Generation debt

[Solauren]

It's actually good for your credit score to have available credit that you don't use.

That's why I love having my line of credit. Most of the time it sit's there costing me nothing, but making me look oh so good for things like mortgage approval, etc.

I've been thinking about increasing it to the next level, but I don't really see the point beyond making me look good for credit. Especially when that will increase the credit card offers.

I have my VISA. It gets me points towards new cars. I only use it online because sending money orders is a pain in the ass.

[Bedlam]

It's actually good for your credit score to have available credit that you don't use.

And is this actually a good thing or a Sympton of the the underlying problem. In order to get credit you have to have credit so your forced to get things like credit cards to pay for things you dont really need in order to get a mortgage for something that is a more worthwhile investment like a house.

Should in future haveing credit be used as a black mark against getting more credit?

[aerius]

It's actually good for your credit score to have available credit that you don't use.

And is this actually a good thing or a Sympton of the the underlying problem. In order to get credit you have to have credit so your forced to get things like credit cards to pay for things you dont really need in order to get a mortgage for something that is a more worthwhile investment like a house.

Should in future haveing credit be used as a black mark against getting more credit?

It used to be that way. If I had a $50k line of credit or a $20k limit on my credit card the bank would count that against me when I go to apply for a mortgage or other large loan. They'd be like "look, you already have $50k of credit, we're not going to give you another $300k to buy a home. We'll give you $200k tops, if you need more you'll have to cancel your existing credit lines". It'll be that way again once the current mess gets sorted out.

[Darth Wong]

Then again, it could be quite a while before people accept rational debt policies. Just look at the way economic news is being reported: everyone is talking about what it would take to "get credit flowing again". We do not want to get credit flowing as easily as it did before the collapse; that is what caused the collapse. We need it to be more of a trickle than a "flow".

[Coalition]

IIRC, a bankruptcy stays on your credit reports for either 7 or 10 years (IANAL, so caveat emptor) and once you've filed, you can't do so again until 7 or 10 years (again, IANAL) have passed.

IOW, once you've been granted a bankruptcy, you'll get a ton of 'pre approved' credit offers with such sterling terms as 25% interest, $70 annual fees, and a 'one time $69 application fee' in the mail, because you can't escape the debt through bankruptcy this time.

The wise person would immediately run those 'offers' through a shredder, but the average US consumer going through bankruptcy isn't very wise WRT debt to income ratio.

I've got a better one:
$300 credit limit
$150 annual fee
$6.50 monthly fee
$20.00 account opening fee
35% APR
Oh, and until you made at least the minimum payments for 6 months in a row, you only had a $150 credit limit. So if you pay for 5 months and miss the sixth, you have to start all over again.

As soon as you got the card, it was effectively maxed out.

I used to work customer support for that company. For some reason, not many people wanted the above card.

[PeZook]

Then again, it could be quite a while before people accept rational debt policies. Just look at the way economic news is being reported: everyone is talking about what it would take to "get credit flowing again". We do not want to get credit flowing as easily as it did before the collapse; that is what caused the collapse. We need it to be more of a trickle than a "flow".

Frankly, banks got lazy. If someone wants to take a very large loan, you should theoretically take a very close look at not only his credit history, but current debt, his job, income, compare it all to economic predictions, etc.

Or you can just look at his "credit rating" (often meaningless, since the guy gained it by buying cinema tickets with his credit card...) and wham! Mortgage! Who cares if the poor sod will pay it off? The housing market is booming, after all! Can't lose!

Well, turns out you can.

[apocolypse]

I've got a better one:
$300 credit limit
$150 annual fee
$6.50 monthly fee
$20.00 account opening fee
35% APR
Oh, and until you made at least the minimum payments for 6 months in a row, you only had a $150 credit limit. So if you pay for 5 months and miss the sixth, you have to start all over again.

As soon as you got the card, it was effectively maxed out.

I used to work customer support for that company. For some reason, not many people wanted the above card.

