FICO to incorporate buy-now-pay-later loans into credit scores

https://www.axios.com/2025/06/23/fico-credit-scores-bnpl-buy-now-pay-later

by cebert • 1 year ago

282 659 1 year ago

axios.com

firesteelrain7• 1 year ago

Credit scores will tank further

ZYbCRq22HbJ2y72• 1 year ago

Why?

"The industry has long believed that consumers using BNPL responsibly should result in positive credit scores, as the majority of users are paying back in full and on time."

steveBK123• 1 year ago

Because "most people pay back fully on time" is not the metric.

The real question is what are the delinquency and default rates for BNPL as compared to other forms of consumer credit.

Given the previous understanding that it didn't hit your FICO, the retailer subsidy as a sales lead, and the types of products people were financing.. one might assume worse..

firesteelrain7• 1 year ago

Because it’s shadow debt and it will show the person as overleveraged with a bunch of Affirm loans

UltraSane4• 1 year ago

If customers make every payment their score should improve.

dh20224• 1 year ago

What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time?

To me this seems like a new product that would target a different consumer than the one that makes payments on time. But I would like if someone challenges this view. Thanks!

firesteelrain7• 1 year ago

Not if it shows a bunch of Affirm loans. You could look overleveraged for say getting a mortgage

bediger40002• 1 year ago

We don't really know that. The algorithm is secret.

burnt-resistor• 1 year ago

That's an incomplete answer because it doesn't take total debt burden and history of payments into account over time. Score is fluid and should decrease while debt burden is high or increases. At the end though, score should improve slightly because they are slightly more trustworthy having repaid what was promised.

jppope• 1 year ago

thats interesting. I was always wondering what the hustle was, guess that was it- it was outside of the credit system

NewJazz2• 1 year ago

It already shows up when mortgage lenders do their checks, AIUI.

hopelite4• 1 year ago

The irony is that it does not even really matter anymore at this stage, especially with mortgages. So you get a few points taken off because you have 800 vs 600 score, but it won’t really make a difference when both are on the same out of control roller coasters where house prices have increased by 100% in 7 years.

loeg6• 1 year ago

The hustle is mostly just getting merchants to eat bigger discounts in hope of selling more volume. Instead of eating ~3% interchange on a credit card, merchants eat ~6% subsidizing short-term BNPL loans.

banannaise3• 1 year ago

Well, they're also doing the old "burn through VC cash in the name of growth" thing.

ecshafer• 1 year ago

This would probably only affect the people with the worst credit scores I imagine. I just don't see a ton of 800+ credit score people deciding to spend 5 payments of $20 for a pair of $80 shoes.

loeg6• 1 year ago

Plenty of people with good credit use BNPL loans; they are offered on much higher cost items than $80.

quickthrowman2• 1 year ago

1.5% back on the purchase via CC rewards beats earning 1% over 3 months (4% yield) in a HYSA every time, anyone using BNPL is using them suboptimally.

For a 3 month BNPL loan to be worth it, HYSA rates must be over 6%, and actually a bit more due to the time value of money; you get CC reward cash after the statement period but it takes 90 days (and up to ~120 days) to get three monthly interest payments.

ZYbCRq22HbJ2y72• 1 year ago

That would depend on the fees and interest, no?

kurthr2• 1 year ago

I have so much extra money just laying around that I take unnecessary risks and add complexity to my financial life for kicks and giggles.

sodality22• 1 year ago

I always thought it was interesting that the BNPL loans’ interest is subsidized by the retailer, which pay the premium in order to improve the chance of a sale (hoping to hone in on those who can’t afford it now and make it back on that extra spend). Which means high credit score, wealthy spenders could put everything they can on BNPL plans and profit the (minuscule) interest over time, but if you can do that on big purchases, maybe it’ll add up. Same way credit cards work, if you have the cash flow and always pay them off in full, you can make a few bucks in a HYSA for the 40 ish days before the statement.

I can see a future where a BNPL loan is not offered if the signals the checkout page collects indicates wealth, since they don’t have an issue of cash flow stopping a purchase. Imagine a loan that has a credit score maximum, not a minimum.

BrawnyBadger53• 1 year ago

Discriminating wealthy customers increases the risk profile of the loans which is already questionably high. Retailers are used to paying extra for credit card transactions anyways. BNPL really is just meant to compete with credit cards by splitting the runway across more months for the loan. Equally predatory business model but credit cards are able to offer the same interest amortization that you can do with bnpl through the rewards programs. They're effectively the same.

benmanns2• 1 year ago

I’m not sure. I’m sophisticated enough to use BNPL and set aside the funds in a HYSA, but I never have as you miss out on: credit card rewards, credit card purchase protection, credit card extended warranties, credit card chargeback infrastructure. Additionally, I’ve seen BNPL offers where the first payment is in 2 weeks compared to 30-50 days for credit cards depending on when your statement closes and how soon you have to pay, so the extra interest is less than you might think. It could make sense for very large purchases, but then, that’s also where credit card features can really come in handy.

