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Is it Just me or is the Idea of "Credit Score" Annoying as Hell?

 
pioneer
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Hello All,

First let me say that I don't have a credit problem (although I can't wait to pay off this damn mortgage).

Lately I've become disenchanted by our society, not that I was ever super enchanted with it.  

This notion of a credit score bothers me from time to time. The message of "Oh! You better have good credit or we won't let buy into our little financial system".

I guess humans live their lives on ideas. But it amazes me how many people play the game. They go out and mortgage themselves to the gills, buy boats, or the next great possession that will actually end up owning them. Every time I see a credit score commercail on TV I'd like to follow it up with my own that says "Don't listen to that nonsense. You don't need all the crap you think you need. Just go be happy for crying out loud." (or something like that)

A bit of a rant. I apologize.

But I would like to hear some other opinions.
 
pollinator
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I understand the reason for businesses to want a way to tell if someone is going to pay back lent money.  The problem comes in when you have to game the system.  A few years ago, I had bad credit, not because I did anything wrong, but because I always paid cash.  I had no loans, no credit cars, no car payment, nothing.  I knew I needed a loan to buy the land I wanted, so I had to game the system.  I started out with a signature loan at my bank.  I didn't need the money, so I took out a loan, put the money in my savings, and set up automatic payment plans.  I went to credit karma and looked at the criteria that is used for an excellent credit rating.  You need credit cards.  I couldn't get good ones at first, so I got cards at all the gas stations around my, paid for my gas with them, and set up auto pay to pay the bill monthly.  Credit karma also has "suggested cards" for you, so I applied and got a couple of those.  If your credit score is low, you can get cards, but with really high interest rates.  I don't care because I pay them off monthly.  I kept at it until I had 12 or 14 credit cards.  My credit rating was steadily increasing.  I kept at that for a couple years and now my credit rating is excellent.  There are fringe benefits to that.  I went to a Farm/Fleet store the other day that had a pair of boots I wanted.  If you apply for a credit card at the register while you are paying, they take $50 off the price if you are approved.  Less than 2 minutes later I was approved for a $15,000 credit card and got $50 off my boots.  I won't ever use the card, but I saved the money anyway.  You just have to play along and use the rules to your favor.
 
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I think I must have a great credit score as the banks are always trying to lend me money.  But to be honest, I don't care.  I don't buy something unless I already have the cash physically in my hand to pay for it.  

At the start of the month, I withdraw 50% of last months income minus my rent.  Every time I buy something on my credit card, I put that much cash in the credit card pile.  If I run out of cash before the end of the month, I don't buy anything else except food until next month.  If I still have money left at the start of the next month (which is the most common), I don't bother going to the bank until I run out and then get out less.  Every few months I take the extra stuff that builds up in the bank and put it in a high-interest tax-free savings thingy the bank recommended. Sometimes I take money out of the high-interest savings thingy to pay for big purchases like new winter tires.  

I understand that paying off my credit card each month means my credit score is better.  But since I think that paying interest is a waste of money, there aren't many things I would want to get a loan for.  Besides, I don't have enough income to pay interest so I just delay the purchase and save up the money.

The exception being maybe a mortgage.  I love the idea of owning my own home, that's one of the reasons why I'm actively saving money now - so I can put down as much as I can and not have to pay all the interest and insurance that comes with a long term mortgage.  

I'm not sure what else one needs a credit score for?  If you don't borrow money, does it matter?
 
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I have a zero credit score. I don't borrow money. Doesn't work with my head or lifestyle.

Years ago I was going on a trip, needed a bit of cash in case of emergencies. Went to a car loan place, handed them the title to my car, got 800.00 cash. Came back two weeks later, handed them their 800 back still in it's envelope, took my title back. That's NOT how they play that game, they were rather dismayed. they tried to talk me into keeping it.  Not doing that again.
 
pollinator
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Oh, it's a total game!  But not like a family board game.  More like a Las Vegas, "rigged so that you're always going to lose", type of game.

The whole idea is to keep people paying that interest, every single month, forever.  If not, you will be punished.

Like any rigged deck, the best way to win is to refuse to play.
 
pollinator
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Some of us have got so fed up, we just no longer play.

I fully admit I have terrible credit...because I always pay in cash. Credit is based on debt...everything about how it is derived is based on debt, so the more debt you have, the better credit you have. That is insane. When I hear people boast about credit, I cringe inside because what they are really telling me is...they have lots of debt. What we all should be bragging about is how bad our credit is, which is another way of saying, we have very little debt.

But how much does a person really have if some financial institution could take what they have away?

My suggestion is to take a Financial Peace University course taught by Dave Ramsey. People try to argue with him, but it is pretty hard, because he has been on all sides of the equation from financially wealthy, to poor, and now back in the plus side again. In his course, he has a lot of wise wisdom, said in such a way that it just makes you think.

Like at one point he talks about how he has no credit, and could not go down to the local apartment complex and rent an apartment because his credit is "undeterminable" because he uses only cash. Then he laughs and says he could buy the whole complex with cash. Yes...he could not rent one single apartment, but could pay cash for the entire building with 100 apartments in it, but that is how messed up the system is. And it is. I am the same way. I could not buy a single brand new car via traditional bank credit, but Katie and I could buy plenty of brand new cars if we used cash.

