Inspired partly by this article sent to me by Dr. Nik, I'd like to talk to you today about consumerism and credit.
I have a friend who is doing everything right. He's got money in the bank. He has no credit card debt. He paid for his car in cash. He doesn't have any student loans. Summing up: he has no debt, a good amount of savings, and spends money wisely. And yet, he is probably going to have a hard time using that savings as a down payment for a house because he has no credit. He doesn't have bad credit, he just has nothing that the "they" in "They didn't approve my mortgage loan" can look to and say, "He's an ok credit risk. Let's make him pay interest for the next 30 years."
On the other hand you have me. I have great credit. Superb credit. (I've always been an overachiever.) This is due mainly because I have debt, but I manage it well. I always make payments on time and I also continue to get more and different debt. I have proved to the "they" that I can handle money. Or at least handle owing it. Sadly, I am probably more likely than my friend above to get a mortgage loan despite the fact that I have no downpayment, and with student loans, a car that isn't paid for, and virtually no savings I am almost $20K in the hole. And "they'd" be happy to make that $220K.
What's wrong with this picture?
Although I am not, and never really have been, a shopper or gross consumer of goods, I have purchased a lot of things. I have lived the American Dream - Use plastic and they will come. "They" in this case being credit card offers. We as a nation are encouraged on a daily basis to buy, buy, buy. And not only that, to buy what we can't afford. Don't like your little ranch house? How about a McMansion? Got too much debt on a high rate credit card? Here, use this check to put it on this other credit card. By the way, we won't remind you when we raise your rates. Just keep paying the minimum and we'll keep raising your limit to keep pace with your spending.
And then there is my friend. He pays for the things he can afford when he can afford them. There are very few people like him. But doesn't that seem like the right thing to do? The common sense way to go if you can do it? The thing that would make loan officers happy? And yet, it is not. He'll probably go now to see if he can get preapproved for a mortgage and be told he doesn't have enough credit history. He'll have to go out, get a credit card, and buy something he doesn't really need simply to prove that he can handle the money he already knows how to handle better than the rest of us.
It defies logic. But then logic doesn't come with a 17.9% APR.
I have a friend who is doing everything right. He's got money in the bank. He has no credit card debt. He paid for his car in cash. He doesn't have any student loans. Summing up: he has no debt, a good amount of savings, and spends money wisely. And yet, he is probably going to have a hard time using that savings as a down payment for a house because he has no credit. He doesn't have bad credit, he just has nothing that the "they" in "They didn't approve my mortgage loan" can look to and say, "He's an ok credit risk. Let's make him pay interest for the next 30 years."
On the other hand you have me. I have great credit. Superb credit. (I've always been an overachiever.) This is due mainly because I have debt, but I manage it well. I always make payments on time and I also continue to get more and different debt. I have proved to the "they" that I can handle money. Or at least handle owing it. Sadly, I am probably more likely than my friend above to get a mortgage loan despite the fact that I have no downpayment, and with student loans, a car that isn't paid for, and virtually no savings I am almost $20K in the hole. And "they'd" be happy to make that $220K.
What's wrong with this picture?
Although I am not, and never really have been, a shopper or gross consumer of goods, I have purchased a lot of things. I have lived the American Dream - Use plastic and they will come. "They" in this case being credit card offers. We as a nation are encouraged on a daily basis to buy, buy, buy. And not only that, to buy what we can't afford. Don't like your little ranch house? How about a McMansion? Got too much debt on a high rate credit card? Here, use this check to put it on this other credit card. By the way, we won't remind you when we raise your rates. Just keep paying the minimum and we'll keep raising your limit to keep pace with your spending.
And then there is my friend. He pays for the things he can afford when he can afford them. There are very few people like him. But doesn't that seem like the right thing to do? The common sense way to go if you can do it? The thing that would make loan officers happy? And yet, it is not. He'll probably go now to see if he can get preapproved for a mortgage and be told he doesn't have enough credit history. He'll have to go out, get a credit card, and buy something he doesn't really need simply to prove that he can handle the money he already knows how to handle better than the rest of us.
It defies logic. But then logic doesn't come with a 17.9% APR.
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