CPLX2• 1 year ago

This is a theory, but it flies directly in the face of reality which is that nearly every retailer on the planet would prefer more wealthy customers.

Spivak• 1 year ago

Except it's 4 payments of $20. The whole selling point is that they're zero interest. It's CC float without the CC.

etchalon2• 1 year ago

A lot of BNPL loans are offered at 0% for X payments. Usually 6 months, sometimes 12 months on larger purchases.

Given current interest rates, I take that deal WHENEVER it's offered.

p1necone2• 1 year ago

Shifting a cost forward a couple months interest free is a great deal for people who are financially responsible, especially if you have some other loan (like a mortgage) that you could be paying off more of instead.

It's no different to the practice of using a credit card for everything and then paying off in full a month later because the credit card interest is lower (often zero if you pay off within a month) than the mortgage interest.

mNovak• 1 year ago

In the case of a 0% grace period sure I agree, but otherwise in no world is credit card interest cheaper than a mortgage over the same time period.

dehrmann• 1 year ago

I briefly looked into this, but I wasn't convinced the juice was worth the squeeze. My cash is automatically getting ~4%, but there's too much fine print to make sure the BNPL rate really is 0%, I'm sacrificing 2% cash back, and missing one payment makes the whole endeavor negative ROI.

firesteelrain7• 1 year ago

A lot of young people where Affirm-ing their DoorDash etc. even though they had the money

OptionOfT• 1 year ago

What's interesting here is that normally BNPL only does a soft check.

I wonder if this is going to change.

Equally, I find it weird that companies can ding your credit for not paying but have no obligation to report on-time payments. It should be both or none.

hopelite4• 1 year ago

Technically it is largely already built in as an assumption that payments are made on time. You also don’t lend to a friend you will not be paid back by, will you? The credit score reduction is merely a diversion from norm, i.e., the expectation that you pay what you agree you owe.

Ironically, there is actually zero reward for being a reliable person, there is only a punishment for being an unreliable person; and with all the money printing, even the punishment for being an unreliable person has been almost totally removed and being reliable and upstanding is effectively a punishment since you don’t get to live like a king on a shoe string and then declare bankruptcy and have credit extended to you immediately afterwards because money is cheapened and consequences are void.

DrillShopper3• 1 year ago

You also don’t lend to a friend you will not be paid back by, will you?

I don't lend to friends and family. It's not worth losing those bonds over. I'll help financially where I can, and I'm not going to stop anyone paying me back, but I'm assuming that money is just gone.

Completely different calculus compared to credit.

seatac76• 1 year ago

It probably makes sense to do so. Not that I condone the FICO hustle. But small loans can add up quickly and delinquencies need to be measured for financial market stability.

kurthr2• 1 year ago

If you're paying for your food delivery on an installment plan, you're probably going to have a blow up.

https://www.nytimes.com/2025/03/23/business/doordash-klarna-...

hopelite4• 1 year ago

The worst part is that it will equally affect all the responsible people when it blows up just like it is affecting them now when BNPL is just one more way in which demand is artificially created that drives up prices.

2OEH8eoCRo0• 1 year ago

I don't understand people. If you need to use an installment plan why the hell are you using DoorDash which is a luxury ripoff?

I can afford it but I don't use it because it's obscene.

I'm tempted to say that some people are poor because they're imbeciles with poor financial sense.

quitit• 1 year ago

Yes it's a bit odd that the article poses the question if this will help or harm credit seekers. The point of the system is to provide transparency.

What does need to happen however is that these inputs are properly weighted such that those using FICO can make appropriate decisions. Similar to credit cards, numerous BNPL-purchases do not necessarily indicate that the debtor is in financial trouble. They could merely be using the services for the other conveniences they offer. Whereas seeking numerous loans is usually a negative metric.

xyst4• 1 year ago

The point of the system is to provide transparency.

FICO scoring is far from "transparent".

PostOnce3• 1 year ago

Theoretically, credit should be used for one thing: to make more money. (not less)

However, instead of using it to buy or construct a machine to triple what you can produce in an hour, the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later.