Dave Ramsey is a Christian, so a lot of his courses are taught in churches. Our church constantly has a class going on. I wish Elle was online, she just had a baby a week or so ago, so she is busy, but her and her husband are Dave Ramsey instructors at their church, so she could verify what I say. But look him up on youtube, and if nothing else, apply his "7 Baby Steps". This is an excellent roadmap to get a person from broke, the financially thriving...

But if you are mad...congratulations, a person has to get good and mad at the system before they make meaningful changes in their financial lives. And welcome to the sucky-credit club, but take heart, we may have poor credit, but at least we are better than 85% of American's who are flat broke. BROKE!
 
Travis Johnson
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Some people just do not get how the game is played...

A woman in our class could not understand why having good credit was meaningless. Like she pointed out, she got a good credit discount every month on her auto insurance. It was like $12!

I always have cash, so I went to buy a antique kitchen stove for our house...I caught the sales woman on a bad day, and so she said she would take 50% off if we paid in cash. I stuck my hand in my pocket and just happened to have $3500 on me. I paid $700 instead of $1400, and that was just one purchase. That was 58 months worth of her "good credit discount" on her auto insurance. It is a total scam. Pay the extra $12, and reap tons of money by using cash...

Everyone has credit, and everyone is broke (85% of Americans have less than $1000 saved).

EVERYONE wants cash, and few people have it.

It is an easy game to play. Don't play the game that 85% of people play, and instead have the cash that everyone wants.
 
steward
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r ranson wrote:
I'm not sure what else one needs a credit score for?  If you don't borrow money, does it matter?



It can matter, depending on what a person is doing or trying to achieve. A few other things that come to mind besides proving credibility to lenders, are a water company, electric company, and cell phone company. While we consumers are not directly borrowing money from them, having a good credit score means people can get water, electricity, or a cell phone without having to put down a cash deposit, which can vary in amount depending upon credit score, but the amounts can be quite high, like several hundred dollars for those with poor credit ratings. I don't think it's fair or right, but it is the way it is.

In America, and perhaps in other countries as well, some companies can check an applicants credit score before choosing to hire them. Again it has nothing to do with borrowing money, but it can be used as an indicator to show how responsible someone is.
 
Trace Oswald
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I thought I did a pretty good job of explaining how to play the game so you do indeed "win".  You can have truly excellent credit without paying interest.  There are a number of reasons to care what your credit score is.
1) If you want to rent a place to live, many places check your credit.
2) If you want to buy a home, most people can't afford to buy it outright.  For everyone on this site that built their house and didn't go into any debt buying land or the house or the materials, I bet there are dozens that had to do one or more of those things.
3) If you do have to get a loan for a mortgage, you will get much better rates if you have good credit
4) If you are looking for a job, many employers now run credit checks
5) If you ever need to rent a car, it's very hard to do without a credit card.  The same goes for renting a hotel room.

Travis, I understand your point, but credit isn't based on debt.  In the two years it took to build my credit to a score over 800, I never paid a single cent in interest and I had zero debt.  I had the potential for debt.  I could have gone out and bought all kinds of crap and found myself very, very far in debt.  But I didn't.  I didn't spend a penny that I wasn't going to spend anyway.  I bought gas and necessities just as I always had, I just used a credit card to buy it and paid it off every month.
 
r ranson
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James Freyr wrote:

r ranson wrote:
I'm not sure what else one needs a credit score for?  If you don't borrow money, does it matter?



It can matter, depending on what a person is doing or trying to achieve. A few other things that come to mind besides proving credibility to lenders, are a water company, electric company, and cell phone company. While we consumers are not directly borrowing money from them, having a good credit score means people can get water, electricity, or a cell phone without having to put down a cash deposit, which can vary in amount depending upon credit score, but the amounts can be quite high, like several hundred dollars for those with poor credit ratings. I don't think it's fair or right, but it is the way it is.

In America, and perhaps in other countries as well, some companies can check an applicants credit score before choosing to hire them. Again it has nothing to do with borrowing money, but it can be used as an indicator to show how responsible someone is.



Wow.  I didn't know that.

I just assumed people let me subscribe to power and stuff.  Neat.  Must be another sign my credit is doing okay.

As for employment - they have to ask permission here.  It's illegal for an employer to ask the birthdate of the employee here and other private personal information.  But if a job requires bonding or other security, then they have to arrange with the hiree for permission to do criminal and other background checks.  

 
pollinator
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Trace Oswald wrote: If you apply for a credit card at the register while you are paying, they take $50 off the price if you are approved.  Less than 2 minutes later I was approved for a $15,000 credit card and got $50 off my boots.  I won't ever use the card, but I saved the money anyway.  You just have to play along and use the rules to your favor.



this may not have been in your case, but this came back to bite my mother once - she got the discount, but "paid" for the purchase with the new credit card without noticing they ran the sale through with that method.  Fully intending to not use the card in the future, she did not set up auto payments or pay attention to the bill - late fees and interest piled up and cost more than the savings she got from the discount.   Oops!
 
pollinator
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Hi Dustin Rhodes, yes, unfortunately, for any of the stores that offer money or a percentage off for getting their card, you only get the discount with your purchase on their card. Sometimes they let you choose if you want to use it with the purchase you are making at that moment, or wait and use it later. When I take advantage of those offers, I get the card when making a large purchase, have it placed on the card, and wait for the bill & pay it off in full. Then I park the card in a safe place and never use it again. Bonus is, that after so long (6 months to a few years), they close the account and you are eligible for the discount again by getting a new card from the same place.
 
