Interest Rate and Credit Score

[china mom]

I'd be willing to donate a day (once I build mine back up) to a "general" leave bank. Let management decide who's "worthy" of getting it.

That wasn't an option at my last or current job.

 

[kymom99]

Okay, then where exactly is the proverbial line? Is it $50......$100....$200....? That line will be different for everybody, based upon their financial situation. This is why this is about the principle of the matter. Why should someone who's worked hard to build up a good credit score be penalized at all, regardless of the dollar amount? All this will do is make people purposely tank their credit score to get a better interest rate. Once that happens, what's the point of a credit score, without which lenders are unable to determine a borrower's credit risk?

I thought it wasn’t about interest rate. I’m confused.

 

[Colleen27]

Okay, then where exactly is the proverbial line? Is it $50......$100....$200....? That line will be different for everybody, based upon their financial situation. This is why this is about the principle of the matter. Why should someone who's worked hard to build up a good credit score be penalized at all, regardless of the dollar amount? All this will do is make people purposely tank their credit score to get a better interest rate. Once that happens, what's the point of a credit score, without which lenders are unable to determine a borrower's credit risk?

Did you even read the examples that have been posted? The borrower with a good score isn't being "penalized". They're getting less of an advantage than before, so that borrowers with "bad" (though average would likely be more accurate because bad scores don't qualify for mortgages) credit pay slightly lower - but still considerably higher than their better-scoring counterparts - fees.

Exactly. My 20 year old son made about $15K last year and his credit score is over 800 - thanks to me adding him as an authorized user on my credit card.

But that's still a matter of privilege - having parents with active credit and good scores who can add him. We're a cash-only family; DH & I both opened one card each when the total absence of credit started impacting our ability to get car insurance and cell phones, but adding the kids to our (crappy, no fee but low limit) cards as authorized users isn't going to get them 800+ credit scores. Hell, having those cards with very low/no balances, paid on time for many years, hasn't gotten *us* 800+ scores. I think people who actively manage their credit underestimate how badly the system penalizes simply paying cash/saving for purchases and avoiding credit except when necessary (like when buying a house).

 

[RamblingMad]

Did you even read the examples that have been posted? The borrower with a good score isn't being "penalized". They're getting less of an advantage than before, so that borrowers with "bad" (though average would likely be more accurate because bad scores don't qualify for mortgages) credit pay slightly lower - but still considerably higher than their better-scoring counterparts - fees.



But that's still a matter of privilege - having parents with active credit and good scores who can add him. We're a cash-only family; DH & I both opened one card each when the total absence of credit started impacting our ability to get car insurance and cell phones, but adding the kids to our (crappy, no fee but low limit) cards as authorized users isn't going to get them 800+ credit scores. Hell, having those cards with very low/no balances, paid on time for many years, hasn't gotten *us* 800+ scores. I think people who actively manage their credit underestimate how badly the system penalizes simply paying cash/saving for purchases and avoiding credit except when necessary (like when buying a house).

I didn’t break 800 until I bought my first home.

 

[GreatLakes]

Did you even read the examples that have been posted? The borrower with a good score isn't being "penalized". They're getting less of an advantage than before, so that borrowers with "bad" (though average would likely be more accurate because bad scores don't qualify for mortgages) credit pay slightly lower - but still considerably higher than their better-scoring counterparts - fees.



But that's still a matter of privilege - having parents with active credit and good scores who can add him. We're a cash-only family; DH & I both opened one card each when the total absence of credit started impacting our ability to get car insurance and cell phones, but adding the kids to our (crappy, no fee but low limit) cards as authorized users isn't going to get them 800+ credit scores. Hell, having those cards with very low/no balances, paid on time for many years, hasn't gotten *us* 800+ scores. I think people who actively manage their credit underestimate how badly the system penalizes simply paying cash/saving for purchases and avoiding credit except when necessary (like when buying a house).