At some point, you run out of hours available and the house of cards collapses.

i.e., credit can buy time in the nearly literal sense, you can do an hour's work in half an hour because the money facilitates it, meaning you can now make more money. If instead of investing in work you're spending on play, then you end up with a time deficit.

or, e.g. you can buy 3 franchises in 3 months instead of 3 years (i.e. income from the 1 franchise), trading credit for time to make more money, instead of burning it. It'd have been nice had they taught me this in school.

Neywiny2• 1 year ago

I think that's a bit disingenuous. It's not always delaying work. There's only so much time and there are some people who cannot afford to live with the time in the day, the skillset they have, and the market conditions (both income and expenses). Your tone and word choice shows you don't understand the problem at all.

If somebody can BNPL or otherwise credit lifesaving medicine (such as the many people in the USA who die from inability to afford healthcare), that's not play money because they don't want to work.

PostOnce3• 1 year ago

Obviously there are edge cases. Debt can be a form of insurance for the individual.

However, I stood in line behind someone who financed a bowl of noodles with afterpay, and it got me thinking. Those are the folks I'm talking about.

UltraSane4• 1 year ago

I'm currently living off of investment gains from high interest consumer loans.

candiddevmike• 1 year ago

For a lot of folks, credit is the only way they're surviving on something close to minimum wage. Or credit was the only "safety net" they had during a rough time. Almost none of these people have the kind of collateral needed to use credit to truly transform their lives, and the government assistance for that is seriously lacking in the US (SBA loans are terrible, and you need enough money to cover your own salary until your business gets up and running).

gottorf4• 1 year ago

credit is the only way they're surviving on something close to minimum wage. Or credit was the only "safety net" they had during a rough time

In my experience, the average American has no concept of saving money, and those below average even less.

It's funny to me that America gets flak from all over the world for having no social safety net; if this was actually true, you'd expect to see people put aside a bit of their income, however meager it may be, out of an expectation that they will need it. What do you see in practice? You see people dashing over to the nearest rent-to-own rims shop. (If you don't know poor people, you may not know such businesses exist.)

Almost none of these people have the kind of collateral needed to use credit to truly transform their lives, and the government assistance for that is seriously lacking in the US

I doubt that greater availability of credit, perhaps facilitated through government subsidy, is what precludes the majority of such people from transforming their lives.

bonoboTP6• 1 year ago

You can't really survive on that. It's a snowballing situation. It's perhaps a strategy to avert impending catastrophe but it's like pitching an airplane down to gain speed when the engine is stalling. If it gets you to restart the engine the brief nosedive may let you survive, but if you have to keep turning the nose more and more vertical, the you're gonna meet the ground.

barchar6• 1 year ago

You need money to cover your expenses. Forgoing the rest of your salary is a very, very cheap form of leverage.

For the risk to make sense you probably do already need enough, though.

crazygringo3• 1 year ago

Theoretically, credit should be used for one thing: to make more money.

I disagree.

You use credit to buy a car or buy a house when you don't have the cash to buy them up-front.

It's not so you can use them to make money, it's so you can use them to enjoy life.

At some point, you run out of hours available and the house of cards collapses.

Only if you go too far. The point is to buy things knowing what they'll cost monthly and for how long, and to budget those as part of your monthly expenses. As long as you can always handle those, you will never run out of hours available and it's not a house of cards. Nothing collapses. You pay off your car; you pay off your mortgage.

You seem to be treating this as something black-and-white when it's not. It's an incredibly useful tool when used with budgeting. Not "to make more money" but to have a better life for you and your family for when it matters the most. Nobody wants to wait until the kids have graduated from college to be able to buy their first house.

And even with credit cards -- yes you generally want to be paying them off in full monthly. But if you want to take a vacation a couple months before you could otherwise fully pay for it, it's really nice to have that convenience too. Not to mention covering some expenses for a few months if you lose your job. They're a tool to be used responsibly.

gottorf4• 1 year ago

They're a tool to be used responsibly.

I used to hate to take the position that government should save people from themselves, but I've moderated a lot on it. Some people clearly cannot use credit responsibly.

hotstickyballs• 1 year ago

Both transportation and shelter are important to earn money

Jcampuzano23• 1 year ago

If you're using credit to buy a car, most people do so in order to get to and from their place of work for the majority of their driving time. In that way, using credit to buy a car still fits into their theoretical model. For example I know plenty of people who completely got rid of their cars when remote work became more common, or at the very least consolidated to smaller cars or to less cars for a family.

Similar thinking for a house. A lot of people when buying a house go into it with the assumption that it is an appreciating asset that will gain value over time. Yes there are other factors of course like wanting to live closer to schools or in the suburbs/good areas, etc. But regardless this is commonly to facilitate a life that lends itself to you continuing to be able to make money comfortably.