Trace Oswald
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Denise Kersting wrote:Hi Dustin Rhodes, yes, unfortunately, for any of the stores that offer money or a percentage off for getting their card, you only get the discount with your purchase on their card. Sometimes they let you choose if you want to use it with the purchase you are making at that moment, or wait and use it later. When I take advantage of those offers, I get the card when making a large purchase, have it placed on the card, and wait for the bill & pay it off in full. Then I park the card in a safe place and never use it again. Bonus is, that after so long (6 months to a few years), they close the account and you are eligible for the discount again by getting a new card from the same place.



I can't speak for everywhere, but I filled out the credit card offer, got accepted, got the $50 off, and paid cash for the boots.  The card wasn't used, and won't ever be.  Blain's Farm and Fleet is a large chain in the midwest, they still have the deal going on if anyone wants to see for themselves.
 
pollinator
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Didn't read the replies so maybe Travis beat me to this but....Dave Ramsey says a better word for it is the "I Love Debt Score". It only scores you based on your debt and your ability to accumulate and pay it off. Our goal is to get down to a 0 credit score. Dave Ramsey doesn't even show up on the sites.
 
Trace Oswald
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elle sagenev wrote:Didn't read the replies so maybe Travis beat me to this but....Dave Ramsey says a better word for it is the "I Love Debt Score". It only scores you based on your debt and your ability to accumulate and pay it off. Our goal is to get down to a 0 credit score. Dave Ramsey doesn't even show up on the sites.



I love Dave Ramsey and most things I learned about money, I learned from him.  But your credit rating does not only score you based on your debt. It doesn't score you at all on your debt. You can have a perfect credit rating and not owe a single cent or pay a single cent of interest to anyone ever.  I know, because i built a score over 800 without ever paying a penny in interest. Paying cash for everything is admirable. I did it for more than 15 years. But most people can not pay cash for their house. For the people that can, it's awesome, and I admire them.  I wasnt able to pay cash on my land and house, so I have a mortgage. I pay interest on it. I'm grateful that my credit rating is "excellent" because my interest is much less than it would have been with a worse rating.  
 
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5) If you ever need to rent a car, it's very hard to do without a credit card.  The same goes for renting a hotel room.



Actually, a debit card works for either. Which is essentially cash. Mine always seem to get a perfect hole right in center of the rfid "smart" chip the moment it arrives. Funny how that happens. I've never heard of being able to rent a car without plastic but the bill can be paid in cash when the car is turned in undamaged. A couple hundred dollars cash deposit works for hotels.
 
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I have rarely had to pay interest in my life, and when I did, it was to my father, the first time when I didn't have enough cash to buy a car which I needed to get to work and the second time when I bought a house and only had 80% of the purchase price. I paid both back as promptly as I could.

I do use a credit card because I don't like to carry large quantities of cash around. I *always* pay it off before the due date. Most of the places I regularly spend money - like the grocery store - aren't going to give me a deal because I use cash! That said, if I really needed to stick to a tight budget, I strongly believe that cash is the way to go. It's *much* harder to make myself keep track of the total price accumulating in the basket when I don't have to worry about the amount of cash in my wallet. I realize that is an incredible privilege and I try very hard not to abuse it. I shop at Thrift stores, reuse, eat what I grow, fix things, all in an effort to live below my means.

What too many people don't seem to realize is that having all those cards in their wallet has a risk attached to it. A bank tried just today to talk me into a credit card. I firmly said no! Cards get lost, stolen, hacked, defrauded and any of those things can result in identity theft leading to a total mess. A major news story here in Canada is about a Laboratory having all its data hacked. To compensate users, they're offering free identity theft insurance for the next year!

For the record, I also like to express the opinion that home ownership is far lower in North America than the public is led to believe. Most people do *not* own their own house - the bank owns it. I understand that for many a mortgage is a necessary evil, but that doesn't mean that we should let people believe in the tooth fairy. This Fairy Tale encourages people to buy more house than they need, get larger mortgages than is good for their security and spend huge amounts of money on interest which is exactly what banks want people to do. I support and encourage everyone to save as much as possible and to do the math regarding what they will have to pay in interest before taking the real estate plunge. Also, do your best to get a mortgage deal that allows you to pay off extra without penalty, once you do have a mortgage.
 
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Credit scores confuse me too.

Mike Barkley wrote:

5) If you ever need to rent a car, it's very hard to do without a credit card.  The same goes for renting a hotel room.



Actually, a debit card works for either. Which is essentially cash. Mine always seem to get a perfect hole right in center of the rfid "smart" chip the moment it arrives. Funny how that happens. I've never heard of being able to rent a car without plastic but the bill can be paid in cash when the car is turned in undamaged. A couple hundred dollars cash deposit works for hotels.



