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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

#361

Post by thomascountz »

LeafItAlone wrote: post #350
thomascountz wrote: post #327

I left the U.S. several years ago and have completely forgotten about "credit scores" in this sense. I get reminded every once-in-a-while how things that used to feel so obvious and inevitable and necessary for society to function are completely artificial.

Where are you now? And what is the system like there? From my extremely naive understanding, obtaining credit and low rates is, in general, much easier in the US than other places. So it makes sense to me that it has “artificial” tools to help determine risk. How do other countries handle this and provide the availability that can be found in the US?

Banks are required to prove their loans are affordable. They can only lend someone an amount that they can prove the borrower can afford.

In my experience, rates are not low in the U.S. They are high because high risk loans are able to be granted.

The availability of debt for things like housing and cars is very complicated, but high taxes, a high degree of education, livable minimum wages, and realistic employee rights helps increase stability and decrease risk. I don't say it to be flippant. It is more complex than even I understand. It's only to say that, given that these systems are designed artificial systems, there are multiple implementations that work under various constraints and incentives.

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

#362

Post by toast0 »

ta1243 wrote: post #301
greedo wrote: post #289

Earlier quoted context omitted.

No more expenses... Right! No property tax. No homeowner's insurance. No maintenance. Just living on easy street.

It seems unlikely you'd be able to rent somewhere for less than the cost of * maintenence * taxes * return on capital Because otherwise your landlord is subsidising you, and why would they do that?

Rental prices are connected to costs, but not tightly.

If I'm a landlord and my costs are $X, but I can find renters for $2X, I'm probably going to charge closer to $2X.

If my costs are $X, but I can only charge $0.9X, I'll most likely rent it for that, because losing $0.1X is better than losing $X; unless I own a lot of units and it makes more sense to push the 'average rent' up, even if it means more vacancies. If the market conditions are like that for a while, I'll probably try to sell, but I'll take the loss for a while.

Additionally, if local market conditions include something like California Prop 13, a landlord that has been holding property since before I was born most likely has a much lower property tax bill than if I purchase a similar property. In that case, renting could supply them with a nice return and me with a nice discount.

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

#363

Post by bluGill »

potato3732842 wrote: post #273
ta1243 wrote: post #239

Earlier quoted context omitted.

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…

>After 25 years you have no more expenses. After 25-50yr (depending a lot on macroeconomic factors and your specific municipality) property taxes will likely be comparable to your mortgage payment.

Property taxes tend to go up with inflation though, so while the numbers given are wrong, the point still stands.

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

#364

Post by cbdumas »

IsTom wrote: post #122
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.

You need to compare money paid for mortgage minus price of house against money paid for rent (when you're left with no assets after all the years of paying it).

NYTimes has a great calculator for doing just that https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

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

#365

Post by BJones12 »

throwaway98797 wrote: post #303
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…

sometimes you make money in lumps debt allows people smooth that out and lending companies take a fee for that service nothing evil or wrong about it

Yes. Or to rephrase, debt/interest is a way of moving money through time.

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

#366

Post by nradov »

parpfish wrote: post #304
ch4s3 wrote: post #257

Earlier quoted context omitted.

Credit scores aren't a score of how valuable you are, they're a score of creditworthiness or how unlikely you are to default on a loan. The largest factors are age of credit and payment history. Utilization is also a factor. Someone who occasionally misses payments and has high utilization is going to be more profitable but higher risk to lend to.

Just because that’s what a scores is designed to do it doesn’t mean that’s what businesses use it for downstream. The fact people always debate what a credit score really means suggests that there are too many factors rolled up into a single number when we should really have a few distinct sub-scales. Anybody that has made a dashboard for a ceo with a short attention span that refuses to deal with nuance and just wan…

Yes, which is exactly why Fair Isaac Corp. sells multiple different scoring models customized for different use cases. It's not just one FICO score. For example, auto lenders usually stratify borrowers in a different way from home mortgage lenders. Contrary to the naive hot takes on HN, lender CEOs are well aware of these nuances.

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

#367

Post by thomascountz »

nradov wrote: post #360
thomascountz wrote: post #352

Earlier quoted context omitted.

You can have debts totally only up to a certain percentage of your income. Banks require that you produce a monthly budget demonstrating that you have a certain amount left per month after all expenses and debts are paid. You have to be able to prove this by giving them access to your tax and financial records. Most rates for things like homes and cars are consistent from bank to bank across the country.

And how do lenders assess previous defaults when underwriting new loans? From what I've seen, most developed countries actually do have the equivalent of the US credit reporting agencies. It's just that the functionality goes by different names and is distributed across several different types of entities rather than being centralized in three credit reporting agencies (plus Fair Isaac Corporation / FICO which is a v…

To be clear, credit reporting and tracking is not the only function of credit scores in the U.S. These functions do exist elsewhere and are often called "registries." They are not private companies, but instead public centralized institutions. Likewise, it is not possible for private companies to loan debt to citizens, even by proxy.

For bankruptcies and defaults, there are similarly court records from public institutions, which you give a bank access to. They cannot search these sources without your consent, though of course they will then not loan to you.

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

#368

Post by UltraSane »

dh2022 wrote: post #88
UltraSane wrote: post #77

Earlier quoted context omitted.

Lower interest because the seller pays the interest

But a lower interest expense is not relevant to a consumer that pays the balance on time…

If you put the cost on a credit card and paid it off over the same number of months you would pay a lot of interest.

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

#369

Post by bluGill »

Glyptodon wrote: post #349
bboygravity wrote: post #149

Earlier quoted context omitted.

Mortgages with low interest rates are also one of the (main) reasons houses are so "expensive" in the first place. The cheaper money (credit) is, the "higher" the prices will go. It's not so much that houses became expensive, it's more that money to buy a house (specifically mortgages) became relatively cheaper. Low interest rates did that.

I don't know about this - when I see quotes on build cost in my area they add up to more than similar properties sell for in some cases, and generally aren't a whole lot different than buying to the point that I've wondered why it's like that.

People forget that houses tend to get bigger when people can afford it. Adam Smith observed this back in his famous book.

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

#370

Post by cbdumas »

JKCalhoun wrote: post #280
jltsiren wrote: post #130

Earlier quoted context omitted.

Often, houses are depreciating assets that are expensive to maintain, but people take mortgage and buy them anyway. Often, renting is cheaper than buying, but people buy anyway, because they like the idea of owning their home. Often, people buy a home, because suitable homes are not available to rent. Money is only a means to an end. It has no inherent value. And very often, the subjective value of a thing is essenti…

You can believe that if you like of course, but I am definitely not teaching my children that. Renting cheaper than owning sounds like a very short-term view. My dad explained to me the nice thing about a 30 year fixed mortgage in simple terms: 10, 20, up to 30 years later ... your "rent" is the same. It's a simple experiment to see what a person's rent was going for 30 years ago in your community and then see what a…

NYTimes publishes a fantastic calculator [0] to help make this kind of rent vs. buy decision. It's not always that clear cut.

[0] https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

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