Regarding vacations, no financial expert recommends using a card without the intention of not paying for it. If your plan is to book the vacation on credit for anything other than the benefits of your credit card points systems you might as well not use it at all. And all recommend not using credit cards and instead an emergency fund if you lose your job.

bitmasher95• 1 year ago

Let’s say you finance $40,000 in auto debt over 5 years. With a low interest rate of 6% paying $6,300 in interest. That’s over 15% of the amount borrowed! Many people have lager rates over longer periods.

Now consider what would happen if you invested that $6,300 for 30 years instead of spent it on interest. You’re losing out on tens of thousands of dollars in total lifetime wealth.

When you borrow money to “enjoy life” it can quickly end up costing 2x what it would if you spent the money outright, even if you borrowed at low rates.

bregma• 1 year ago

This ignores the fundamental equation

    T = kM

where "T" is time, "M" is money, and k is some constant.

zajio1am• 1 year ago

You use credit to buy a car or buy a house when you don't have the cash to buy them up-front.

Still the same principle - you buy long-term asset that makes rent-equivalent money if you rented that otherwise. That is different than borrowing for immediate consumption.

SirMaster8• 1 year ago

You can't deny the strong ability to make money using credit or debt though.

No it's not the only way you can use it, but it's a pretty big way that a lot of people do successfully use it.

lxgr6• 1 year ago

> Theoretically, credit should be used for one thing: to make more money.
I disagree.
You use credit to buy a car or buy a house when you don't have the cash to buy them up-front.

There's no contradiction with GP here.

Financing a car or buying a house on mortgage might well save somebody money in the long term (e.g. by allowing them to take on a job to which they have to commute by car, or saving on future rent payments).

If that's the case (and that highly depends on individual circumstances), this still counts as "making more money" – via spending less money.

The real question is: How do you feel about borrowing money used to buy depreciating assets or consumables?

ocdtrekkie• 1 year ago

I think my understanding has come to the fact that loans and interest can smooth out your financial situation: When I was single especially I had a lot of savings building, I was making interest and making money. Then when I had a kid, I end up paying that interest back, because expenses for a kid are way above what I can healthily operate in this economy, and I needed more financial products to cover that. But that's also not forever: As soon as a kid's in school and you aren't sending an entire paycheck a month to the daycare, you can establish a upward financial pattern again.

It'd be nice if kids were an affordable choice for anyone expect Elon Musk, but you know, here we are. \o/

ajsnigrutin• 1 year ago

This is all true if you have enough for the basics and are looking above the minimum survival costs.

Just to make the money you are making now, you need some stuff, be it a phone or a car, home AC, oven or even a washing machine at home (you can't go to work hungry in dirty clothes).

If you don't have the money to pay with cash, you'll be buying that oven/stove with whatever delayed/monthly payment option is available.

Yes, if you're buying franchises you can do the "make more money" calculations, but if your kids are going to be hungry soon, you often have no choice.

Jcampuzano23• 1 year ago

You are literally describing using credit as a tool to make more money, just some in a slightly more indirect way, thus you are not in disagreement.

thephyber• 1 year ago

You are conflating what actions would maximize the long term returns to the individual with the status quo which is that credit increases liquidity of the average family, who has most of their wealth tied up in home equity.

janalsncm3• 1 year ago

Not sure what you mean by the “average person” here but the biggest kinds of debt are mortgages ($12T) and cc debt, student loans, and car loans (roughly 4T total).

Is your position that taking debt to buy a house is bad unless you can sell it for a profit? Is working for the mortgage lender to accomplish that not worth it?

You can avoid it by renting, but then you’re just working for the landlord, so there’s no avoiding it.

Jcampuzano23• 1 year ago

Every single thing you mentioned outside of cc debt (though arguably you should never reach for a credit card outside of using it for the points systems they provide) could be categorized as something used as a tool to make more money.

immibis4• 1 year ago

Space is expensive because of mortgages. If nobody could get a mortgage, nobody would need one. It's a race to the bottom.

Buying a home from a landlord is still working for a landlord; you just pay the present value of future cash flow in a single lump sum, like an annuity.

msgodel4• 1 year ago

I tried using one of these offering a 0% intro APR to finance an upgrade to the boat I eventually moved into (saving me 10s of thousands in rent.) They wouldn't let me do it despite having an upper 700s credit score.

It's not clear to me how they pick people to lend to.

tonyhb• 1 year ago

It’s not just the credit score - the APR offered is also chosen by the retailer.

0% financing costs the retailer 8%(ish) of the total amount, which is how the lender makes their money.

So in your case, the retailer didn’t want to lose that much of their margin.

avianlyric2• 1 year ago

Yeah a high credit score isn’t what that lender is looking for. They don’t make money of people who actually repay the loans, indeed they tend to loose rather a lot (cost of capital + cost of account admin).