Might be different in the states, but you can't here. They refuse to rent a car to me or a hotel without a credit card. Hotels I can imagine finding an older style establishment and getting away with it, but not car rentals :( Ask me how I know (wallet was stolen, got a debit card from bank next day, had to wait two weeks while travelling on business to get a replacement credit card). You can, sometimes, get away with the new debit cards that say "VISA" on them, if you don't tell the person you are reserving with that it's a debit card. For cars, it's not worth the risk to them, even with a huge downpayment. It's pretty easy to do $5000+ damage on a rental car, even if you pay for their "insurance".

I think there's good debt and bad debt - good debt invests in something tangible that appreciates/you make money off of, bad debt invests in something that depreciates/costs you money. For example, buying a house vs. buying a vacation. I'd also like to point out good debt that makes you money - for example, if I was paying someone to cut my grass, and I bought a lawn mower  on payments. If I was paying $80/month to the lawn cutters 6 months a year, and I bought my lawnmower on $40/month payments for 2 years, I'd have "broken even" (minus gas, etc) after 2 years, and after that, it would be free. Similarly, if I bought a snowblower so that I could start charging neighbours to do their yards, I'd consider that "good debt" if I could pay off the snowblower cost within a year or MAYBE two. My personal payback period for debt of that sort is 0.5 - 2 years to make it worth it, but YMMV.

I've been debt free for about three years now (student loans paid off). I like to have the option of cash or credit card. I use my credit card for day to day purchases, because I get 0.5-2% cashback on a no fee card, and cash for small vendors, emergencies, and "person to person" opportunities.  Months can go by without me touching my debit card except to take out cash. I carry $100-200 in cash at all times to take advantage of "cash" deals, sometimes more if I know I am planning on buying something major. I carry $40 in one pocket of my purse with my cards/change, and the remainder tucked away so I'm not "flashing" it, for safety reasons. At least in small towns, you often save more than the sales tax if you pay cash. Ethical?- maybe not.

Safety - credit card companies will cancel fraudulent charges. If someone grabs my debit and defrauds my savings? My bank is not anywhere near as prompt or good. So credit is safer for me, especially when travelling. I like to have two cards - one that I use, and one "just in case" the other card gets compromised and I need to cancel it (actually happened once).
Cost - assuming I pay it off on time (which I always do), credit cards earn me money (I get 0.5-2% cashback on a no fee card), debit cards cost me money(my bank charges per transaction).

To me - having both are emergency necessities, I don't feel comfortable without 2 credit cards + a debit card + cash in my wallet. When my car broke down while I was driving through a major city a few months ago, and I had to pay $1500 on the spot, having a credit card to cover it saved me a lot of grief.

In terms of avoiding interest, a trick a teller at my bank taught me is to setup an automatic payment of my credit card mid-month for 10-25% of your typical bill. At least in Canada, it means if for some reason I screw up payment, it buys me time before interest starts accumulating (basically, it cancels out the first few days of the bill's spending, so it gives a few extra days grace period). I don't auto pay my full bills because I like to know exactly how much I've spent, and check for fraud, but this has saved me interest twice when I've forgotten or unexpectedly don't have internet access and it doesn't get paid until 1 or 2 days after the due date.

I, like a lot of people here, am anticipating going BACK into debt (mortgage), but only with a healthy (20%+) downpayment. I really do wish fewer people were comfortable with large amounts of debt - the house prices around here would go way down if people thought of the cost in terms of total dollars, rather than monthly payments.

For anything smaller than a house? I'm not touching a loan with interest if I can avoid it. I'm even tentatively car shopping, and will only buy what I can pay cash for.

 
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I have a Visa card , but it's not really a credit card. I can only spend money that is already in my bank account. It's handy for things like paying for an airline ticket.
On a few occasions I have used someone else's financial irresponsibility to my advantage. If there's someone that I really don't want to see ever again, I might lend them $10. And just like that, it's like they never even existed. I never hear from them again.
 
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I'll be a bit of a contrarian to the "never credit ever" perspective.

I use my credit card daily.  I don't use it foolishly, and only purchase things I need with it.  But every dollar I spend on that card gets me 2 airline miles.  My wife and I earn a free flight about every 18 months or so.  Last year we used it to go to Vermont for a lovely week.  The flight didn't cost me a penny.


In 28 years of marriage, we've never paid a penny of interest because we've paid the card off in full every month.  There is no annual fee on the card.  So basically, I get the convenience and safety of the card, and the free airline tickets for nothing.  Zip.  

We just installed solar on my house, and because of our excellent credit rating, we got a 2.5% interest rate.  For a $38,000 system, that's cheep money.  (It's a big ass system for two households that will supply 108% of our electrical needs, but that's beside the point).  Could I have cashed out some investments and paid cash for the solar panels?  Yes, but it makes a lot more sense to use someone else's money at 2.5%, while keeping my money invested at a significantly higher rate.  If I can earn 10% on my money, I have no problem whatsoever borrowing someone else's money at 2.5%.

If I were lending money (as a bank or car dealer, for example), I'd want a simple way to assess the risk of loaning money.  That's all a credit score is—how safe or how risky is it to lend someone money.  Yes, people can game the system and do things to increase their credit score, but most folks just work a steady job, regularly pay off their mortgage, and responsibly use their credit cards within a responsible budget.  If you do that, you'll have an 800 credit score in no time at all.