There is a way to use "cash" and still build credit. We heavily use our credit cards each month including paying every bill that will let us without adding a cc fee. Then we pay it off each month. It isn't literally cash of course but it allows you to have a steady credit balance, show payments, but not actually pay cc interest. Instead of making multiple cash/check/EFT payments you make one (or in our case a few) payments. We have separate cards for different purposes:

The normal cash back card
A card that gives us added cash back for groceries we only use at grocery stores
A hotel card we use for hotels for the added points
An airline card we use for the added miles, free bags, and free pre-check

 

[Traveling on cc points]

Did you even read the examples that have been posted? The borrower with a good score isn't being "penalized". They're getting less of an advantage than before, so that borrowers with "bad" (though average would likely be more accurate because bad scores don't qualify for mortgages) credit pay slightly lower - but still considerably higher than their better-scoring counterparts - fees.



But that's still a matter of privilege - having parents with active credit and good scores who can add him. We're a cash-only family; DH & I both opened one card each when the total absence of credit started impacting our ability to get car insurance and cell phones, but adding the kids to our (crappy, no fee but low limit) cards as authorized users isn't going to get them 800+ credit scores. Hell, having those cards with very low/no balances, paid on time for many years, hasn't gotten *us* 800+ scores. I think people who actively manage their credit underestimate how badly the system penalizes simply paying cash/saving for purchases and avoiding credit except when necessary (like when buying a house).

I agree that the credit score system isn’t perfect and probably never will be but
You seem to understand how the currant system works and have enough available funds to pay your bills on time so I’m curious why you don’t use your 1 credit card to pay for your expenses & bills to prove that you handle your credit responsibly?
As long as you pay by your due date, there is literally no downside.

 

[china mom]

But that's still a matter of privilege - having parents with active credit and good scores who can add him. We're a cash-only family; DH & I both opened one card each when the total absence of credit started impacting our ability to get car insurance and cell phones, but adding the kids to our (crappy, no fee but low limit) cards as authorized users isn't going to get them 800+ credit scores. Hell, having those cards with very low/no balances, paid on time for many years, hasn't gotten *us* 800+ scores. I think people who actively manage their credit underestimate how badly the system penalizes simply paying cash/saving for purchases and avoiding credit except when necessary (like when buying a house).

Yes, my children benefit from what I like to call "wealth privilege" I have always worked and always lived below my means and carefully curated an excellent credit score. I used credit to the fullest advantage. I will not feel bad for passing that benefit on to my children.

I never carry cash and use my credit cards pretty much for everything yet have never paid interest. We take out low interest car loans, even when we have enough in the bank to pay cash and then we make double payments to pay the loan off early to lower out interest over the course of the loan. We are not afraid of debt as long as it fits out long term plan. But we are very particular about the type of debt - only car loans and mortgages.

We were not born into wealth and I spent several years living off ramen noodles and eggs. I put a lot of effort into educating my children how to manage money and credit scores. Again, I can't feel bad about that.

 

[china mom]

There is a way to use "cash" and still build credit. We heavily use our credit cards each month including paying every bill that will let us without adding a cc fee. Then we pay it off each month. It isn't literally cash of course but it allows you to have a steady credit balance, show payments, but not actually pay cc interest. Instead of making multiple cash/check/EFT payments you make one (or in our case a few) payments. We have separate cards for different purposes:

The normal cash back card
A card that gives us added cash back for groceries we only use at grocery stores
A hotel card we use for hotels for the added points
An airline card we use for the added miles, free bags, and free pre-check

100% this. I use the card for everything and make a payment every two weeks when I get paid. It is the same money I would have spent if I was spending cash and checks but I get rewards and it helps the credit score.

 

[china mom]

I thought it wasn’t about interest rate. I’m confused.

Don't be confused. It is not about the interest rate it is about the fees that are added to your loan. But, thanks to the media dumbing down the issues, many are confusing these fees with interest rates.