If someone is offering you a 0% APR loan, it’s either because they’re hoping you’ll move your loans to them, and become unable to leave once the 0% period has ended. Or they’re trying to sell something else (either more of something, or the same thing at a higher price), and want use consumer debt to artificially increase market demand.

You upgrading a boat, so you can save money in the long term, is literally the opposite outcome they’re looking for here.

astura4• 1 year ago

0% intro APR offers are somewhat predatory in that they rely on a large portion of people keeping a balance after the intro period in order to be offered, or at least building a relationship with other financial products. It wouldn't surprise me that they would reject someone in the high 700s, they might have been looking more for people in the low to mid 600s.

There's also a lot of reasons one might be rejected for a credit line that have nothing to do with credit score. Some lenders have specific policies in addition to credit score, like Chase's 5/24 rule. Some are also just looking for "relationships" and won't offer you their best products unless you have a bank account with them, etc.

scarface_7410• 1 year ago

And this has nothing to do with buy now pay later since you aren’t charged interest

PostOnce3• 1 year ago

Owing money you don't have has disadvantages even without interest.

For example, if you make 5000 dollars a month and get a 5000 dollar BNPL loan for a stereo, payment due in a month, then even without interest, you now either starve or default on the loan (or incur penalties, i.e. the interest you thought didn't apply).

ProAm• 1 year ago

This is so wildly qrong I dont know how to start. Im assuming this person is not in America, where a lot of the population (unfortunately) uses these practices to buy things that are needed/non-essential) its a shell game the creditors were willing to pay. But now its a lot so its going to affect credit (which is should have to start).

goldfishgold• 1 year ago

One flaw with this reasoning is that ignores the time value of money. A dollar today is worth more than a dollar a hundred years from now, if only because we’ll all be dead a hundred years from now. From that perspective and with favorable terms it can make sense to sell the future to buy the present, if someone is willing to take that trade.

lm284693• 1 year ago

the average person is using

The "average person" is told from birth to consume as many things and experiences as possible as it if was the only thing that could give their life a meaning. The entire system is based on growth and consumption, I have a hard time blaming "the average person"

john01dav3• 1 year ago

I acknowledge that such telling exists, but there is still responsibility for people choosing to listen to it. Skepticism is vital. Beyond being skeptical of what you see, it is wild to me that we don't have approximately everyone blocking all ads, cable news, most social feeds, and other such transparently manipulative shit. Advertisement especially is literally industrialized and research-based psychological manipulation to make people do things that make no sense (see what Alfred Sloan did to GM, for an early example) — it's toxic and should be absolutely avoided.

jstanley• 1 year ago

I don't think blame was being apportioned.

mihaaly2• 1 year ago

Believing what is told, trut all what is told, is something to be blamed about (here I am assuming we are talking about adults). Not like blame was allocated here, just since the topic was mentioned.

paxys2• 1 year ago

Average *American

rayiner4• 1 year ago

There is no “system.” It’s all just people making choices. My wife puts straws in the dishwasher to reuse them. She grew up in America the same as everyone else.

fHr2• 1 year ago

Consumer brainrot is real and declining education is not helping this cause either

ljm• 1 year ago

Wages for the average person (working class) typically remain stagnant while cost of living increases, particularly through inflation. I imagine minimum wage would be 25-30 bucks an hour if it did track inflation and that would only serve to keep your purchasing power constant.

Credit, in this sense, is also used to solve a cash flow problem. It’s a bad sign when that credit (or Klarna Pay-in-3 style setups) is applied to basic day to day expenses like buying groceries or other necessities.

Basically the market’s answer to increasing poverty: you’re not getting paid more, so how about we give you a payment plan to spread things out?

conradev• 1 year ago

I find meaning in understanding ever so slightly more about the world we live in, and so I love consuming as many things and experiences as possible to have a rich understanding of myself and to some extent, humanity as a whole.

I don't like the word "consume" though. Am I consuming a surfboard or am I surfing? am I consuming a song, or am I listening to it? singing along to it? This perspective feels tired.

The entire system (evolution) is based on growth and consumption. Blame agriculture! Too much free time to consume now – we are full-time entropy farmers.

WalterBright8• 1 year ago

I have a hard time blaming "the average person"

People still have agency and so are responsible for their decisions.

darth_avocado2• 1 year ago

The "average person" is told from birth to consume as many things and experiences as possible as it if was the only thing that could give their life a meaning.