For those of you who desire to live outside the credit system, more power to you.  But for those who would never be able to buy a house, for example, without taking out a mortgage, then credit is simply a tool.  Like any other tool, you must use it responsibly, but life is a whole lot easier with tools than without.
 
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This notion of a credit score bothers me from time to time. The message of "Oh! You better have good credit or we won't let buy into our little financial system".  


My husband and I apparently have a 'bad' credit rating because we have never bought anything on credit.

We've been fortunate in some instances but for the most part have lived within our means and only spent what we had.

Often, we were told to just 'buy something, anything' on credit...a chair, a sofa...and build up a credit rating.
Buy something I don't need in order to go in debt to help me go further in debt? is an absurdity I can't get my head around

I'm much better at living without than earning money...and earning money to pay a bank would have been even more frustrating.
 
Travis Johnson
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Judith Browning wrote:

This notion of a credit score bothers me from time to time. The message of "Oh! You better have good credit or we won't let buy into our little financial system".  


My husband and I apparently have a 'bad' credit rating because we have never bought anything on credit.

We've been fortunate in some instances but for the most part have lived within our means and only spent what we had.

Often, we were told to just 'buy something, anything' on credit...a chair, a sofa...and build up a credit rating.
Buy something I don't need in order to go in debt to help me go further in debt? is an absurdity I can't get my head around

I'm much better at living without than earning money...and earning money to pay a bank would have been even more frustrating.



You probably do not have a "Bad" credit rating, you have what is called "Undeterminable" because there is no history of debt to base a credit rating off from. Most of us that use cash exclusively have this determination, it is just easier to type the three letter word "Bad" then "undeterminable".

My thoughts align with yours fully.

The credit system of today just does not make sense to me either. The ironic thing is, Katie was a banker and so she knows their scams. But the frustrating part is, instead of people asking what we have, and just how we got it, instead they try and defend their monetary system that is netting them far less than what we have.

Its like the example of solar panels. When you get a loan, you WILL pay 100% of that money back, and then a percentage of your cash to boot. They call that INTEREST. 2.5% or 22%...it does not matter, that is your little pile of cash they are taking. Pay the $38,000 and keep the extra $950 you would pay in interest for yourself. Or, not buy the solar panels at all. I can buy 27 years worth of electricity from the grid at that price. But I am a minimalist, so for me, reducing my costs has a far greater impact to my bottom line then trying to produce something for myself in the first place.

It is just like Permiculture, it is a whole different mindset.




 
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Travis Johnson wrote:
Its like the example of solar panels. When you get a loan, you WILL pay 100% of that money back, and then a percentage of your cash to boot. They call that INTEREST. 2.5% or 22%...it does not matter, that is your little pile of cash they are taking. Pay the $38,000 and keep the extra $950 you would pay in interest for yourself. Or, not buy the solar panels at all. I can buy 27 years worth of electricity from the grid at that price. But I am a minimalist, so for me, reducing my costs has a far greater impact to my bottom line then trying to produce something for myself in the first place.


Travis, in calculating 27 years what rate did you use for inflation?  Just curious because I suspect that the overall rate of increase in most people's power bills will end up being more than 2.5%.  Ultimately from a financial perspective it's just an ROI calculation and for many people the ROI on solar panels makes it look like a good investment.  Also Marco paid that to power 2 households, so the calculation should be for a $19,000 loan with the inflation rate applied vs. the interest rate paid.
 
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Travis Johnson wrote:
Its like the example of solar panels. When you get a loan, you WILL pay 100% of that money back, and then a percentage of your cash to boot. They call that INTEREST. 2.5% or 22%...it does not matter, that is your little pile of cash they are taking. Pay the $38,000 and keep the extra $950 you would pay in interest for yourself. Or, not buy the solar panels at all. I can buy 27 years worth of electricity from the grid at that price. But I am a minimalist, so for me, reducing my costs has a far greater impact to my bottom line then trying to produce something for myself in the first place.





If I may, allow me give you a bit more context.

Our solar loan is for $38,000.  That buys us a system that will power our house and the back house that my mother lives in.  Together, our old monthly energy bill was about $260.  We can be assured that next year Southern California Edison will raise that by 4% or so.  The year after, again.  We have some of the highest power rates in the nation.  We already live simply, and do not run the air conditioning.  My mom has a small window unit in her bedroom -- she's 83 -- we'll give her that comfort.  Other than that, it's a normal household with normal energy use, and a swimming pool with a filter pump that needs to run for 7 hours a day.

The system will provide 108% of our power, which means that I'll be selling power back to the grid.  We will pay the loan company, but every month we'll get a small check from Edison for that little power we sell back to them.

Of that $38,000 loan, there is an immediate Federal Income tax rebate of about 30% (the exact # escapes me).  I set the loan up so that that money will not go to me, but will go immediately to Mosaic, the finance company.  Thus, we're borrowing a bit less than 30K, not the full 38K.

My loan payment is $220 a month.  The interest rate is fixed on a 10-year loan.  So right out of the gate, I'm paying less for the loan than I was paying to Edison, saving $40 a month.  As the cost of power continues to go up, my loan payment will remain fixed.  Thus, this year, I'll save about $500.  That offsets what we're paying in interest on the loan.

