or had a fairly limited set of landlords forever. So the OP's point still stands, but I strongly agree with patio11's comment that my credit rating cares about me irrespective of how I care about it.
EDIT: sp
Were you trying to rent in a tight housing market? In Vancouver, it's common for landlords to (completely illegally) weed out the tenants they don't want -- in particular, single parents, certain ethnic minorities, and people in low-class occupations -- via the excuse of credit scores (even though they accept childfree white professional-class tenants who have those same scores).
I suspect that maintaining a good credit score is far more useful for people who will encounter landlords which are looking for an excuse to reject them.
There is also a separate tenant screening for real estate that, at least for me, seems to be more reliable as an indicator for trust than the financial credit report. It is possible your landlords are doing the same? Perhaps that’s what you mean by reference checks?
> It's more than likely that if I was in a different career, and particularly if that career was in a lower-paying sector where workers have less leverage, my credit score would be a real concern in finding a job.
I’d point out poor credit is also problematic in high-paying professional fields, e.g. in a sector requiring clearance, or perhaps in a sector requiring licensure. As I understand it even public trust clearance would be problematic with poor credit.
It’s great your strategy has worked out well for you, but it seems a required part of your strategy is to be remarkably lucky.
I'd like you tell me more about how you think I've been lucky with respect to my disregard for my credit score. I don't think I have.
I don't understand what this contributes. I guess it's great that won't work for the feds but that's hardly a generalizable position. Are you suggesting that passing the background check for a major exchange informs on the outcome of a public trust clearance or a professional license? Criminal background check portion perhaps, but not character and fitness—I would SWAG you'd need to correct your report before you could proceed.
> I'd like you tell me more about how you think I've been lucky with respect to my disregard for my credit score. I don't think I have.
Your tl;dr sums it up, your strategy works for you, but how it at generalizable even for a limited definition for “tech workers”? Partly I think you’re neglecting the advantage in being established in life before the Great Recession, which is part of why I say you are remarkably lucky. Does your strategy work for the younger cohort who would purchase a home post-2008? Does your strategy help for people who experience a significant adverse life event like divorce or a natural disaster?
That part of your "dispute resolution strategy" is to "ignore mistakes and disputes forever" and live unimpeded, when there are so many who could not do the same (myself included, it'd be a career-ender), leaves me slack-jawed with amazement. My congratulations to you, but I hope you see that few can get away with that.
Eh, this can get overstated on all those guides to hack your score.
My wife and I are both, to put it mildly, debt averse. When it came time to buy a house the lenders cared far more about debt to income ratio than scores, which we never built up through artificial debt, but turned out fine anyway.
Lenders deal with enough people that they quickly realized we were the sort of weirdos who would pay early and competed for our business. I suppose they could have wondered if we would be so confused by how debt works that we'd just skip random payments because we are bad at monthly responsibilities. Somehow they ruled that out by talking to us and looking at information about our lives. Makes sense, that's basically their job. Otherwise they're leaving money on the table.
So sure, definitely watch for errors. Don't take something on then default. But otherwise a light history is not going to sink you, at least not on its own.
(Not a problem since I built up history using a credit card but pretty kafkaesque.)
Debt-lenders no longer can sustain growth on just houses and cars- "let's go after furniture, all consumer goods, technology, payday loans"... etc.
It is a good solution for many to "just have money on hand", but when asset prices are inflated due to easy credit, how can I ever have enough to buy in cash?
You can buy a house with no credit history. Look it up.
So, out of 3.5 billion adults in this world, only 0.7% have the ability to buy a home in a large city in cash.
What, then, should the other 99.3% of people do?
Mr. Money Mustache[1] has been blogging about this for years, and it's a great place to start for people who don't understand personal finance. Also check out the personal finance[2] and financial independence[3] subreddits.
[1]: https://www.mrmoneymustache.com/
Yes but it's actually very doable and we can do it while adding value. Be the example that you don't believe exists.
Whatever possible route there is to everyone being rich, it involves a fundamentally different economic system. Socialists would have you believe they have the answer to that, but there's good reasons to be highly skeptical. Capitalists don't pretend to have the answer, they (generally, there's lots of variations of "capitalism") openly accept that we need some people to be rich and others to be poor in order for the system to operate.
I used to try to live according to Kant's Categorical Imperative where I would aim to be the example for the world I want to see, the one where everyone would prosper if they all behaved as I do. Then, I realized that was just a delusional way to think. It's an interesting philosophical question to discuss, but people don't all act as I do in reality, so acting as though that fantasy were real is often totally counterproductive or self-sacrificing with nobody benefiting. Reality is complicated and complex.
> Be the example that you don't believe exists.
It's in response to you saying:
> of an inherently exploitive system. A trivially small number of them actually added true wealth to the world
And I agree, not everyone can be rich, but on an individual basis it's not that hard.
The good thing about capitalism is that the average quality of life gets elevated. The rich do get richer (which we shouldn't focus on) but poverty also gets eliminated at the same time.
And yes, as you say, people won't act like the utopia we'd like, so it's not perfect. But it's better than anything else by a long shot.
Well, yeah, that's the difference between micro and macro. In a free society without a nobility or class system, it's possible for any one individual to rise from poverty to privilege with luck and hard work. But if it's a zero-sum game where one success is another's loss, then "being the example" isn't an example of anything, it's just being the winner instead of the loser. Of course, most success isn't entirely zero-sum, but it has too many zero-sum elements far too often and is also too-often entirely zero-sum. And some people try to ignore the entire issue of when or whether or how-much some success is zero-sum.
> The good thing about capitalism is that the average quality of life gets elevated.