The “average person” doesn’t make enough money to pay rent or afford groceries. You’re blaming the poor based on your idea of what an “average person” looks like, which is a representation of middle and upper middle class. The average person doesn’t have the luxury to consume as many things and experiences as possible.

dietr1ch• 1 year ago

It goes beyond that when there's installment payments for burritos being paid. It's not just being brainwashed into consuming too much beyond what they should and more like a systemic problem that pushes people into not being able to easily afford daily food, yet still needing that to get enough time to work and commute.

forrestthewoods• 1 year ago

the average person

I’m pretty sure the median American does NOT carry a monthly CC balance. They pay it off in full every month.

But it’s very close to 50%. And may swing one side or the other depending on how fubar the economy is at that moment in time.

So what you said is true for roughly half of Americans. But not true at all for the other ~half.

I think.

dgfitz• 1 year ago

I looked it up, and most of the sources seem sketchy (quora, lendingtree), but they agree with your number.

I think the kicker is, the ~50% of people who don't pay them off in full every month can have a massive amount of CC debt and struggle to even make a dent in it.

vintermann2• 1 year ago

Are you familiar with the boots theory of socioeconomic unfairness?

bonoboTP6• 1 year ago

That's basically a special case of the Matthew principle.

andruby2• 1 year ago

Do you also think that way about buying a house with a mortgage (credit)? I don't.

A mortgage isn't used to make more money. It's used so people can own a house after saving for a few years, rather than waiting until they've saved for a few decades.

leereeves• 1 year ago

Often, a mortgage is either used to make money (from rising house prices) or save money (when the mortgage is cheaper than rent).

IsTom• 1 year ago

You need to compare money paid for mortgage minus price of house against money paid for rent (when you're left with no assets after all the years of paying it).

eadmund3• 1 year ago

A mortgage doesn’t make money, but it (can) enable spending less money. If you buy a place such that interest, maintenance, insurance, taxes and the opportunity cost of not being able to easily relocate are less than rent, then you have saved the difference.

It’s also a way to force saving, which is psychologically useful (and thus valuable).

jacekm• 1 year ago

I do. Housing prices are constantly rising, when you take a loan you are buying an asset which (with some luck) may appreciate in value more than mortgage interest rates. That's why in some countries it's worth taking a loan as soon as possible without saving for too long.

Sure, without mortgage you may not be able to afford a house at all but it does not change the fact that mortgage is a "good" loan (i.e. you benefit from taking it)

hk13372• 1 year ago

- They’re giving you a line of credit, money you don’t have, to buy a house.

- Why else would mortgage loans ave percentage rates if not to make money off lending you money?

zblevins• 1 year ago

Yes, though I’d add that a house is generally viewed as an investment, unlike something like a car, which typically depreciates in value.

QuadmasterXLII• 1 year ago

I bought a house when I did because the interest on a mortgage was lower than any reasonable prediction fir inflation, which seemed a lot like free money; but at the time it felt a lot more like a dirty hack taking advantage of terrible government policy than any idealistic system where credit is used to bootstrap productive capitalization.

SkyBelow• 1 year ago

Shelter (and, for many, transportation) are a need for maintaining their ability to make money. As such there is some minimum amount that must be spent on these, and loans costing up to that amount can be seen as ways of making money. Most people who make these purchases do buy even more than strictly necessary, and the extra spent above the strictly necessary line should be seen as luxury expenses.

General advice for homes leads to buying a home that does follow the logic, given historic movement of home prices and rental prices. It rarely is put in those terms, but works. For vehicles, the financial recommendation generally is to buy less car as it is a depreciating asset. If you have cash for a luxury expense, then it is no different from any other large luxury purchase, but if you have to finance, go as cheap as possible (but making sure to account for the repair costs, fuel usage, and such, not just the initial cost and loan payments).

varjag• 1 year ago

No, an average person uses it to improve liquidity atop overall solid fundamentals. Literally hundreds of million people worldwide do it with no adverse effects and improved quality of life. Irresponsible people are relatively a minority (although they tend to make the news). And aversion to financing is in itself a poverty marker more often than not.

al_borland3• 1 year ago

Of those who carry credit cards in the US, 60% of them carry a balance [0].

There are also all those reports that have come out about how nearly 40% of Americans don't have $400 for an emergency [1], with the median being just $600.

If the rule of thumb for an emergency fund is 3-6 months of expenses, and we can agree that paying interest on a credit card is a bad finical decision, then I'm not sure how the "average" person has solid fundamentals, where credit cards are being used as a strategic tool.

People also tend to spend more when using credit cards [2], which negates most benefits someone may get from using credit card for the points. So even those with solid fundamentals, who are using it as a tool, are probably still losing, just in a less obvious way.