Here's the big factor:  In 10 years, I'll own the system outright.  That's FREE power on my home for life.  No more payments to Edison, and no more to the loan company.  If I wish to pay the loan down sooner, I can.  The system has a 30-year warranty on pretty much everything, so even any needed repairs are covered.  

I have NO PROBLEM paying the loan company their percentage (their VERY LOW percentage of 2.5%).  I help them, but they help me much more.  Yes, you could look at the $700 or so that I'll be paying in interest this year as wasted money --- if you overlook that fact that I'll own the system outright and that my actual out-of-pocket cash flow is improving.  But that would be a big oversight.  

Look at it this way: of that $220 that I'm now paying monthly, about $5 goes to the loan company.  The other $215 goes to ME.  I own the system.  That's money directly into my long-term equity.

The only loser in this deal is Southern California Edison who just lost a paying customer.

In summary: I will pay less a month out of pocket for power now, 97.5% of that money goes toward my ownership of the system, and I'll own it outright in 10 years.  After which, we will have free power on our house for life.  Those 10 years will go fast.  And, important to me, we've just taken another house off the grid and one less home that needs to be powered by fossil fuels.  There's no downside.

Fire is a tool.  You can use it wisely or foolishly.

A chainsaw is a tool.  You can use it wisely or foolishly.

Formal education is a tool.  You can use it wisely or foolishly.

A vehicle is a tool.  You can use it wisely or foolishly.

We've all seen examples of people who have used the above tools foolishly, but that's not the fault of the tool.  It's not the fire/chainsaw/University/truck's fault that someone abused the tool and hurt themself or others.  

Credit is a tool.  By using this tool wisely, I immediately saved myself $40 a month (and that number will continue to get better), added tremendous value to my property, and am helping to save the environment.  And in 10 years, I'll owe no one anything --- not the loan company or the power company.

If you choose to not use credit, that's your call.  Bless you.  As for my family, it would be financially crazy not to.  The only loser in that decision would have been me.
 
Trace Oswald
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It's hard to have this discussion if people continue to equate a good credit rating with debt. Those things are not the same. It's easy to have great credit and no debt. It's easy to have great credit and a lot of debt. It's easy to have terrible credit and no debt. It's easy to have terrible credit and a lot of debt. People continue to ignore that fact. One of the criteria for a good credit rating is low debt to earning ratio. Having a lot of available credit helps your rating, but having a lot of debt hurts it. You can have great credit and a lot of debt if the other areas are high enough, but even then, if the other factors are equal, having no debt raises your credit rating, it doesn't lower it.
 
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Travis Johnson wrote:

Its like the example of solar panels. When you get a loan, you WILL pay 100% of that money back, and then a percentage of your cash to boot. They call that INTEREST. 2.5% or 22%...it does not matter, that is your little pile of cash they are taking. Pay the $38,000 and keep the extra $950 you would pay in interest for yourself. Or, not buy the solar panels at all. I can buy 27 years worth of electricity from the grid at that price. But I am a minimalist, so for me, reducing my costs has a far greater impact to my bottom line then trying to produce something for myself in the first place.



No one is disputing the wisdom of using less power.  We are already doing that.  That is not being questioned.

But what is the cost of NOT producing your own power and continuing to depend on the grid?  You've not factored that in.  That's a MASSIVE number.  Yes, they take my "little pile of cash" as you put it, but I take a big efficient solar system.  It not like I'm not getting anything out of the deal.

$260 a month x 12 is $3120.  Let's assume the power off the grid continues to rise 4% a year (which is the historic average).  

Year 1:  $3120
Year 2:  $3244
Year 3:  $3374
Year 4:  $3509
Year 5:  $3650
Year 6:  $3796
Year 7:  $3947
Year 8:  $4105
Year 9:  $4269
Year 10: $4440


In 10 years, I would have payed $37,454 for power and own NOTHING.  It would go on like that forever.  Year 11, another $4600 (rather than $0 that I'll be paying at that point).  Now who is sitting on a little pile of cash?  Me.

So the bottom line for me: I can pay myself for 10 years and own the system outright or I can pay the electric bill forever.  That's a no brainer for me.

And you're not taking into account the fact that by not paying cash, I will keep my $38,000 invested.  11% return (what I normally earn on my investments) of $38K is $4180.  That's additional money that I put in my pocket, over and above the $40 a month I'm saving on my power bill.  So yes, I'll be paying about $700 a year in interest but earning $4180 a year on my investment.  Again, that's a no brainer for me.

In 10 years, that invested $38,000 will more than double.   And in 10 years, my electric bill will be zero.  I've got no problem paying the loan company their 2.5% to see that happen.
 
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Trace Oswald wrote:I thought I did a pretty good job of explaining how to play the game so you do indeed "win".  You can have truly excellent credit without paying interest.  There are a number of reasons to care what your credit score is.
1) If you want to rent a place to live, many places check your credit.
2) If you want to buy a home, most people can't afford to buy it outright.  For everyone on this site that built their house and didn't go into any debt buying land or the house or the materials, I bet there are dozens that had to do one or more of those things.
3) If you do have to get a loan for a mortgage, you will get much better rates if you have good credit
4) If you are looking for a job, many employers now run credit checks
5) If you ever need to rent a car, it's very hard to do without a credit card.  The same goes for renting a hotel room.

