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  • #31
    Originally posted by F0017S0 View Post

    You are correct: credit cards do have better protections than a debit cards. That strikes me as by design of the credit card issuers, though (via lobbying), as a means of compelling everyone to favor credit over debit. Seems to me that the law could be easily changed to afford debit cards the same protection as credit cards, but that is for another discussion.

    Mostly, it strikes me the decision to "disfavor" one legally was by design of the credit card issuers to "compel" people to enter the credit universe when otherwise their prudent financial practices (like those of you or me, or other forum members) don't require the use of a credit card. It is reported in an old Frontline documentary that card issuers call folks who pay their balance in full "deadbeats" becasue they make little money off of us. Pretty sinister!

    Seems like those tiny plastic/metal/composite rectangles are more radioactive than they appear to be...
    You seem to be way overthinking this.

    With a debit card, the cash is debited from your account and gone.

    With a credit card, your cash doesn’t leave your account until you pay your monthly bill.

    Therein lies the protection benefit.

    The credit card company has a vested interest, as it was their money that was stolen/fraudulently obtained. Not yours.

    No plots, nothing sinister. Simple banking structures. Very straightforward.

    Also, just as a more general note, using a credit card for every purchase and paying it once a month is in no way more complicated than using a debit card to make those same purchases.

    In many ways, it is easier.

    Comment


    • #32
      "Again, I do not dispute that the current business model and law favors credit over debit (hence why I will begrudgingly keep my cards). On the flip side, it doesn't seem to me to make sense anymore for that to be the case, except to support the credit card issuers..."

      VISA and Mastercard provide the marketing and branding and vendor support. Not the banks. Banks compete for business and co-branding. Some fees and rewards competing for market share. The cash-flow and fees are set by VISA and MasterCard. A vendor may not receive actual payment for a month.
      Bad debt and collection are completely off of the vendor accepting the credit card. Some businesses actually sell the AR to a collection company to accelerate cash. Some vendors actually refuse to pay the fees, cash/check/or debit. The mark-up is around 3% for the vendor. You the consumer pay a fee/free and try to maximize (or not) the "rewards".

      The debit cards are all part of the banking system. Straight charge to the bank account, no Visa/Mastercard, bank fees, promotions or incentives. No frills or profits or risks and collections issues. Basically, the vendor is accepting a "pre approved" check, a bank deposit.

      I could be wrong, you are wanting recognition and a credit score for paying cash. Not going to happen.

      Comment


      • #33
        Originally posted by bovie View Post

        You seem to be way overthinking this.

        With a debit card, the cash is debited from your account and gone.

        With a credit card, your cash doesn’t leave your account until you pay your monthly bill.

        Therein lies the protection benefit.

        The credit card company has a vested interest, as it was their money that was stolen/fraudulently obtained. Not yours.

        No plots, nothing sinister. Simple banking structures. Very straightforward.

        Also, just as a more general note, using a credit card for every purchase and paying it once a month is in no way more complicated than using a debit card to make those same purchases.

        In many ways, it is easier.
        Your second through fifth comments are undisputed.

        My philosophical bent against credit cards is that they make it too easy to part with one's money (again, this is not a personal issue I have: I am a tightwad to a degree, who dislikes parting with my hard-earned money once it is in my account). The model of the modern credit card incentivizes bad decision-making. Why is it that the sum of my card credit limits is 2-3x my annual salary?

        It is almost reminiscent of the mortgage crisis from the late 2000s: the bank will give a card to most anyone with a pulse with the hope that s/he runs it up to their glee.

        Comment


        • #34
          Originally posted by Tim View Post
          "Again, I do not dispute that the current business model and law favors credit over debit (hence why I will begrudgingly keep my cards). On the flip side, it doesn't seem to me to make sense anymore for that to be the case, except to support the credit card issuers..."