[0] https://libertystreeteconomics.newyorkfed.org/2025/03/why-ar...

[1] https://www.empower.com/press-center/37-americans-cant-affor...

[2] https://link.springer.com/article/10.1023/A:1008196717017

PicassoCTs• 1 year ago

For the average consumer, debt is selling its future self as slave.

immibis4• 1 year ago

Which is a good deal if the slave you sell is dead. When there's no future, selling the nonfuture for the price of a future is a good deal.

otikik2• 1 year ago

Only the bourgeoisie can be trusted to handle credit responsibly.

The proletariat is too illiterate and short-term-focused to be trusted with it.

fancyfredbot• 1 year ago

If you really believe the only responsible use of credit is to buy productive assets then this is a tautology. As soon as anyone uses credit buy productive assets they cease to be proletarian and become part of the capitalist class.

potato37328429• 1 year ago

I'm really sick of this sort of look down your nose at a huge fraction of consumers type behavior. It's the same sort of stupidity that underpins the famous "surely everyone else is wrong" behavior that is exemplified by principal skinner[1].

I eat garbage by the standards of anyone who gives a crap about food and you don't see me going around looking down on everyone for wasting resources on fancy food ingredients and fancy cookware and whatnot. At the end of the day these unnecessary things bring enough perceived benefit to people's lives that they seem worth it, whether that's you overpriced LeDouchebag brand enameled dutch oven or a financing service for consumer garbage doesn't really matter. It's all a "needless" expenditure at the end of the day that people find worth it.

I've never used these services and probably never will, nor am I saying the prevalence of these things is optimal at scale, it's probably not, but I'm not gonna sit there and act like 1 in N consumers, probably hundreds of millions of people, is wrong or ignorant for using them or that I know better for not.

-shitposted from my 8yo phone while driving my $500 car through traffic on bald tires

[1] https://knowyourmeme.com/memes/am-i-so-out-of-touch

suddenlybananas2• 1 year ago

Le Creuset pots are genuinely great though

tristor4• 1 year ago

shitposted from my 8yo phone while driving my $500 car through traffic on bald tires

I mostly agree with you, but some of those "needless" expenditures have negative externalities when avoided. Whether that's processed foods causing heart disease and diabetes that strain public health resources, or your bald tires greatly increasing the likelihood of an automobile accident that could kill you or someone else. Your response takes an opposite extreme that none of this matters, when in fact much of it matters, but it's not like treating it like it matters makes you a better person. We need to eliminate moral value judgements from the equation, while still being reasonable.

BolexNOLA3• 1 year ago

I like to occasionally use BNPL to spread out big purchases for things even if I can already afford it.

yobbo• 1 year ago

the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later.

As long as inflation is higher than the interest rate, it means having to work less than an hour in total.

(But it's unsustainable in the long run ...)

ta12434• 1 year ago

When I was in my 20s it would take me 20 hours work to earn 100 units

15 years later it takes 3 hours work to earn the same amount

If I borrow 100 units in my 20s at 4%, it cost 4 units per year

I save 20 hours work, and it costs me 4 units a year. That's 48 minutes work in year one, reducing to 8 minute after 15 years. Overall it costs an average 20 minutes a year for 15 years, or 5 hours of work, then I repay the capital which is 3 hours.

I've spent 8 hours of work rather than 20 hours.

Tangurena2• 1 year ago

In some states, your FICO score is used to determine how much your electric utility charges you. Or whether you can be permitted to rent an apartment.

Sample: https://www.wsj.com/articles/SB109469015834513166?gaa_at=eaf...

game_the0ry• 1 year ago

I like to think of it as "debt productivity" - for every $1 of debt, the result of utilizing that should be more that $1 + interest.

Consumer debt, obviously, almost never follows that logic.

JKCalhoun11• 1 year ago

It'd have been nice had they taught me this in school.

Yeah, even at a basic level, it should be made clear that cars depreciate and real estate, by and large, appreciates in value.

One of those is "good money" and the other is "bad money". Kids should learn coming out of school to be able to distinguish which of the two they are throwing "good money" at.

barchar6• 1 year ago

Eagh, real estate depreciates too, just more slowly. Imo the actual difference is that (many) cars are a very expensive way to meet your transportation needs compared to alternatives.

throwaway98797• 1 year ago

sometimes you make money in lumps

debt allows people smooth that out and lending companies take a fee for that service

nothing evil or wrong about it

BJones12• 1 year ago

Yes. Or to rephrase, debt/interest is a way of moving money through time.

DiscourseFan• 1 year ago

You forget that you don’t pay taxes on debt.

psunavy03• 1 year ago

OK, we'll tell the average worker who can't afford a house or a car by paying cash not to responsibly use a mortgage or a car loan, because some person on the internet said so.

