The Debt Trap

[Konaexpress]

OK , a good credit rating is determined by how much interest you have paid out.....
Now , who do you suppose came up with that idea ?

errr?..........Same people that came up with "Good Debt"?

John

 

[SoulRaven]

Young people today are told they won't be able to buy a car or house with out a good credit score. So they get credit cards buy stuff on credit working for that credit score. To maintain a good credit score they have to be in debit all the time. I bought my first house and never had a credit card and bought several cars before I had a credit card. I had a credit card for a few years, when I saw their abusive tactics on how they apply the interest and try to keep you in debit, I got out of the credit card scam. I tried to teach our kids not to get into the credit trap but they had to have a good credit score. My daughter asked me what my score was once I just said it should be a score at 0 if I don't owe any money!

If you didn't pay for the house outright, the mortgage would have built your credit score. If you didn't pay for the cars outright, the auto loans would have contributed to your credit score. You can have a credit score without owning any cards. And even the card you have canceled still contributes to your credit score in some ways.

So, you have a credit score in existence. You may have not used it for a while, but it's there.

For those without any credit score in existence, yes buying a car or a house can be extremely difficult. Those with no credit score are deemed a higher risk to most lenders than those with a horrible score!

You don't have to remain in debt to obtain a good credit score. You can use credit cards in such a way that you never pay any interest. You do want to keep accounts open, so if you don't use your card for several months to a year the bank might close it down. I recently got a 5-year, $500 loan specifically for the purpose of building my credit score. I paid all but $48 of it back a month later (no fees for doing so). In total I'll spend maybe $5 in interest, tops. my next payment is automatically scheduled for years down the road.

I use my credit cards like a debit card that I have to click a few extra buttons for the money to go through.

Occasionally I use them for a big ticket purchase where it makes sense, e.g. purchasing a year of car insurance at once at a discounted price, which saved me $27 off that and earned me $100 bonus money from the card plus ~$10 cash back.

I make it a personal policy to never pay interest. It can be done and it's not that hard if you understand that available credit is not the same as having more money to spend.

We'll see if my efforts pay off by making my insurance more affordable next October.

 

[gcal]

If you didn't pay for the housuld have built your credibility score. If you didn't pay for the cars outright, the awould have contributed to your credit score. You can have a credit score without owning any cards. And even the card you have canceled still contributes to your credit score in some ways.

So, you have a credit score in existence. You may have not used it for a while, but it's there.

For those without any credit score in existence, yes buying a car or a house can be extremely difficult. Those with no credit score are deemed a higher risk to most lenders than those with a horrible score!

You don't have to remain in debt to obtain a good credit score. You can use credit cards in such a way that you never pay any interest. You do want to keep accounts open, so if you don't use your card for several months to a year the bank might close it down. I recently got a 5-year, $500 loan specifically for the purpose of building my credit score. I paid all but $48 of it back a month later (no fees for doing so). In total I'll spend maybe $5 in interest, tops. my next payment is automatically scheduled for years down the road.

I use my credit cards like a debit card that I have to click a few extra buttons for the money to go through.

Occasionally I use them for a big ticket purchase where it makes sense, e.g. purchasing a year of car insurance at once at a discounted price, which saved me $27 off that and earned me $100 bonus money from the card plus ~$10 cash back.

I make it a personal policy to never pay interest. It can be done and it's not that hard if you understand that available credit is not the same as having more money to spend.

We'll see if my efforts pay off by making my insurance more affordable next October.

I have no idea what the terms of your 5 yr loan are, but double check to make sure when your next payment is due. Some lenders will take the extra money you prepay and apply it to your principle balance, but still require the next month's payment. You don't want to mess up your credit rating with late payments and late fees that you were not expecting.

 

[SoulRaven]

I have no idea what the terms of your 5 yr loan are, but double check to make sure when your next payment is due. Some lenders will take the extra money you prepay and apply it to your principle balance, but still require the next month's payment. You don't want to mess up your credit rating with late payments and late fees that you were not expecting.