          VISA and Mastercard provide the marketing and branding and vendor support. Not the banks. Banks compete for business and co-branding. Some fees and rewards competing for market share. The cash-flow and fees are set by VISA and MasterCard. A vendor may not receive actual payment for a month.
          Bad debt and collection are completely off of the vendor accepting the credit card. Some businesses actually sell the AR to a collection company to accelerate cash. Some vendors actually refuse to pay the fees, cash/check/or debit. The mark-up is around 3% for the vendor. You the consumer pay a fee/free and try to maximize (or not) the "rewards".

          The debit cards are all part of the banking system. Straight charge to the bank account, no Visa/Mastercard, bank fees, promotions or incentives. No frills or profits or risks and collections issues. Basically, the vendor is accepting a "pre approved" check, a bank deposit.

          I could be wrong, you are wanting recognition and a credit score for paying cash. Not going to happen.
          This is a little dated, but it seems like FICO has been experimenting with cash flow and utilization as a proxy for creditworthiness: https://www.cnbc.com/2018/10/22/fico...d-be-wary.html

          It would strike me that someone whose money habits always puts them in the black every month is far more credit-worthy (for big purchases like a home) than someone who makes the minimum payment every month, even though there is no "derogatory information" like a late payment. To me, the real derogatory information is that s/he consistently has a balance due.

          But in a hypothetical universe where you take away the credit card, there is no easy mechanism to overspend: you could only spend as much as you have on hand.

          Most on this site are cash flow positive every month, as am I: that is what makes me creditworthy, not my use of a credit card.

          Comment


          • #35
            Originally posted by F0017S0 View Post
            It is almost reminiscent of the mortgage crisis from the late 2000s: the bank will give a card to most anyone with a pulse with the hope that s/he runs it up to their glee.
            Not quite.

            Mortgages are secured by the property, which can be foreclosed on. Credit card debt is unsecured.

            Banks actually have quite tight restrictions on card issuance, and particularly credit limit determinations.

            It is also decidedly against their interests if someone runs up a tab who cannot pay it back.

            Sure, it happens, but they go to some effort to avoid it. These people are not idiots.

            Hence the aforementioned restrictions.

            Comment


            • #36
              Originally posted by F0017S0 View Post

              This is a little dated, but it seems like FICO has been experimenting with cash flow and utilization as a proxy for creditworthiness: https://www.cnbc.com/2018/10/22/fico...d-be-wary.html

              It would strike me that someone whose money habits always puts them in the black every month is far more credit-worthy (for big purchases like a home) than someone who makes the minimum payment every month, even though there is no "derogatory information" like a late payment. To me, the real derogatory information is that s/he consistently has a balance due.

              But in a hypothetical universe where you take away the credit card, there is no easy mechanism to overspend: you could only spend as much as you have on hand.

              Most on this site are cash flow positive every month, as am I: that is what makes me creditworthy, not my use of a credit card.
              There is this avenue, for what I call actual private banking. Annual personal financial statements (bank form) reviewed by CPA firm and then the loan committee “approves” a personal line of credit . $5m, $10m or whatever. Allows and individual to be pre-approved up to an amount, rather than each transaction. Unsecured, except for the financial condition of the individual.

              The “personal guarantee” of direct and indirect (think of an LLC personal guarantee business loan)
              all count against the LOC as well as cash withdrawals (interest at prime +). It is similar to a Heloc or credit card with a limit and only secured based on your personal guarantee. An expensive process to implement. Not for the common folk.

              Comment


              • #37
                Not quite.

                Mortgages are secured by the property, which can be foreclosed on. Credit card debt is unsecured.

                True, no debate from me on your first comment.

                Banks actually have quite tight restrictions on card issuance, and particularly credit limit determinations.

                Absolutely, people do get rejected card applications (i.e. the graduating student/resident who missed getting a Chase card on this forum). As far as credit limit determination, all of mine individually seem arbitrarily high and in aggregate exceed my annual income by a substantial margin.

                It is also decidedly against their interests if someone runs up a tab who cannot pay it back.