Travis, I understand your point, but credit isn't based on debt.  In the two years it took to build my credit to a score over 800, I never paid a single cent in interest and I had zero debt.  I had the potential for debt.  I could have gone out and bought all kinds of crap and found myself very, very far in debt.  But I didn't.  I didn't spend a penny that I wasn't going to spend anyway.  I bought gas and necessities just as I always had, I just used a credit card to buy it and paid it off every month.



Yeah, this.  Couldn't have said it better myself.  I make money off of my credit cards and get better insurance rates because of our good credit.  Instead of using a debit card or cash, I just use the credit card and pay it off. That said, it isn't a game that everyone should play.  People who like to buy things probably shouldn't play the game.  Unorganized people probably shouldn't play the game. People who can't pay the card off each month shouldn't play the game.  Obviously people who just don't care for the system shouldn't play the game.  

I listen to Dave Ramsey and Clark Howard and for the most part I agree with the advise that they give, but in the end, it's just advise, it may or may not be the best course for any given person.  
 
elle sagenev
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Trace Oswald wrote:

elle sagenev wrote:Didn't read the replies so maybe Travis beat me to this but....Dave Ramsey says a better word for it is the "I Love Debt Score". It only scores you based on your debt and your ability to accumulate and pay it off. Our goal is to get down to a 0 credit score. Dave Ramsey doesn't even show up on the sites.



I love Dave Ramsey and most things I learned about money, I learned from him.  But your credit rating does not only score you based on your debt. It doesn't score you at all on your debt. You can have a perfect credit rating and not owe a single cent or pay a single cent of interest to anyone ever.  I know, because i built a score over 800 without ever paying a penny in interest. Paying cash for everything is admirable. I did it for more than 15 years. But most people can not pay cash for their house. For the people that can, it's awesome, and I admire them.  I wasnt able to pay cash on my land and house, so I have a mortgage. I pay interest on it. I'm grateful that my credit rating is "excellent" because my interest is much less than it would have been with a worse rating.  



Dave recommends Churchhill mortgage to those with a 0 score. So it's possible.
 
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Pearl Sutton wrote:I have a zero credit score. I don't borrow money. Doesn't work with my head or lifestyle.

Years ago I was going on a trip, needed a bit of cash in case of emergencies. Went to a car loan place, handed them the title to my car, got 800.00 cash. Came back two weeks later, handed them their 800 back still in it's envelope, took my title back. That's NOT how they play that game, they were rather dismayed. they tried to talk me into keeping it.  Not doing that again.



I too realized early on I was not made for the world of credit. I pay for things completely, don't buy them, or save up till have all the money. Never do I buy on credit thinking I will pay later. I was rather surprised when my new bank ran a credit check on me and said "you have excellent credit" only thing I could imagine is I built it over the years by never using it and paying for thing right away.

People are still suprised my land is paid for. Everything on it is paid for. They may live on credit, but I never have and it is a foreign concept to me.
 
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Marco Banks wrote:

And you're not taking into account the fact that by not paying cash, I will keep my $38,000 invested.  11% return (what I normally earn on my investments) of $38K is $4180.  That's additional money that I put in my pocket, over and above the $40 a month I'm saving on my power bill.  So yes, I'll be paying about $700 a year in interest but earning $4180 a year on my investment.  Again, that's a no brainer for me.

There is a sub-message here I'd like to state clearly - IF you have money invested in safe enough vehicles that regardless of how badly the "s--t hits the rotary impeller" you will be able to pay off your loan, without taking major damage, then it's a matter of doing the math and making an informed choice. As Marco Banks has clearly demonstrated with his numbers, power in California is expensive and predicted to increase rather than decrease (although if everyone in the State did what Marco did, that could change!) and they get a lot of sun. I live in BC where power is relatively cheap and it's *really* dark and cloudy in the winter when we need the power the most, so the math would look very different.
It is a much trickier situation when people take on debt that they won't be able to cover if there's a job loss, an unexpected health issue, or any other manner of issues that could interfere with servicing that debt. To me, if a single un-serviced debt will snowball into a series of negative reactions, then it would not be worth the risk. As others have mentioned, it is possible to get a good credit rating without paying any interest, although it may take time.

Another factor not mentioned is that anyone who wants to think that sex, colour, ethnicity, etc *never* enters into the discussion of credit and loans, I have personal experience that strongly suggests it does. Thus, one person's real life experience may not jive with someone else's.
 
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elle sagenev wrote:

Trace Oswald wrote:

elle sagenev wrote:Didn't read the replies so maybe Travis beat me to this but....Dave Ramsey says a better word for it is the "I Love Debt Score". It only scores you based on your debt and your ability to accumulate and pay it off. Our goal is to get down to a 0 credit score. Dave Ramsey doesn't even show up on the sites.



