Comment by crikli | Hacker News Reader

Comment by crikli | Hacker News Reader

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No, credit cards exist because in 1978 the Supreme Court released an opinion allowing banks to export interest rates from one state to the other. So a bank in a state with a 25% interest rate cap could lend to a family in another state with a 12% interest rate cap. Politicians figured out quickly that if they bumped up the credit rate ceiling in their state that the financial institutions would come running, cash in hand.

Thirty(ish) years later we have an insidious industry that has saturated US culture with the poison of unsecured credit. They set up stands at colleges, snaring college freshmen with offers of free tee-shirts. They sponsor educational curriculums in grade schools advocating the use of credit cards. They even kick money to toy makers to include a little "Visa" or "Mastercard" with their products. They lobby Congress to pass laws making it harder for people who've dug themselves into a hole to include credit card debt in bankruptcy.

Credit is not necessary for modern living, despite the propaganda that permeates every piece of media to which we have access. I know this because 18 years ago I was that ignorant kid that wanted a free teeshirt. Ten years ago I quit using credit as a means of purchase, and six years ago I made my last monthly payment (with the notable exception of student loans, which is a rant for another day).

It's worse than that. The fact that credit is so easy means more people get themselves into debt. This means other services providers and lenders over rely on credit scores to determine whether they should accept new customers. It's cyclical.

I hear my friends talk about applying for multiple cards at the same time; cycling between cards so that a minimum spend is maintained and keeping and paying for cards that they don't need all so they can maintain a credit score. This is all guess work anyway, because no one really knows what contributes to this secret score.

The credit card companies must love the lack of transparency because instead of having to compete with each other and with other forms of payment we are now in a world where everyone believes they need to use multiple cards from multiple vendors. They use these cards even when they don't need or want to because of how much they fear their credit score dropping.

I'm 26 years old and I have never owned a credit card. Unless you really need to use a credit card as a short-term loan (which has always sounded to me like a really bad idea), they're just not necessary.

That isn't necessarily true. I have and frequently use a credit card, but I do not actually need the line of credit. I have it to establish a credit history so that someday when I actually do need credit (e.g., for a home loan), I'll be able to get it.

So what do you use to buy stuff electronically? Or rent a car?

And if you tell me a debit card then you are making a mistake.

There is nothing wrong with using a credit card for a short term loan, especially if you actually have enough money to cover that loan.

I use a debit card. Why is that a mistake? The only real reason I can think of is that I don't believe debit cards are covered under the consumer protection laws that credit cards are. Unless you mean because I'm missing out on the reward points that a credit card would offer me?

Yes, you thought of exactly the reason - debit cards are not safe. And I don't just mean fraud - mistakes happen too.

Additionally with a debit card you have to make sure to have enough to cover all your purchases.

With a credit card, you (hopefully) have a limit much greater than you need. Then once a month you go over your finances, pay the bills and you don't need to micromanage your account.

And http://news.ycombinator.com/item?id=3240408 brings up an additional point. Leave your money in savings, and transfer to checking only when it's time to pay the monthly bills.

If you travel and use hotels and rental cars, credit cards are very much a benefit. These companies insist on credit cards or require you to put onerous deposits and sometimes will refuse cash or debit cards outright. Airlines seem similar for their preference for credit cards. Also most of the benefits from credit cards are travel related. Like rental car collision insurance, travel insurance, etc if you use the credit card.

All it takes is little planning ahead.

For example, our business requires that I travel all over the US and I use a debit card exclusively. Never have a problem with the airlines, hotels, or renting cars, but that's because we've taken the time to know which businesses will accept debit cards without a hassle.

"Also most of the benefits from credit cards are travel related. Like rental car collision insurance, travel insurance, etc if you use the credit card."

I'm beginning to sound like a tin-foil-hatter here, I know, but things like travel insurance are fluff that the credit card companies throw out to induce people to use them.