                The bank wants the average user to run it up “enough” that the bank profits at an average of 18%. For those who cannot control spending (i.e. very few on this forum), the credit industry has a handy consolidation loan available so you can wrap all of those charges into one payment at a lower rate, thus opening your cards up again for overspending. And it is my understanding that bankruptcy laws have been watered down to the point that it is much more difficult to get that relief when appropriate. In other words: there is an available credit product to “treat” your credit woes that opens up your other credit products for additional use while making real relief (though painful relief) very difficult to achieve. Pretty sinister even if only a few truly go bust, and the rest of the overusers just slowly sink.

                Sure, it happens, but they go to some effort to avoid it. These people are not idiots.

                I do not think the issuers are idiots; they are smart in getting us to believe that it is important to use credit cards because they designed the system that incentivizes their widespread use. That is smart, even if a small percentage truly goes bust, they can keep the rest of us in the system knowing that some other percentage will be a cash cow.

                Hence the aforementioned restrictions.

                Comment


                • #38
                  Originally posted by Tim View Post
                  There is this avenue, for what I call actual private banking. Annual personal financial statements (bank form) reviewed by CPA firm and then the loan committee “approves” a personal line of credit . $5m, $10m or whatever. Allows and individual to be pre-approved up to an amount, rather than each transaction. Unsecured, except for the financial condition of the individual.

                  The “personal guarantee” of direct and indirect (think of an LLC personal guarantee business loan)
                  all count against the LOC as well as cash withdrawals (interest at prime +). It is similar to a Heloc or credit card with a limit and only secured based on your personal guarantee. An expensive process to implement. Not for the common folk.
                  For the average person, I don’t think you would need manual underwriting: you could design a computer system that assesses rates of cash-flow positive months or weeks and assign credit based on that. Much more granular than income which might not be there in six months, which theoretically allows for real-time adjustment of the tap. Or we admit that the collective embrace of credit cards for daily expenses is ill-advised and reserve credit for the big purchases.

                  Comment


                  • #39
                    Originally posted by F0017S0 View Post

                    For the average person, I don’t think you would need manual underwriting: you could design a computer system that assesses rates of cash-flow positive months or weeks and assign credit based on that. Much more granular than income which might not be there in six months, which theoretically allows for real-time adjustment of the tap. Or we admit that the collective embrace of credit cards for daily expenses is ill-advised and reserve credit for the big purchases.
                    Conceptually you are asking for statement of cash flow, one of three required financial statements. (Income Statement and Balance Sheet are the other two).
                    "The cash flow statement then takes net income and adjusts it for any non-cash expenses. Then, using changes in the balance sheet, usage and receipt of cash is found. The cash flow statement displays the change in cash per period, as well as the beginning balance and ending balance of cash."
                    Financially it simply is changes in the balance sheet. Great cash flow with a terrible income statement and balance sheet leads to bankruptcy.
                    One cash flow statement would be a disaster, easily manipulated. Fifty per cent of your earnings is untouchable, taxes and retirement. One technique is for one to buy a huge property for cash and homestead it. It is has and will be done again.

                    Comment


                    • #40
                      Originally posted by F0017S0 View Post
                      Not quite.

                      Mortgages are secured by the property, which can be foreclosed on. Credit card debt is unsecured.

                      True, no debate from me on your first comment.

                      Banks actually have quite tight restrictions on card issuance, and particularly credit limit determinations.

                      Absolutely, people do get rejected card applications (i.e. the graduating student/resident who missed getting a Chase card on this forum). As far as credit limit determination, all of mine individually seem arbitrarily high and in aggregate exceed my annual income by a substantial margin.

                      It is also decidedly against their interests if someone runs up a tab who cannot pay it back.