 

[Mackenzie Click-Mickelson]

Yes, my children benefit from what I like to call "wealth privilege" I have always worked and always lived below my means and carefully curated an excellent credit score. I used credit to the fullest advantage. I will not feel bad for passing that benefit on to my children.

I never carry cash and use my credit cards pretty much for everything yet have never paid interest. We take out low interest car loans, even when we have enough in the bank to pay cash and then we make double payments to pay the loan off early to lower out interest over the course of the loan. We are not afraid of debt as long as it fits out long term plan. But we are very particular about the type of debt - only car loans and mortgages.

We were not born into wealth and I spent several years living off ramen noodles and eggs. I put a lot of effort into educating my children how to manage money and credit scores. Again, I can't feel bad about that.

I think it's also a point in time thing. I'm almost 35 and adding your minor to your CC for the purposes of kick starting their credit history and thus giving the opportunity to increase their score was not all that common when I was young. It was around but nowhere near the prevalence and exposure it has now.

Your son has a lower income but a higher credit score by luck TBH. Not by what the PP is talking about by having a high credit score but being low income. Had your son started off like me where I only was able to get a CC (and not a rewards one because those weren't really around then) with zero credit at age 18 building it up by paying if off, not using it at a high balance even with a lower income and taking time then the situation would be more akin to that.

 

[tvguy]

I never carry cash and use my credit cards pretty much for everything yet have never paid interest.

Just back from a road trip across California, Arizona, New Mexico and Texas. Ate at a restaurant in Sedona that calculates your bill with both the cash and credit price. They add a 3.8% surcharge for credit. It is well posted all over the restaurant that they "can no longer afford to subsidize credit card rewards". So I ALWAYS have cash because if I can get a discount, I'm going to. I can see their problem, that 3.8% can be the difference between making and losing money on a meal.

 

[GAN]

Is cash like money? Asking for a friend...

 

[BleuB]

Yes, my children benefit from what I like to call "wealth privilege" I have always worked and always lived below my means and carefully curated an excellent credit score. I used credit to the fullest advantage. I will not feel bad for passing that benefit on to my children.

I never carry cash and use my credit cards pretty much for everything yet have never paid interest. We take out low interest car loans, even when we have enough in the bank to pay cash and then we make double payments to pay the loan off early to lower out interest over the course of the loan. We are not afraid of debt as long as it fits out long term plan. But we are very particular about the type of debt - only car loans and mortgages.

We were not born into wealth and I spent several years living off ramen noodles and eggs. I put a lot of effort into educating my children how to manage money and credit scores. Again, I can't feel bad about that.

You definitely have a good understanding of and relationship with credit. I don’t think @Colleen27 was saying you should feel bad about anything. And you shouldn’t.
I would have to agree though that while your case may not be a good example of privilege, your credit behaviors have given your children an advantage. Many people don’t have that advantage through no fault of their own. We all know that credit systems most heavily penalize those in a disadvantageous economic position. Those penalties can create quite an insurmountable burden.

 

[china mom]

I think it's also a point in time thing. I'm almost 35 and adding your minor to your CC for the purposes of kick starting their credit history and thus giving the opportunity to increase their score was not all that common when I was young. It was around but nowhere near the prevalence and exposure it has now.

Your son has a lower income but a higher credit score by luck TBH. Not by what the PP is talking about by having a high credit score but being low income. Had your son started off like me where I only was able to get a CC (and not a rewards one because those weren't really around then) with zero credit at age 18 building it up by paying if off, not using it at a high balance even with a lower income and taking time then the situation would be more akin to that.

Yes, that is my story as well. Got a credit card with a very low limit, built credit slowly, bought modest car. bought a small house at age 23 and rented a room out to help pay the mortgage. That's how we did it back then.

 

[dreamer17555]

somehow I ended up in the wrong thread. Deleted.

 

[Traveling on cc points]

I think it's also a point in time thing. I'm almost 35 and adding your minor to your CC for the purposes of kick starting their credit history and thus giving the opportunity to increase their score was not all that common when I was young. It was around but nowhere near the prevalence and exposure it has now.