Of course they throw that in to incentivize people to use them. Many people are unaware of these benefits since banks tend to not market them much, but it's there in your card holder agreement.

That extra due diligence costs time and reduces flexibility. Did those rental places accept your debit card without a deposit? Did they notice it was a debit card?

"they're just not necessary"

I am 29 years old. I thought the same thing as you until about age 25 when someone explained to me that CC's are a great way to build your credit rating. Since I avoided getting a credit card for so long...I had no credit and a very low credit rating! Whereas my wife who had had a CC for 10 years already had great credit. As a result, we had to utilize her credit rating when getting car loans/ home loans etc until my credit rating improved! Without good credit you can really get owned (bad loan rates) when pursuing a loan for any reason.

Take a step back though.

Why were you pursuing these loans in the first place?

Did you really need to get a car loan or did you just not have the cash to buy the car that you wanted. Could you have bought a little less car, paid cash, and have been payment free? Or could you have stayed in what you had, saved up, and then paid cash.

Same with a home. Did you need to buy a home? Or did you want to buy a home.

My point here isn't to indict your decision making, so please don't take my questioning as a personal attack.

My point is that this idea of borrowing money to make purchases has become so engrained in our thinking that very few people stop and question it.

There are cases where a clear need exists and sometimes the only way is to borrow money. I've been there. But the messages we hear on a daily basis don't talk about borrowing to satisfy needs; rather they serve to support the idea of borrowing to satisfy wants.

I'm completely with you on car loans (why pay so much interest for something that depreciates in value so quickly; you're losing out twice).

But for the majority of people it is simply not possible to buy a house without either making massive life changes or getting a loan. I don't think that becoming a life-long renter is a smart choice either.

For a fair number of people it is simply not possible to get their finances in order without massive life changes. Doesn't mean they shouldn't do it, for values of "shouldn't" such as "wouldn't be better off and happier, five or ten years down the road".

> I don't think that becoming a life-long renter is a smart choice either.

As someone contemplating if not life-long then seriously long-term renting, serious question, why do you not think it's a smart choice?

if nothing else, most landlords have loans so you're subsidising their loan (so paying at least as much as you would if you had the loan).

Perhaps, not certainly, but is that a drawback?

A mortgage is essentially a huge long-term bet, renting is a smaller, shorter term bet. The owner is betting that everything lines up nicely: the value of his property stays put or rises, nothing bad unexpectedly happens to the property, undesirable people don't move in around it, a whole-sector bubble doesn't pop. As a renter, there is no commitment: if the house is outdated you can move to a newer one with far less hassle; you don't have to worry about cost of maintenance; if you move during a bubble you can move once again when the bubble pops and pay less. The owner may end up with a property in 20 years if everything goes well, but a renter will never be underwater.

Firstly, there is a lot less security in renting. I can be evicted with a months notice. While I'm young that's part of the trade off but when I have a family I wouldn't appreciate that level of control over my life being in the hands of my landlord.

The second reason is the fact that when I fully own a house I will feel more financially secure. I won't have to worry about making rent payments for the next X years of my life and I'll feel better prepared for unforeseen circumstances. I might be able to achieve the same security by investing my money in other areas; but I much prefer investing in something tangible.

Agreed. I have never been in debt in my life (not even student loans), and I really REALLY don't want to start now. That said, it still remains to be seen whether I can make enough money to afford to buy a house without a loan when the time comes that I decide that's what I want.

I graduated from college with no loans. Then got married and had kids...thats when reality kicked in and life got waaaay more expensive.

Who can agree with me?

"Why were you pursuing these loans in the first place?"

As much as I wish I had $250K in the bank....

"Did you need to buy a home? Or did you want to buy a home."

LOL - as a married father of 2 kids in the Midwest I find this quite a funny comment. After renting for many years and dealing with horrible landlords ex: coming home on a cold winter Friday night to find my apartment bedroom with no windows with a little note stating "Be Back on Monday" - sleeping in a sleeping bag as a result.

