[FoRK] Credit

Stephen D. Williams sdw at lig.net
Thu Dec 16 13:53:15 PST 2004

Cleopatra Von Ludwig wrote:

>I think credit is an issue of some debate; and I say this primarily
>because I disagree with some of Stephen's points (maybe disagree is
>too strong -- I'd like to present a different perspective :-).
There are a lot of perspectives on this subject...

>card limits have been increasing periodically for years, much to my
>chagrin; now, the total debt I could potentially get into because of
>those cards may be seen as a liability to lenders. If you want to
I haven't seen that.  Not long ago, I had available credit that was 
massive.  Available credit was never an issue.  I specifically have 
heard that having high available credit and not using it is counted very 
postively.  I think the theory is that if you max out your credit 
accounts, you're not showing a good pattern.  So, for example, if you 
needed to carry a $10,000 balance, you would have a much higher score 
with $25,000 of available credit rather than $1000.

>force credit card companies to treat you right, you can always
>threaten to leave them; you don't have to actually have multiple cards
It does work a time or two, then you're just crying wolf.  If you 
actually move $8000 to another account for 6 months and leave their 
account empty, they often can't resist coming around.  If they don't 
have your balance, they have nothing to lose.

>to do that. Credit card companies are slime, IMHO, and will do
>whatever they can do to shaft you. In fact, I'm seen as a "deadbeat"
>to my credit card companies because I always pay off my balance in
>full every month; this mature, rational behavior ironically works
>against me in the world of "credit ratings".
>A big part of credit ratings, as Stephen said, is having debt and
>showing that you have paid (or are paying) it off. A car loan is a
>fine example. I didn't quite follow what Stephen meant about "almost
>selling his house", but the part about investing in property is well
That was an illustration of my point of doing whatever you have to.  
Three years ago, I had unexpectedly not been paid for months of work and 
available local gigs didn't pay well enough.

>I take issue with the idea of not saving as early as possible. I
>started my retirement accounts when I was in my early 20's; the
>long-term interest is where the pay-off lies. Even saving a small
>amount every month is good; especially if you can do it pre-tax.
This is the party line, and it is true to a large extent.  You should 
understand that the advantage of that strategy is highly variable with 
your life situation.  Additionally, the present value of money can often 
be worth much more than the future value of present money.  Inflation is 
one cause.  What I was pointing out is that I realized long ago that for 
me, the marginal value of money, i.e. the money left over after bills, 
decreases drastically over time.  The relative value of $1000 when I was 
making $33K/year was far more than when I was making multiples of that 
or even more compared to when the children are grown and out of 
college.  Some years I would have been lucky to put away $1000 while 
others I may be able to invest $100,000 one way or another.

I think another way to look at this is to think about what your security 
is.  In my case, it is investment in my self in various ways, which 
includes playing with gadgets, buying lots of books and periodicals, 
playing with new technology, buying useful software.  Even keeping 
myself healthy so I don't get too burned out qualifies.  Saved money is 
just something you can lose, as many did in the stock market.  Saving 
money means that I'm saying that the money will be worth more to me 
later than it is right now.  If I had $90,000 cash laying around, I 
wouldn't save it, I'd invest it in a business.  Stocks are that in an 
indirect way, I just am more interested in the direct ways.

After the children are grown, I'll switch to some strategy of saving, 
investing, and startups.  I'm nearly 40, but I'm still not even halfway 
through my working life and hopefully my income won't go down too much.  
After my children are grown, I know that my disposable income will go up 
at least 10-20 times.