Thanks, my lender is Alliant Credit Union and they're not like that. The monthly payments are automatic from a savings account, so if the date were to change on me unexpectedly payment would still happen. I'm on a the MyFico forums where there's a lot of super knowledgeable people, and Alliant is one of two credit unions that have really good reputations for this sort of thing, basically catering to those who want to build their credit. For those without any current mortgage or open installment loans, a savings secured loan with one of these is the proven technique to basically put a token loan on your record without much hassle or nasty surprises. I wouldn't have done it if there wasn't literally dozens+ of people who had been doing it for years to guide me through the process!

I appreciate the concern, though. I'd definitely be hesitant doing it with any bank where a bunch of others in my shoes hadn't already tested it out for me.

 

[Patd4u2]

Unfortunately it is very difficult to get away from having to apply for credit when purchasing a big ticket item, and if you don't have a good credit score you are going to pay more in interest for that new or used car you didn't have enough in the bank to pay cash for.
I got rid of all my credit/store cards a while back and I do not regret it at all. I have just one that I use for everything and pay it off on the first of the month. I get reward points with it and almost have enough to buy the solar battery I want on Amazon.
When I was at the dealers last month buying my Jeep Wrangler I had to really fight with the guy to get the best interest rate. If you are a nice guy/woman they will really stick it to you with a higher interest rate, they make their money with a higher interest rate.
Same with credit cards, if you have a low score you will be paying higher interest rates on the one you have.
There is no way to get away from our corupt banking and financial system, we are stuck in it like it or not.

 

[gcal]

Thanks, my lender is Alliant Credit Union and they're not like that. The monthly payments are automatic from a savings account, so if the date were to change on me unexpectedly payment would still happen. I'm on a the MyFico forums where there's a lot of super knowledgeable people, and Alliant is one of two credit unions that have really good reputations for this sort of thing, basically catering to those who want to build their credit. For those without any current mortgage or open installment loans, a savings secured loan with one of these is the proven technique to basically put a token loan on your record without much hassle or nasty surprises. I wouldn't have done it if there wasn't literally dozens+ of people who had been doing it for years to guide me through the process!

I appreciate the concern, though. I'd definitely be hesitant doing it with any bank where a bunch of others in my shoes hadn't already tested it out for me.

I think you misunderstood.  Applying overpayments to principle while leaving monthly payment requirements intact until the principle amount is paid in full is not a sneaky trick. It is a service provided by the bank that allows a debtor to pay off a loan faster than scheduled and avoid paying some  interest or prepayment fees.

 

[gcal]

Unfortunately it is very difficult to get away from having to apply for credit when purchasing a big ticket item, and if you don't have a good credit score you are going to pay more in interest for that new or used car you didn't have enough in the bank to pay cash for.
I got rid of all my credit/store cards a while back andflexibility  regret it at all. I have just one that I use for everything and pay it off on the first of the month. I get reward points with it and almost have enough to buy the solar battery I want on Amazon.
When I was at the dealers last month buying my Jeep Wrangler I had to really fight with the guy to get the best interest rate. If you are a nice guy/woman they will really stick it to you with a higher interest rate, they make their money with a higher interest rate.
Same with credit cards, if you have a low score you will be paying higher interest rates on the one you have.
There is no way to get away from our corupt banking and financial system, we are stuck in it like it or not.

Not sure if it still works with cars, but I know that mortgage rates usually get lower ascthe length of the loan gets longer. So, take out the loan for the longest possiblevtime to getvthe best interest rate. Then, double up on your payments and have the extra applied to your principle. You will get the lower rate, plus you will get flexibility if you run into unexpected financial trouble.

 

[SoulRaven]

I think you misunderstood.  Applying overpayments to principle while leaving monthly payment requirements intact until the principle amount is paid in full is not a sneaky trick. It is a service provided by the bank that allows a debtor to pay off a loan faster than scheduled and avoid paying some  interest or prepayment fees.