Crediting "capitalism" here is entirely dubious. The correct credit goes to technology and innovation. There's nowhere near adequate evidence to conclude that capitalism itself automatically increases average quality of life. Perhaps you are mistakenly lumping all of trade and markets with "capitalism"? Markets are often positive for everyone, and trade is generally positive for everyone, raising everyone's quality of life. In our society, probably because of propaganda to this effect, people consider markets and capitalism synonymous sometimes, the same semantic way people in some contexts might consider "moral" and "religious" (or even "Christian") to by synonymous.
In short, if you're just saying that markets and trade benefit everyone generally (but not necessarily), then we have no disagreement there.
I really don't think there is a way to shoe-horn this for everyone.
If there was an easy way for everyone to be able to afford a house, it probably would have happened by now??
There are only so many 100k per year jobs available, and there's only so much expense cutting you can do.
At some point, the asset is just priced too high, often for artificial reasons.
See also: en wiki . org / 2007 mortgage loan crisis
Which is to say that there are job opportunities in Dallas and Indianapolis and Atlanta and so on and so on, which are all cities with the housing equivalent of Honda Civics.
If you insist on a Bentley (i.e. the largest coastal cities), then I guess I just don't know what to tell you except that you should reconsider a visit to the Honda lot.
There are lenders who do not require a credit history. Look it up.
The "save, wait" comment was more general than house buying.
For me, the easiest solution has always been renting a room without a lease from a buddy at a rational price
I suppose the issue here is that the "wait and save" approach does not always have success, especially in the Bay Area.
The reason for that is because there is a finite number of houses, and an excessive number of bidders. These bidders use loans and leverage (other people's money) to pay a higher price than they normally would be able to afford.
Thus, waiting and saving is tougher.
Of course this begs the question, why not just avoid the Bay Area?
Unfortunately, most of the tech jobs are there. Other cities don't have the job capacity, despite having plenty of houses.
So, finally, there really only are 33m people on this Earth who can afford to pay cash for a home in the Bay Area.
The rest have to leverage, and thus, are affected by identity theft and credit scores.
Your comments imply Bay Area housing costs are the default, but they're not. They're the exception. Contrasting the number of global millionaires with Bay Area housing costs in response to a general statement about saving to buy a house is silly.
I'm not sure how realistic it is to save for instead of getting a loan for a house, but I started my career 30 minutes from a city in the US with an international airport. I got a mortgage, but the house was $117k, in a safe neighborhood, with a garage, three bedrooms, and 2.5 baths. There is a whole world outside the Bay Area.
I hope you don't expect to lose your job every few months, but in case you do, remember that new jobs pop into existence. It's not like a city with 100 jobs is on the verge of running out. (several years later: "oops, the last job got used up in 2018 and we can't ever make any more; this city is all used up")
I've had my tech job for a dozen years now. It pays well enough to get a 3500-square-foot house on half an acre and feed a huge family, even though the pay is perhaps only 2/3 of what I'd make in San Francisco or Mountain View. The 5x to 10x difference in housing cost more than makes up for the salary difference.
- Car payments (they let me use credit cards with no fee, >$9 / month rewards)
- utilities ($1 fee, with >$1 rewards)
- Food (>$20 / month rewards)
- Gas (>$5 / month)
There are more, but that's what $40 / month. If you then use a churning method to get more points, like opening a new card where you spend $4000 in three months get $500 back, then it's even better. It depends how much you normally spend, but for me - I don't need to change spending habits. Just only use that single card.
Last year I made $2500 from credit cards with my standard spending. I took out three new cards, paid for my wedding, then paid them off. Haven't used them much since and I didn't need to spend any more than I normally would have.
Help me understand, US$ 40 in rewards agains a monthly spending of?
The point being he's spending the $2000 anyway, so he'd rather get $40 back from his credit card company rather than $0 back if he used cash or debit.
Cash-back is "money", reward points (more or less) is "discount on given good".
You likely paid for however you typed that comment. Putting that on a credit card with rewards and paying it off asap wouldn't hurt you one bit. Only can help you if you have the discipline not to over spend, which seemed like a given in OPs post.
Like the discipline to never use Facebook? Extremely rare. And psychologically expensive.
Also pay off CC in full every month, so no interest payments on what are effectively short term loans.
Neither is at all psychologically expensive. However paying off CC in full every month does require sufficient income (and/or restraint in spending for those without the sufficient income) to be able to do so.
Much easier to keep scrolling and consuming on FB than stopping.
That's the comparison.
There are some apartments around here that let you pay rent by credit card. You'd be foolish not to take advantage of that and save at least 1% on your rent.
Edit: I agree. If you're making an expense anyway, it is obviously better to get the highest reward you can get. But we're talking local optimization now.
All the decent or better CCs I've seen, offer pretty nice opening offers. I'll definitely be taking advantage of the "spend $3K in 2 months and get $500" sort of deals and pay off those balances. It'll essentially be free money. Like churning you said, Reddits churning subreddit provides a lot of info. Not sure if there are other good communities, but that seems good.
Maybe spend the time increasing your income.
(I have done this... Rarely would the hassle.)
I've done this... Not worth it. Focus on more important things.
Invest in increasing your income instead. That's my recommendation. Long term thinking.
Buy a used car and invest the bulk of the cash (if you actually have any). Can't get great deals on used car loans compared to new.
Fees/depreciation quickly kills the allure of a good rate.
If your user credit cards for rewards you don't realize that it actually makes you spend more money than you're getting in "rewards".
Last year somebody opened a number of phone contracts and ordered TV (to my house...?) in my name. Here in the UK apparently you just need a name, address and date of birth to walk out of a shop with a brand new iPhone 7.
I eventually got it sorted, but it took a couple of months to get every cleared up. I made the mistake of using the phone, although the people I spoke to were helpful, I had to repeat everything from the beginning many times. If it happens again, I'll follow this advice and write letters.