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FICO to incorporate buy-now-pay-later loans into credit scores

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Re: FICO to incorporate buy-now-pay-later loans into credit scores

#231

Post by gwbas1c »

jacekm wrote: post #133
andruby wrote: post #118

Earlier quoted context omitted.

Do you also think that way about buying a house with a mortgage (credit)? I don't. A mortgage isn't used to make more money. It's used so people can own a house after saving for a few years, rather than waiting until they've saved for a few decades.

I do. Housing prices are constantly rising, when you take a loan you are buying an asset which (with some luck) may appreciate in value more than mortgage interest rates. That's why in some countries it's worth taking a loan as soon as possible without saving for too long. Sure, without mortgage you may not be able to afford a house at all but it does not change the fact that mortgage is a "good" loan (i.e. you benef…

> Housing prices are constantly rising

Housing prices typically appreciate up with inflation over the long run, although local markets don't always follow the same pattern. (IE, Silicon Valley is a case where real estate appreciated faster than inflation.)

Remember, it's over the long run. There can be periods where a house will appreciate faster than inflation, and other periods where the real value of a house doesn't keep up. If you understand this dynamic, you can make a lot of money. (IE, flipping and then becoming a landlord when the market turns.)

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#232

Post by bitmasher9 »

7speter wrote: post #94
bitmasher9 wrote: post #57

Earlier quoted context omitted.

Let’s say you finance $40,000 in auto debt over 5 years. With a low interest rate of 6% paying $6,300 in interest. That’s over 15% of the amount borrowed! Many people have lager rates over longer periods. Now consider what would happen if you invested that $6,300 for 30 years instead of spent it on interest. You’re losing out on tens of thousands of dollars in total lifetime wealth. When you borrow money to “enjoy li…

Its kind of funny how the people who don’t want to work with “lazy,” mangly, poor people with bad teeth are the first ones to tell poor people how they could’ve made interest on 6300 dollars over 30 years.

It’s pretty rude to make personal assumptions based on a comment on the internet. My entire focus on the comment is providing education about the opportunity cost of borrowing money.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#233

Post by bluecalm »

hnbad wrote: post #105
bluecalm wrote: post #92

Earlier quoted context omitted.

It would be easier to buy that argument if it wasn't happening in countries where healthcare is not fast track to debt and police is not out there to get you. I come from such a country and a lot of financially struggling people overspent on status symbols all the time.

Sure, because status matters more than finances. Getting rich may be extremely unlikely if not outright impossible. Looking rich to your peers (and "feeling rich") on the other hand may just be a few years worth of small affordable installments away - even if it's completely superficial and short-lived. And entire industries will literally spend your every waking second trying to convince you that buying their produc…

It has nothing to do with credit. The whole buy-now-pay-later, 0% rates or pay-day loans industry came much later here. The same goes for predatory marketing industry.

When I went to elementary school everyone was poor as it was a year after communism collapsed. People were still spending their last money on shiny things back then even if those shiny things weren't as shiny as they are today.

>>Getting rich may be extremely unlikely if not outright impossible

Again, in communist and then post communist countries no one thought we could be rich. The things we thought about back then was being able to buy enough food and trying to educate ourselves as education was valued in itself in some families. Even back then a lot of people spent their last money on pointless shiny things.

I feel Americans and some Western Europeans look for ways to justify dumb behavior and come up with all those theories that have nothing to do with human nature. If you grow up in a country where everyone is the same race, everyone is poor (at least for a few years), the police is not out there to get you and healthcare is free even if terrible and you still witness people making the same stupid decisions you realize it has nothing to do with those theories and everything to do with education, values and ability to make sensible decisions.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#234

Post by Tangurena2 »

PostOnce wrote: post #13

Theoretically, credit should be used for one thing: to make more money. (not less) However, instead of using it to buy or construct a machine to triple what you can produce in an hour, the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later. At some point, you run out of hours available and the house of cards collapses. i.e., credi…

In some states, your FICO score is used to determine how much your electric utility charges you. Or whether you can be permitted to rent an apartment.

Sample: https://www.wsj.com/articles/SB109469015834513166?gaa_at=eaf...

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#235

Post by neutronicus »

rayiner wrote: post #184
mathgeek wrote: post #97

Earlier quoted context omitted.

You can’t block all of it all of the time, and children (some of the most vulnerable) especially can’t.

I’m not sure my kids have ever seen an ad except for little computer games, and they have laptops and iPads (but no network TV or cable). They are far less exposed to consumerism than when we were kids. My teenage daughter dresses like a hobo.

If they've seen Paw Patrol they've been exposed to ads. I don't mean "commercials" I mean that the entertainment itself is the ad - generating excitement for branded merchandise, but also normalizing the idea of kids accomplishing things and learning life lessons in 20-minute increments with the aid of a tremendous amount of stuff that they just have.

Maybe they haven't but the idea extends to most kids' entertainment.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#236

Post by bitmasher9 »

eadmund wrote: post #136
bitmasher9 wrote: post #57

Earlier quoted context omitted.

