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Ultimate point of credit

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Valued Member

Ultimate point of credit

What would you say is the ultimate point of credit cards and other tyoes of loans?  Why not just save 10% of your income every year and not bother with needing credit?  If you do think credit is necessary, how has it saved you time or effort or money?

10 REPLIES 10
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New Contributor

Re: Ultimate point of credit

I think it's probably different for everyone. Ultimately though, I think we all want good credit to get the best rates possible on all types of loans, credit cards, ect. Not everyone can save 10% of their income yearly.

Message 2 of 11
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Valued Contributor

Re: Ultimate point of credit

For me the ultimate point of credit is mortgages, it would take a very very long time to save enough to buy a house in cash. The minor goal is rewards, why not get something back for things I am buying anyways.
Scores hover around 800
Haven't been AZEO in over a year
Rome was not built in a day, neither is a good credit profile
Message 3 of 11
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Frequent Contributor

Re: Ultimate point of credit

This is MY opinion only, however for me it's just a big positioning game for the big stuff, (mortgages), and of course, the unexpected.  When I got married and inherited 2 stepchildren, I wasn't thinking about a house.  7 months later BAM... wife got pregnant... glad I had good credit... worked good for the station wagon also, and the minivan after the next pregnancy, and the Suburban after the 5th kid came.  Not to mention the 2nd house, and all the surprise stuff that comes up.  And THAT was before I was aware that credit score factors into insurance rates, etc.  I HATE playing games with life, however this is one you've got to play from my standpoint.  My as well play it to win.

 

Although you really never win, but don't get me started...  Smiley Very Happy

FICO 8:  EQ:687  TU:728  EX:735
Message 4 of 11
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Valued Contributor

Re: Ultimate point of credit

Credit Cards:

1. Convenient - people paying with cash slow things down.  If you save 20 seconds every time you buy everything (and everyone in line in front of you goes through 20 seconds faster as well), it adds up

2. Allows you to buy stuff online, rent cars, book airline tickets.  Otherwise, you'd need to buy everything in person or (gasp) mail cash.  This has actually had a profound impact in driving & keeping prces lower (stores like Borders, Circuit City, etc. aren't even around any more and stores like Sears might be following them out soon)

3. Give rewards - initial spend & ongoing rewards.  I've banked maybe $5k in rewards each of the last few years

4. Offer protections that cash doesn't - extended warranty, price protection, opportunity to dispute if the item/service isn't as promised

5. Safety - I carry exactly $40 on me, in case someone mugs me I can hand that to them.  I don't actually pay for anything with cash (except at a few small Chinese restaurants I go to that only accept cash).  I'd hate to be carrying hundreds (or thousands) of dollars around all the time just to buy the stuff I need.  CC liability is limited to $50 I believe, although most major card issuers waive it

6. Allow you to buy stuff in advance of having the money - obviously this is risky and could be costly (and it's the way that CC issuers make most of their money), but you get 30-40 days float if you PIF regularly, and you can also get 0% rates for 12-18 months pretty easily.  Some lenders also regularly offer 0% rates on certain purchases.  Of course, this is how a lot of people get burried, so again, know what you're doing and plan carefully.

 

Other types of loans:

1. You can buy something you can't yet afford..  Most obvious examples are buying a home or car.  I make well into 6 figures, but I live in the Bay Area (average home cost is about $1M if I recent articles are accurate).  I'd rather get a loan and start owning a home now rather than setting aside 10% and moving into a home 10 years from now.  Same with a car - it's nice if you're able to save up first but some people need a car to get to work - should they walk to work until they can save up enough to buy a car?

2. Leverage - you can buy more than the cash you have on hand.  There's really two main reasons why a home is the single most valuable asset for the vast majority of homeowners.  First, you're forced to pay into it consistently and it's not easy to stop contributing or pull money out of it.  Second biggest factor is leverage.  You can own a $500k house by putting up only $100k in cash; if the price goes up, it's based on the full $500k price (of course, prices can go down as well, but over the long haul, real estate has been a major growth engine that the average person can participate in).

 

 

Message 5 of 11
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Super Contributor

Re: Ultimate point of credit

Even with savings, free travel is nice.
Spend: BofA PR + WWFCR, BBP, Schwab Platinum, CFF+CF, Costco, Discover
Perks: IHG49, Hyatt75, Delta Platinum, "Old" SPG95
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Upgrade/downgrade games: BCE, EDP
SUB: JetBlue, Amex Platinum
Mostly earning MRs and cash back as I use up hotel and airline points spread across several programs.
Message 6 of 11
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Established Contributor

Re: Ultimate point of credit

The ultimate point for credit cards to the greater public is credit-bridge loans and using credit rather than cash for whatever reason. That's obvious outside of the strange realm we exist in. Rewards are great but I save more money not eating out for a week than I do on rewards for a month. You're not getting rich from rewards. However, the benefits of the cards, building a good credit rating and getting good interest rates is my goal currently. My dad who makes six figures has $25k racked up on his CITI Advantage card. This may be generational but people use them to use banks money rather than their own for a myriad of reasons. 

FICO- Experian: 797, TransUnion: 781, Equifax: 804 (Updated Monthly)
Message 7 of 11
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Community Leader
Mega Contributor

Re: Ultimate point of credit

Ultimate point is to be able get the things you need and want. Unfortunately or fortunately, this is our society. Credit matters. Try renting a car without a cc. Im sure there are millions Of other examples. Its another way the system can mark us as those who have good credit will have it easier to handle lifes situations than those eith bad. I want to maximize my credit to its fullest potention so it will save me in interest on many of lifes finer things like having a car or house. One way it has helped is when getting a loan, the better your score the better your rate thus money saved. Smiley Happy
Message 8 of 11
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Established Contributor

Re: Ultimate point of credit

I'm curious as to your logic that saving 10% could replace the need for credit. That makes no sense. 

Message 9 of 11
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Established Contributor

Re: Ultimate point of credit

Convenience

Over $200,000 in credit across 12 cards.

FICO ranges from 791 -824 as of 07/26/2019
Message 10 of 11
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