The unique thing about these particular banks is that they allow you to make early payments to pay off most of it while leaving the account open for the full period of time, which is ideal for credit score purposes. The way Alliant does it is that my next "monthy" payment is scheduled for a few years down the track.

 

[Patd4u2]

Not sure if it still works with cars, but I know that mortgage rates usually get lower as the length of the loan gets longer. So, take out the loan for the longest possible time to get the best interest rate. Then, double up on your payments and have the extra applied to your principle. You will get the lower rate, plus you will get flexibility if you run into unexpected financial trouble.

The lengths of the car loans are getting longer as the prices of these new vehicles goes up. After arguing with the sales manager for a while to get the interest rate I wanted he was telling me that he has had customers with bad credit getting 20% interest rates when buying their new car. I don't think I  would be buying a new car with that kind of interest rate.
I got a pretty low interest rate on my house loan, 3.75% fixed, I am lucky that it has gone way up in value since I bought it back in 2011 when the prices here were pretty low, I was thinking of selling it but have changed my mind. If you get out of the housing market now it will be harder to get back in with the house prices going up, plus I want to give my  daughters something when I kick the bucket.

 

[rvpopeye]

So , lets see if I got this....

Your insurance company (gotta have it , it's required by law, sponsored by the insurance lobby) want's your credit rating before they "calculate" your premium. You pay less if you have a high credit rating and more if you have a low one. So you're penalized if you haven't paid enough interest ......

Now , more about loans and insurance ,,,,you get a loan to buy a new car , the bank requires you to have total full coverage , they own the car , not you. Don't think so ? , just miss a few payments.

Home /property mortgage loans , ditto.
Getting a longer payback time and a lower rate still ends up with the same ,or (probably) more interest paid over the life of the loan.
Credit rating and other loans works the same way.

The whole thing is set up by the banks/corps that make the profit...that's what really matters to them .

 

[GotSmart]

So , lets see if I got this....

Your insurance company (gotta have it , it's required by law, sponsored by the insurance lobby) want's your credit rating before they "calculate" your premium. You pay less if you have a high credit rating and more if you have a low one. So you're penalized if you haven't paid enough interest ......

Now , more about loans and insurance  ,,,,you get a loan to buy a new car , the bank requires you to have total full coverage , they own the car , not you. Don't think so , just miss a few payments.

Home /property mortgage loans , ditto.
Getting a longer payback time and a lower rate still ends up with the same ,or (probably) more interest paid over the life of the loan.
Credit rating and other loans works the same way.

The whole thing is set up by the banks/corps that make the profit...that's what really matters to them .

You have to vote for it, to see what is in it.      :dodgy:

 

[Patd4u2]

So , lets see if I got this....

Your insurance company (gotta have it , it's required by law, sponsored by the insurance lobby) want's your credit rating before they "calculate" your premium. You pay less if you have a high credit rating and more if you have a low one. So you're penalized if you haven't paid enough interest ......

Now , more about loans and insurance  ,,,,you get a loan to buy a new car , the bank requires you to have total full coverage , they own the car , not you. Don't think so ? , just miss a few payments.

Home /property mortgage loans , ditto.
Getting a longer payback time and a lower rate still ends up with the same ,or (probably) more interest paid over the life of the loan.
Credit rating and other loans works the same way.

The whole thing is set up by the banks/corps that make the profit...that's what really matters to them .

"they own the car"

Same thing with your house, you never own it, even if it's paid off. Don't pay your property taxes and see what happens, they will kick you out and auction it off to get their money. "Land of the Free"...lol

 

[Optimistic Paranoid]

Your insurance company (gotta have it , it's required by law, sponsored by the insurance lobby)

Personally, as someone who had an uninsured motorist cross the center line and hit me during a snowstorm - totally destroying the car I needed to get to work every day - and causing me months and months of problems, I don't accept your implied theory that mandatory insurance is some sort of scam perpetrated by the insurance companies.