Your son has a lower income but a higher credit score by luck TBH. Not by what the PP is talking about by having a high credit score but being low income. Had your son started off like me where I only was able to get a CC (and not a rewards one because those weren't really around then) with zero credit at age 18 building it up by paying if off, not using it at a high balance even with a lower income and taking time then the situation would be more akin to that.

He may be lucky that his parents added him as an AU and taught him the importance of a great credit score but his score didn’t happen by luck.
Each generation learns the tricks and helps their kids to achieve the same or better.

 

[Mackenzie Click-Mickelson]

He may be lucky that his parents added him as an AU and taught him the importance of a great credit score but his score didn’t happen by luck.
Each generation learns the tricks and helps their kids to achieve the same or better.

I don't think it was a tip or trick when it's simply not available. The reason many kids have the ability to be authorized users now is the CC companies 1) allowing this 2) many more CCs out there especially rewards ones 3) the law was changed to be 21 without parental authorization for a CC so on the flipside you sorta had to open the ability for these kids to get credit.

You just couldn't get a CC without credit when I was young. My first CC was a student one with a bank where almost no one was denied but it was one of my only choices available. That ain't about tips or tricks.

As far as lucky they mentioned he only had $15K income and that the reason his credit score was what it was was because he was added. That's luck with being able to have that opportunity (the income is really irrelevant if the score comes from merely being added on as an authorized user). Also teaching someone the importance of great credit score isn't related whatsoever, not sure what you're getting at there, you can have crap credit and teach your kids the importance of credit scores in our society. And as was mentioned by others and myself a poor credit score does not inherently mean you suck with money.

 

[Colleen27]

I agree that the credit score system isn’t perfect and probably never will be but
You seem to understand how the currant system works and have enough available funds to pay your bills on time so I’m curious why you don’t use your 1 credit card to pay for your expenses & bills to prove that you handle your credit responsibly?
As long as you pay by your due date, there is literally no downside.

Frankly, it is just a mental hold-over from the days when my husband was in business for himself and our income was so wildly variable from month to month or season to season that I didn't feel comfortable doing that. I probably should work on changing my attitudes toward credit - lord knows a decent travel points card would be an asset at this point in our lives - but some habits/insecurities just linger, you know?

You definitely have a good understanding of and relationship with credit. I don’t think @Colleen27 was saying you should feel bad about anything. And you shouldn’t.
I would have to agree though that while your case may not be a good example of privilege, your credit behaviors have given your children an advantage. Many people don’t have that advantage through no fault of their own. We all know that credit systems most heavily penalize those in a disadvantageous economic position. Those penalties can create quite an insurmountable burden.

Exactly. I'm not saying anyone should feel bad about their privilege, but it is worth being conscious of the fact that not everyone has access to those advantages when we're talking about how to make systems work on a society-wide scale.

 

[White Cat]

Just back from a road trip across California, Arizona, New Mexico and Texas. Ate at a restaurant in Sedona that calculates your bill with both the cash and credit price. They add a 3.8% surcharge for credit. It is well posted all over the restaurant that they "can no longer afford to subsidize credit card rewards". So I ALWAYS have cash because if I can get a discount, I'm going to. I can see their problem, that 3.8% can be the difference between making and losing money on a meal.

Same in NYC at many places.

 

[Tink3815]

There is a way to use "cash" and still build credit. We heavily use our credit cards each month including paying every bill that will let us without adding a cc fee. Then we pay it off each month. It isn't literally cash of course but it allows you to have a steady credit balance, show payments, but not actually pay cc interest. Instead of making multiple cash/check/EFT payments you make one (or in our case a few) payments. We have separate cards for different purposes:

The normal cash back card
A card that gives us added cash back for groceries we only use at grocery stores
A hotel card we use for hotels for the added points
An airline card we use for the added miles, free bags, and free pre-check