Shoot. Have you seen the commericals for some of the companies (I think "Check into Cash" is one of them) that offers loans of up to $2,000 USD for just your signature? I read the fine print on the commericals, and the APR is 99.25%. I think I calculated the monthly payments over the time alloted, and it worked out to be over $8,000 that you give back to them.

[salm]

Shoot. Have you seen the commericals for some of the companies (I think "Check into Cash" is one of them) that offers loans of up to $2,000 USD for just your signature? I read the fine print on the commericals, and the APR is 99.25%. I think I calculated the monthly payments over the time alloted, and it worked out to be over $8,000 that you give back to them.

Wow, do you not have any usury laws?

[Arthur_Tuxedo]

I believe the law that made that little gem possible was snuck as a rider onto an unrelated bill on the last day before congress went on vacation, IIRC.

[J]

Then again, it could be quite a while before people accept rational debt policies. Just look at the way economic news is being reported: everyone is talking about what it would take to "get credit flowing again". We do not want to get credit flowing as easily as it did before the collapse; that is what caused the collapse. We need it to be more of a trickle than a "flow".

Whether people accept it or not will soon be a moot point as there's a good chance market forces will jam it down their throats in the near future. When the credit markets, that is the holders & buyers of government & corporate debts decide they've had enough of the current circus act they'll stop buying and begin liquidating their holdings. When that happens credit & debt funding vanishes and only those with absolutely solid cashflow & debt policies will survive. Everyone else is bankrupted or bought out and we return to rational monetary policies. The only problem is this is how the Great Depression went from bad to worse, a repeat today would result in even greater suffering. The invisible hand works, but it causes a lot of collateral damage and unneeded suffering. When the free market corrects itself it tends to do so in the most destructive way possible.

[Stark]

It's actually good for your credit score to have available credit that you don't use.

No. In Australia, credit ratings do not work this way - credit agencies simply track the number of negative events (ie overdues, defaults, etc) and these exist in your record for 5-7 years. It's not like in America where you develop 'confidence', the only thing that matters is how many times you've failed to pay things.

[sketerpot]

If people 18-28 in Australia are in 60 billion total dollars of debt, that translates into about $20,000 for every person. Holy shit.

[Ekiqa]

If people 18-28 in Australia are in 60 billion total dollars of debt, that translates into about $20,000 for every person. Holy shit.

Thats better than a lot of places. Iceland, for instance.

[sketerpot]

What's the endgame for these people accumulating piles of debt? Do they declare bankruptcy and walk away from it? Do they keep on spending and spending without end? Do they pay it back?

[mr friendly guy]

Well there are services available to help you pay back your debt without declaring bankruptcy. The video I linked to did showcase one such service. Its definitely not in the lenders' interest to have these people bankrupt because they can forgo paying back the money. Although from the way one of the women were going on, she declared she would just declare bankruptcy if it came to that. I can't quite work out whether it was meant as a joke or the laugh was just a way to hide what she really is thinking.

Assuming of course they just declare bankruptcy, unless they win the lottery or somehow come into a whole pile of cash, I can't see how they would be able to qualify for credit to led the lifestyle they had become accustom to. They would most probably irk out a living a shadow of what they led wondering if they just used their money better, would they still be able to live a comfortable if not luxurious life. Or they could just blame the banks. Yeah, lets do that.

[mr friendly guy]

They would most probably irk out a living a shadow of what they led wondering if they just used their money better, would they still be able to live a comfortable if not luxurious life. Or they could just blame the banks. Yeah, lets do that.

Ah crap, typo. That should read they would most probably irk out a living a shadow of what the led before, wondering if they just used their money better, would they still be able to live a comfortable if not luxurious life.

[Darth Wong]

What's the endgame for these people accumulating piles of debt? Do they declare bankruptcy and walk away from it? Do they keep on spending and spending without end? Do they pay it back?

They can often arrange a deal to pay back their creditors a small fraction of what they owe. It's rather unfair, but the creditors would rather get back 20 cents on the dollar than nothing at all.