Perhaps the BEST B1G Forum anywhere, here at College Football Fan Site, CFB51!!!

Nags Head

I think in any eventuality, I'd want everyone to be qualified for their job.  To think otherwise, is, to me, nonsensical.

Credit scores are very misunderstood including here on this board, but that’s not surprising.  They are somewhat complex algorithms originally designed to standardize our lenders ability to extend credit.

I’m sure nobody can fault lending institutions for trying to have predictability around a persons willingness and ability to repay credit that they have extended to them.

Credit cards might be the most unique aspect.  Interest income used to be the prevalent way a lender can make a profit with a credit card however in today’s environment the interchange income and fees are most appealing.  Credit card providers write off millions and millions of dollars each month of unpaid balances that they can never collect. 

That’s a conversation littered with complexities for a different day. But the mortgage loans, car loans, and boat loans that also have enormous impact on peoples credit score are just as important if not more so.

Today you can buy a $400,000 house and borrow as much as 97% of it from a lender and paying interest rate under 3 1/2%. That loan is amortized over 30 years, allowing the majority of us who don’t have $390,000 cash to put down on a house the ability to actually purchase a home at a reasonable monthly payment.

Same deal with a $30,000 car or a $50,000 boat.  I’m not sure I can agree with anyone who thinks that that is a bad thing. 

But they are not mandatory things as we often make mortgage loans to people who have no credit cards, or house payments, or car payments.

We will gladly validate that they pay their rent if they are renting or their utilities, water bill, cable bill or any other number of methods to validate that they take their financial obligations seriously and make their payments.

That, combined with the total amount of their debt relative to their income provides incredibly strong predictability around whether or not they will pay their mortgage on time and consistently overtime.

Yes, credit cards are baked into this and there are many people who do not have the control to properly use them. But the overwhelming majority of clients we see do you have the financial responsibility. In fact in today’s world of rewards we have many clients who never pay a penny of fees or interest, and accumulate thousands of “reward points“ by using her credit card for every day purchases like groceries and gasoline.

Just the other day I went on to Amazon to purchase a fishing rod travel carrier as I am going to Minnesota at the end of August for a week of Muskie fishing. When I went to check out Amazon automatically gave me the option of using points from my credit card to pay for the $110 item which I did. So I got it for free. My credit card has no annual fee and I pay the balance in full every month.

In the end it may be about education. We live in a time where it is easy to get credit extend it to you for under 5% and just as easy to invest that money with returns certainly an excess of 5%.

See, this is why I like this place. This is informative and spurs more dialogue. I had three points that caught my attention and led to follow ups.

1. I think one of the things with the credit score is that a lot is read into it. Like needing to use a CC or get a loan to "build credit" is this common myth, i.e., you need to be proactive in borrowing, rather than just live a financially sound life.

2. That's interesting to see that interchange income is closing in on interest. The stat I quickly pulled up said it was way ahead. I'm still generally distrusting of credit cards as an instrument (certain elements of them I still think exist to profit off irresponsibility), but understand it's one I can play the angles of for a relatively modest benefit.

3. The points thing is something I understand to a degree, but am not fully immersed in and thus don't totally trust (I should say, my standard for fully immersed is a higher bar). In some ways, it seems like a way to game-ify spending money, and while the benefits can be nice, the interchange rate isn't that high, and these companies aren't giving away money (they might be getting kickbacks). Plus there's the opacity of "points," which is a smart marketing gimmick that reduces clarity in a way.

Anyway, I appreciate you sharing the expertise. It's especially clarifying at that No. 1 point.

Yes- it is an interesting area.

as the holder of a credit card portfolio- would you rather offer a low rate to highly qualified borrowers with excellent credit, who pay their balance off monthly, and make less in interest income and late fees, but save a ton on unpaid balances and the high cost of collections. And- you make a steady stream of interchange income from all the card swipes.  You supply rewards points- but you partner with suppliers like Amazon or certain airlines and rental car companies such that they absorb most of those cost for increased eyeballs in their outlets.

Or

Charge a much higher rate for the second tier and below credit scores.  Collect gobs of interest income, annual fees and late fees, but write off gobs of unpaid balances and the high cost of collections. 

and those are the 2 ends of the spectrum- there are CC providers all throughout the middle.
no doubt- their mission is to make a profit but the way in which they do that and what their intentions are varies tremendously.  There are some that prefer high end borrowers who pay Off their balance each month, swipe the card often and use their reward points. They tend to be very loyal since there’s no reason to leave because they never pay any annual fees or late fees and they don’t pay interest either. That makes for a very pretty annuity stream for a credit card provider, and they prefer that. In other words they want their borrowers to pay them off.