Let’s say you finance $40,000 in auto debt over 5 years. With a low interest rate of 6% paying $6,300 in interest. That’s over 15% of the amount borrowed! Many people have lager rates over longer periods. Now consider what would happen if you invested that $6,300 for 30 years instead of spent it on interest. You’re losing out on tens of thousands of dollars in total lifetime wealth. When you borrow money to “enjoy li…

The trick is to borrow $40,000 to buy the car at 6% and keep your $40,000 invested making more than 6%. Even at 7% annually, you’d make $16,102 over five years (1.07⁵ × $40,000). For that matter, at 6.1% annually, you’d make $13,782 (1.061⁵ × $40,000). Heck, even at 5.9% , you’d make $13,277! The reason why you make more even with a lower rate is that you pay less interest each month with the amortising loan! The tro…

Personally borrow and invest over shorter periods of time (less than 10 years) has too high of a risk portfolio for me, especially with a depreciating asset.

What if there is a market downturn, and you’re out not only the decrease in value of your assets but also the interest in your loan. I admit this is down to personal preference and risk tolerance.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#237

Post by immibis »

msgodel wrote: post #140
hnbad wrote: post #103

Earlier quoted context omitted.

Whatever you put aside is not going to be enough to prevent complete financial ruin if shit hits the fan. You might be able to cover smaller emergencies like an appliance breaking or your car needing repairs but literally just giving birth or being in an accident can bankrupt you in the US. I'm not at all surprised low to medium income Americans would just give up and accept their inevitable financial ruin instead of…

People need to stop moving out of their parent's house if they can't be stable. That's the root cause of a lot of the problems in the US.

And then you have the same people complaining about low birth rates...

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#238

Post by immibis »

janalsncm wrote: post #49
PostOnce wrote: post #13

Theoretically, credit should be used for one thing: to make more money. (not less) However, instead of using it to buy or construct a machine to triple what you can produce in an hour, the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later. At some point, you run out of hours available and the house of cards collapses. i.e., credi…

Not sure what you mean by the “average person” here but the biggest kinds of debt are mortgages ($12T) and cc debt, student loans, and car loans (roughly 4T total). Is your position that taking debt to buy a house is bad unless you can sell it for a profit? Is working for the mortgage lender to accomplish that not worth it? You can avoid it by renting, but then you’re just working for the landlord, so there’s no avoi…

Space is expensive because of mortgages. If nobody could get a mortgage, nobody would need one. It's a race to the bottom.

Buying a home from a landlord is still working for a landlord; you just pay the present value of future cash flow in a single lump sum, like an annuity.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#239

Post by ta1243 »

eadmund wrote: post #125
andruby wrote: post #118

Earlier quoted context omitted.

Do you also think that way about buying a house with a mortgage (credit)? I don't. A mortgage isn't used to make more money. It's used so people can own a house after saving for a few years, rather than waiting until they've saved for a few decades.

A mortgage doesn’t make money, but it (can) enable spending less money. If you buy a place such that interest, maintenance, insurance, taxes and the opportunity cost of not being able to easily relocate are less than rent, then you have saved the difference. It’s also a way to force saving, which is psychologically useful (and thus valuable).

If you buy a house for 500k on a 5% mortgage over 25 years when you are 25, and you plan to live until you are 85, you will live there for 60 years.

It will cost you 35k a year for 25 years, or 875k a year

After 25 years you have no more expenses.

If instead you rent it for 20k a year, increasing with 2% inflation each year, by year 25 you're paying 33k a year in rent, and by year 60 you're paying 66k a year.

Over 60 years you pay 2.4m in rent, or 900k in mortgage (you could also then sell that house for 1.6m with a 2% annual inflation).

You'd have to invest the savings and get way higher than inflation returns to break even.

Of course there's maintenance costs of the house too, but that's with rent far cheaper than the mortgage. In reality rent tends to be a similar amount as a mortgage (in the UK it tends to be higher - as people won't rent places out if they aren't covering their mortgage - at the very least the interest part of it). You'll likely find house prices appreciating more than inflation too - just like stock prices do. Rent tends to track income.

Now you could argue that you'll get more by investing in high return growth stocks. And you might be right. In the 80s there was a whole "endownment" mortgage craze where you paid the interest on the mortgage, and then the rest rather than paying down the mortgage capital, instead was invested.

This was a massive scandal as many investments didn't have enough to cover the mortgage amount upon maturity. With a mortgage you know that no matter what happens with inflation, growth, returns, stock crashes etc, you will own one house after X years.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#240

Post by immibis »

scarface_74 wrote: post #154
PostOnce wrote: post #121

Earlier quoted context omitted.

Owing money you don't have has disadvantages even without interest . For example, if you make 5000 dollars a month and get a 5000 dollar BNPL loan for a stereo, payment due in a month, then even without interest, you now either starve or default on the loan (or incur penalties, i.e. the interest you thought didn't apply).

You realize almost every phone in the US that you buy through the major carriers has worked like this for decades?

Why would you buy your phone through a carrier? Is it the good old US lack of regulation so it's the only option carriers let you have? I get my phone and my SIM card separately.
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