Regards
John

 

[Iggy]

My credit score is crap due to two failed businesses and a couple mercenary girlfriends. Four credit cards were cancelled. I have a $750 credit card that I've been very faithful in paying each month on. Usually I pay it off entirely when the bill comes due, but always pay at least the minimum.
The credit union manager asked if I wanted to raise the credit limit. She said that they would look at my job situation, where I live, tax returns, etc. I said no thanks. If they knew that I lived in my van and only worked sporadically , my current card would be cancelled!

 

[rvpopeye]

OP
Your post shows that not everybody complies with the law.
The exact mechanics of how the laws were created may be obscured for some reason.
I'll refrain from describing the role of lobbyists because of possible forum rule infringement.

 

[mockturtle]

It is also unfortunate that credit scores are used for both employment and for rentals. My younger daughter wanted to rent a house about five years ago and didn't have a credit score. I suggested she offer them a year's rent in advance, which she did. They accepted it. But not everyone has the money set aside to do that. Having to go into debt to establish credibility is absurd, IMO. The system is rigged, pure and simple.

 

[SoulRaven]

It is also unfortunate that credit scores are used for both employment and for rentals.  My younger daughter wanted to rent a house about five years ago and didn't have a credit score.  I suggested she offer them a year's rent in advance, which she did.  They accepted it.  But not everyone has the money set aside to do that.  Having to go into debt to establish credibility is absurd, IMO.  The system is rigged, pure and simple.

I personally don't see it as being rigged. Stupid? Definitely. But so is a bunch of other stuff in society. I feel really dumb waiting at a red light at 2am when no one else is around and it takes literally 5 minutes for the light to change. But, it's part of driving the roads--sometimes the structure put in place for safety and fairness ends up being pointless and unfair, but I do it anyway because on the whole it's what helps make everything run smoothly.

I view credit scores the same way. Like it or not, they've become a standardized measure in society of how competent you are at life, e.g. their use regarding employment, rentals, and car insurance. Because this is a fact of our society, I consider credit score literacy to be a basic essential skill for successfully navigating westernized civilization. It can be annoying and stupid, but once you understand how it all works it's not actually that difficult to set up and the benefits can be substantial.

I understand the sentiment of "this doesn't make sense therefore I'll have nothing to do with it", but I've come to realize that approach works against my best interests.

 

[mockturtle]

Bitty, as has been pointed out by others, our society is rigged to reward debt and discourage savings. IMHO, while this is, indeed, 'the way it is', I don't have to like it or believe it to be right. Will our national debt continue to just multiply, or will there eventually be a day of reckoning? Who benefits from it? Our debt holders, e.g, the Federal Reserve Banks [privately owned banks] and China to name the top two. Is there much incentive to decrease or eliminate it? Hell, no!

 

[gcal]

So , lets see if I got this..
[quote pid='188199' dateline='1458232928']
any




DUPLICATE. PLEASE DELETE
The whole thing is set up by the banks/corps that make the profit...that's what really matters to them

 

[gcal]

Thanks

So , lets see if I got this..
[quote pid='188199' dateline='1458232928']
any (gotta have it , it's required by law,

_________________________________________________________
You credit rating is not based on how much interest you have paid. It is based on your ontime payment history and roughly on your current debt to income ratio. If you get a longer loan for the lower rate, you can pay it back early to avoid paying the full amount of interest. The trick is having the self discipline to pay the extra money every month. When we refinanced our house, we only wanted a 7 year loan for $xxx. We took out a much higher loan for 15 years in order to lock in a better interest rate. We put away the extra money from the loan and sent it back to the bank with our first payment. The bank is counting on you to spend it, and most people do. Then, we doubled our payments and paid it off in the 7 years we intended. We actually did take advantage of the lower payments for 3 months due to medical bills.