I love Dave Ramsey and most things I learned about money, I learned from him.  But your credit rating does not only score you based on your debt. It doesn't score you at all on your debt. You can have a perfect credit rating and not owe a single cent or pay a single cent of interest to anyone ever.  I know, because i built a score over 800 without ever paying a penny in interest. Paying cash for everything is admirable. I did it for more than 15 years. But most people can not pay cash for their house. For the people that can, it's awesome, and I admire them.  I wasnt able to pay cash on my land and house, so I have a mortgage. I pay interest on it. I'm grateful that my credit rating is "excellent" because my interest is much less than it would have been with a worse rating.  



Dave recommends Churchhill mortgage to those with a 0 score. So it's possible.



I did a quick search. Minimum credit score for a Churchill mortgage is 620.
 
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I did what Trace describes. When I was 19 I got my first utility service in my name. I had to pay a deposit based on the average monthly bill the last person at that address paid. I think it was about $400. We were never able to figure out what they were doing to even use that much gas.

When they told me I had to pay the deposit because I had no credit, I immediately got a credit card and started using it for my regular purchases. When the bill came, I paid it with the money sitting in my bank account I never spent cause I was using the credit card. No interest. I have no idea how long it took to build up my credit score, but I never had to pay a deposit on anything again. And I was never in debt once.

I was very happy to have my good credit when we bought our property. Without being able to get a loan we would probably still be saving- and would have missed out on the amazing deal we got on this place. By getting a loan we were able to move onto our property right away, reduce our cost of living, and pay off the loan quicker than we would have been able to save the same amount of money. And we're living a better life on our property than in a rented place.

I worked in hotels for ten years. Hotels hate cash deposits and only lower end ones will take them. This might be more common in Canada than the US, cause a lot of American guests tried to pay cash and were surprised when we wouldn't take it. Sometimes we'd make an exception for regulars or someone you got a good vibe off of and took pity on. There is no discount for paying cash. Sometimes we'd say there was,but it was just the standard knock off a few bucks to get them in the door discount. Would be the same discount for anyone who tried to haggle, regardless of how they paid.

I've also worked in a few retail positions, some small family run businesses. I currently work in what could i suppose be called a service industry, also family run. At none of these places were there discounts for cash payments. If you pay cash the business's overhead is the same, apart from card fees which are factored into the prices anyway. Giving a discount on cash purchases is just money out of the boss's pocket. I think they'll soon disappear altogether.
 
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Devin Lavign wrote:I too realized early on I was not made for the world of credit. I pay for things completely, don't buy them, or save up till have all the money. Never do I buy on credit thinking I will pay later. I was rather surprised when my new bank ran a credit check on me and said "you have excellent credit" only thing I could imagine is I built it over the years by never using it and paying for thing right away.

People are still suprised my land is paid for. Everything on it is paid for. They may live on credit, but I never have and it is a foreign concept to me.



I am a resistor of sorts, I realized all credit would do is get me in trouble, so I said no to credit. Just like I wont sign up for Facebook. I refuse to use credit because I know for me it is a bad idea. Some people can handle it, I can't so don't do it at all. It makes life a bit harder, and people seem a little odd at times. Over all though I am happy to not live on credit.
 
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Trace Oswald wrote:

I did a quick search. Minimum credit score for a Churchill mortgage is 620.




"A minimum FICO credit score of 620 is generally required, but Churchill Mortgage can write loans below that credit score “on an exception basis. The lender also offers loans to customers without credit scores, using alternative data such as utility bills and rent payment histories." ~From Nerd Wallet, but other sites show similar information.
 
Trace Oswald
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Mark Huntington wrote:

Trace Oswald wrote:

I did a quick search. Minimum credit score for a Churchill mortgage is 620.




"A minimum FICO credit score of 620 is generally required, but Churchill Mortgage can write loans below that credit score “on an exception basis. The lender also offers loans to customers without credit scores, using alternative data such as utility bills and rent payment histories." ~From Nerd Wallet, but other sites show similar information.



That's true. And if you go to Churchill 's own site, they explain how that works. They have an independent assessor that judges your credit worthiness. So it comes down to the same thing. They go over your bill paying history and do their own assessment. They explain that it may take three times as long and the interest rate won't be better, so I don't see an advantage.

I would like to hear from anyone that sees any disadvantage to having good credit?
 
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The disadvantage that I can see to having good credit, is that it's a temptation to borrow money.

As one of those people without a credit score, even if I were tempted to borrow money, the system would put all sorts of barriers in my way to make it difficult. That's wonderful for me.

 
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I have never been in a business that requires massive amounts of capital. So I will never manufacture a car or run a large mine. Some enterprises require massive input, to get them off the ground. Every business I've ever tried was started with less than $1,000. So this means that I'm unlikely to lose all of my money, on a wild scheme, but I'm also unlikely to do something that puts millions of dollars into my pocket.

I will be mortgage-free in January. I have borrowed money for property a few times and for a car once. It's been 29 years since I paid for that car and all others have been purchased with cash.
 
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Joseph Lofthouse wrote:The disadvantage that I can see to having good credit, is that it's a temptation to borrow money.

As one of those people without a credit score, even if I were tempted to borrow money, the system would put all sorts of barriers in my way to make it difficult. That's wonderful for me.



One partial fix for that is to freeze your credit.  To let people "check your credit" it has to be unfrozen which is a bit of a step or barrier.  

 
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