So yeah, we "needed" our own home.

Also, given it is a great time to buy home (great rates, low prices, we got a tax credit in 2009 too) it felt like we would be stupid not to capitalize on purchasing a piece of earth/dwelling etc. Now we have a fat veggie garden, doing a remodel etc. Sometimes we regret it but overall it was the right decision for us.

Unless mammy and pappy or granny and grampy have the dough, or you sold your last company to Google, I'm guessing if you choose to buy a home, you will be calling your local loan officer and after the meeting wishing you had established some credit.

> LOL - as a married father of 2 kids in the Midwest I find this quite a funny comment. After renting for many years and dealing with horrible landlords ex: coming home on a cold winter Friday night to find my apartment bedroom with no windows with a little note stating "Be Back on Monday" - sleeping in a sleeping bag as a result.

> So yeah, we "needed" our own home.

This might be semantic wankery, but you didn't "need" to buy a house, you needed a place to live without a shitty landlord and - unfortunately, I would argue - the easiest, most feasible way to do that where you lived was buying a house.

A rating that turns out negative for people that have never needed any credit is a silly rating. Let me guess, indirectly it's the credit card companies doing the rating?

It actually makes sense. You're thinking of credit rating like it should be a blacklisting system, penalizing people who abuse it. But instead it's a whitelisting system, giving more privileges to people that have demonstrated trustworthiness. If you never play the game to begin with, then you have no credit rating, and therefore nobody knows if they can trust you.

A while back I interned with a company called Rapleaf that was trying to do the same thing for the internet, by tracking your social footprint (based on your email), figuring out information about you and, more interestingly, how long that information has been on the internet, as well as figuring out your social graph. I'm not quite sure if this is still the same stuff they're doing these days (they may be focused more on just providing data about people rather than providing "trustworthiness"), but at the time the idea was the longer someone's identity has been on the internet, and the more trusted friends they have, the more trustworthy they were. The example as to why this would be useful is a photo sharing site. If you build a new site that allows people to upload photos, you're going to need to impose a cap on the number/size of photos, or you'll very quickly end up being used as a storage provider for porn sites. But if you have a way of rating the trustworthiness of a new sign-up, you can offer them much more space because you're pretty sure they're not trying to use your site improperly. A blacklisting mechanism would be completely useless, because people would just create new accounts to get around it. But a whitelisting mechanism completely prevents that.

Like I said, I'm not sure if Rapleaf is interested in the trustworthiness thing anymore. I suspect they've found that simply selling information about people is a lot more lucrative. But the original idea was and still is a worthwhile concept.

The optimal way to play any "reputation" system is to build up an exemplary rating until you've unlocked all the "trusted-people-only" privileges, then suddenly exploit them all at once and disappear. In the case of credit ratings, this means being an exemplary debtor until one day you're trusted with a huge loan and you default.

This clearly still happens. It's a fundamental fact about how debts work and it's a central element in many confidence tricks (for example pyramid schemes). So credit ratings only benefit the lenders if the amount they save on loans to suboptimal players who default at random exceeds the amount they lose to organized people who exploit the system.

They're not necessary, but they sure are useful. You get all sorts of perks, like fraud protection, extended warranties, etc, etc. You get cashback (or miles or points, or whatever). All you need to do to stay in the black is to pay your balance at the end of the month. Best thing ever if you ask me.

Credit cards are incredibly useful for two reasons, IMHO.

1. It's like having a proxy between your actual accounts and your purchasing. A stolen credit card is annoying and easy to rectify. A stolen debit card is terrifying.

2. Sometimes in life, an expense arises that exceeds both income and savings. When this happens, we either pay with credit (of some kind), we don't meet our financial responsibilities, or we go without. Sometimes the best option is to go without. When that is not possible, the credit card is a good answer. Pay off your balance responsibly and as quickly as possible and either save more in the future or be prepared to pay interest again.

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