>OK, so there's my 2 cents, which is about what it's worth. :-)
>On Thu, 16 Dec 2004 13:35:13 -0500, Stephen D. Williams <sdw at lig.net> wrote:
>>I didn't see that advice, but here are some notes.  I have built up and
>>paid off a fair amount of credit several times, mainly due to a
>>combination of children, housing, and starting businesses.  I'm pretty
>>rational about it and it has worked out very well, although sometimes
>>I've made people nervous.
>>The main thing seems to be that having credit allows you to get more
>>credit.  It is a kind of circle of trust arrangement where companies
>>will tend to offer you credit when you have credit but haven't used all
>>of it.  The most clear aspect of this is that you should have at least 2
>>credit cards and you should not have a high balance on more than one of
>>them.  Negatives are credit inquiries, any reported late payment
>>(anything under 30 days late doesn't get reported usually), or
>>especially anything 'charged off' or in litigation.
>>For credit cards, insist on: no annual fees, low interest rate tied to
>>prime, and avoid gimmicky deals unless they are really clean (most
>>aren't).  For instance, many of the affiliated cash back programs
>>(except Discover and American Express in-house versions) cause you to
>>have an interest rate that is at least 1% higher and often add a yearly
>>fee.  Certain companies are bad about trying to change  your interest
>>rate periodically to see if: a) you are paying attention, b) you can't
>>move your money, or c) to see if you are in trouble.  This is why you
>>must have at least 2 credit cards, if not 3: you need to keep
>>competitive pressure on each company you deal with.  If they see you
>>only have 1 credit card, they think you will be loyal to them even with
>>a little abuse.
>>Certain companies are much worse than others, although this changes over
>>time.  MBNA used to be bad about changing rates, but after 'spanking'
>>them a few times, they reformed, maybe just for me, I don't know.  They
>>do however only offer temporary promotional rates.  Bank of America,
>>Citibank, and American Express will make offers to some people of low
>>fixed rates until paid off for a block of credit from a balance transfer
>>or one-time-payout.  Rates in these deals can be: 1.99%, 3.9%, 3.99%, or
>>4.9%.  I have had a considerable amount on this kind of deal in the past.
>>Some of my credit philosophy:
>>It's all about cashflow.  Always protect your ability to meet cashflow
>>requirements and everything else is easy.
>>The marginal value of money for people with elastic and increasing
>>incomes is usually more in the present than it is in the future.  In
>>other words, I am very happy that I didn't save money in my 20's when I
>>was making little money, had a young family, and was researching and
>>learning about things to be used both in work and startups.  The value
>>of $100 then was proportionally high compared to now or, most likely,
>>the future.  Buying a video camera as soon as I could possibly afford it
>>to get video of my children as toddlers was an excellent investment.
>>Premature saving is like premature optimization.  It only makes sense if
>>you expect to have a small fixed income that grows slowly.
>>Additionally, there are big discontinuities in life, especially
>>children, that cause a huge difference in the marginal value of money
>>between their childhood and adulthood.
>>Do anything to avoid negative information on your credit report.  I very
>>nearly sold my house, etc. 3+ years ago.
>>If you do end up in a negative situation, avoid being strung along as
>>you start rebuilding credit only when all activity stops on a negative
>>Keep your finances separate from everyone.  I have an old partner who's
>>owed me $7000 for about 10 years because he also had a corporate credit
>>card that I had to pay to avoid a negative credit report.  You and your
>>significant other might not have the same approach to credit, cashflow, etc.
>>Loans to younger family are seldom loans.
>>Buy a house that will appreciate as soon as you can.  A house that can
>>be refinanced will hide many other ills.  With low interest rates, there
>>is a good argument that you should just buy a house, pay interest only
>>when you can, and never pay off the house.  The deductable interest is
>>less than rent and equity is just money that you have but can't spend.
>>I learned about this strategy when working in Manhattan.  Apparently
>>some "apartment" buildings work this way: You 'buy' into the building
>>and pay interest only plus a maintenance fee and you are specifically
>>not allowed to gain equity.  The 'lender' then is the real owner and
>>collects the interest forever.  I wouldn't like to go that far, but the
>>idea is sound in some circumstances.
>>Elias Sinderson wrote:
>>>Hey now,
>>>Bolcer said he got some good advice from y'all a while back on how to
>>>build a perfect credit score... I've never had a credit card (and am
>>>turning 30 this coming year!), really don't want one, but realize the
>>>power of good credit, especially when it comes to things like mortgage
>>>applications. So, kick down, FoRKs, give me the information fix I so
>>>FWIW, I do have a loan out on my car that I pay fastidiously, but that
>>>is the only thing on my credit report other than the corporate travel
>>>card I have through work (in my name). I'm not opposed to spending a
>>>bit of money in raising my credit score (e.g. interest on short term
>>>loans), but it should be within reason...

swilliams at hpti.com http://www.hpti.com Per: sdw at lig.net http://sdw.st
Stephen D. Williams 703-724-0118W 703-995-0407Fax 20147-4622 AIM: sdw

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