                      The bank wants the average user to run it up “enough” that the bank profits at an average of 18%. For those who cannot control spending (i.e. very few on this forum), the credit industry has a handy consolidation loan available so you can wrap all of those charges into one payment at a lower rate, thus opening your cards up again for overspending. And it is my understanding that bankruptcy laws have been watered down to the point that it is much more difficult to get that relief when appropriate. In other words: there is an available credit product to “treat” your credit woes that opens up your other credit products for additional use while making real relief (though painful relief) very difficult to achieve. Pretty sinister even if only a few truly go bust, and the rest of the overusers just slowly sink.

                      Sure, it happens, but they go to some effort to avoid it. These people are not idiots.

                      I do not think the issuers are idiots; they are smart in getting us to believe that it is important to use credit cards because they designed the system that incentivizes their widespread use. That is smart, even if a small percentage truly goes bust, they can keep the rest of us in the system knowing that some other percentage will be a cash cow.

                      Hence the aforementioned restrictions.
                      So at what point does personal responsibility come into play?

                      The people with the most credit card debt have the highest education and make the most money, mind you.

                      Also keep in mind that the majority of bank/card issuer revenues do not come from interest. These aren’t predatory lenders and payday loan issuers.

                      I agree that credit cards cause problems for some people, but I think assigning all of that blame to some “sinister” company for a standard financial services business model is ridiculous.

                      You wouldn’t blame a tiger for biting would you? Don’t blame a bank for lending money or issuing credit. It’s literally the essence of their existence.

                      Comment


                      • #41
                        I understand your lack of love for CC, (i might be one of the few).

                        Those companies are snakes.

                        I used only debit cards for almost my whole life until about a year or so ago.

                        Debit cards. Over 20 years. Never had an issue.

                        This year i switched to one amazon prime CC

                        I decided to use one amazon prime card since 5% back on amazon and 1-2% on other stuff.

                        I now use this card for almost every purchase.

                        I pay it off every month; autopay from bank account.
                        ( and i carefully look at spending every friday…..i know overkill)

                        Many say debit cards are not as protected from id theft etc. and we have discussed this here before and some have had bad experiences.

                        I personally never had issues but this is a common concern ( probably a very real concern and a good reason for cc, but i have had good luck and/or good debit cards)

                        I do think many have too many credit cards.

                        I certainly think people buy too much on credit and become indentured servants to said debt, but this is a longer and different discussion.

                        The borrower is slave to the lender.

                        Interestingly, purchasing with CC does not “hurt” as much as paying cash.

                        https://www.cmu.edu/homepage/practic...it-hurts.shtml

                        Comment


                        • #42
                          Originally posted by F0017S0 View Post
                          It would strike me that someone whose money habits always puts them in the black every month is far more credit-worthy (for big purchases like a home) than someone who makes the minimum payment every month, even though there is no "derogatory information" like a late payment. To me, the real derogatory information is that s/he consistently has a balance due.
                          Nope, credit card issuers are in the business of making money from customers carrying high interest rate balances. This creates a Bizarro World where customers who pay in full every month are called deadbeats. An actual industry term for unprofitable customers.

                          Most on this site are cash flow positive every month, as am I: that is what makes me creditworthy, not my use of a credit card.
                          Maybe to you, but not to the credit industry. They absolutely love people who carry a moderate non-increasing balance every month. They are the profitable customers. You will actually have a higher credit score carrying a modest balance than no balance.

                          Comment


                          • #43
                            I feel like this has somehow turned into F0017S0 being philosophically against credit cards. Get rid of your credit cards...or don't.

                            Comment


                            • #44
                              If we are getting philosophical.

                              Depends on the individual if credit cards are good or bad. But what about society in general? I am sure the easy spending stimulates the economy but does that outweigh the negatives?

                              Comment


                              • #45
                                Originally posted by Lordosis View Post
                                If we are getting philosophical.

                                Depends on the individual if credit cards are good or bad. But what about society in general? I am sure the easy spending stimulates the economy but does that outweigh the negatives?
                                Debt in general? 100% yes, no question.

                                Credit cards specifically? Also yes, but less definitive.

                                Comment

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