And yes, I'm aware cars are depreciating assets, so spare me the lecture on financing one. I don't currently have a car loan.

jvanderbot2• 1 year ago

Credit cards however, can be used to get free stuff from rewards.

Credit loans or payment plans can also be used to get a higher credit score, making the first item easier.

Conversely to your example of credit making cash, Cash can make you money through investing, so Credit can also be used to keep higher amounts of cash on hand when purchases are made. , e.g., buying a car on credit and using the car money to invest. But we're saying the same thing there.

kiba3• 1 year ago

Credit card rewards are just discounts, discounts that are charged to the merchant. It's not a free lunch by any means.

dragonwriter• 1 year ago

Theoretically, credit should be used

There are at least as many ways that this can be finished accurately (for some theory) as there are theories of what should guide human behavior, generally. But this one:

to make more money.

Is really more apt to theories of appropriate behavior for arms-length business organizations whose only shared interest among their owners is profits than the common ones for individual people.

_ZeD_• 1 year ago

the goal is to die before you run out of hours

whatshisface• 1 year ago

People living paycheck to paycheck need (in your "franchise" language) food and basic clothing as opex for their human capital, and possibly even entertainment, something that is provided to our troops. Trust me the military would not allow for leisure time if they did not think it had a purpose. Eating enough food and wearing a shirt without holes in it does let people make more at work.

ameliaquining• 1 year ago

Since no one has done so yet, I'll link to (without necessarily endorsing) patio11's defense of BNPLs: https://www.bitsaboutmoney.com/archive/buy-now-pay-later/

RC_ITR• 1 year ago

Theoretically, credit should be used for one thing: to make more money. (not less)

This is prima fascia false. Credit, especially artificially low interest rate credit like this, can be used for a ton of reasons, including 'beating inflation.'

I bring this up because so many diligent savers in 2019/2020 got screwed by waiting to buy big tickets items.

_DeadFred_2• 1 year ago

I bought a boat on credit. It was the dumbest financial thing I could ever do. It was the best thing spiritually/emotionally I ever did. All of those weekends/vacations boat camping with my kids when they were young. All those times going out after work. So many experiences I would not have gotten to enjoy if I waited until I was 60 to buy in a smart way.

There is such a thing as opportunity cost. Putting dinner on a credit card is dumb. Putting a dinner on credit that ends up being a first date creating a memory and connection with your future spouse is life making. Or dinner with grandparents and kids that might not be around long.

You have completely ignored opportunity cost in your factoring. And it is probably the most important 'human' factor and is just as tied to your 'time' argument. We have 60 some rotations around a star, and stages in life during that time. That needs to go into your 'optimization' as well.

JumpCrisscross• 1 year ago

Theoretically, credit should be used for one thing: to make more money. (not less)

Credit moves money across time. That’s it. (Analogous to paying a shipper to move stuff across space.)

Not all consumptive debt is bad.(And not all consumptive loans are wealth destroying. I opted to borrow when I bought my car because the rate was so much lower than what I figured I could earn with the money.) And not all cash-flow positive wealth is good.

We should be more scrutinising about how debt is used. But especially for folks with volatile incomes, accumulating debt for consumption is fine as long as it doesn’t snowball.

netbioserror• 1 year ago

This is what happens when interest rates are artificially suppressed. "Buy-now-pay-later" would not exist if the market were able to properly price the time value of money and wasn't backstopped by the Fed and nil reserve requirements.

Guvante• 1 year ago

Buy now pay later at 0% is what these programs offer which does not align with what you are saying at all.

Used properly these provide liquidity by spacing out payments.

Certainly there are economic concerns about not being able to afford groceries today but liquidity (especially free liquidity) isn't fundamentally worthless.

lxgr6• 1 year ago

Used properly, BNPLs are strictly inferior to credit cards.

That said, one of their practical advantages is that they’re harder to use improperly than credit cards.

janalsncm3• 1 year ago

What is the functional difference between BNPL and credit cards that can explain why it’s become popular? A credit card is literally “buy now pay later” so is it just the ease of onboarding?

scarface_7410• 1 year ago

Fixed payment schedule and no interest being charged.

SoftTalker• 1 year ago

For most of them, interest accrues from the date of purchased but is not charged if you pay on time. If you don’t, you owe all the back interest from day one.

Tadpole91813• 1 year ago

BNPL is 0% interest over N months. A credit card is 20% APY over the total balance over minimum payment. And it's offered by my CC providers.

For some larger purchases on a 12 month plan, leaving the money in savings loses me 1.5% cash back but gains me around 3% interest (after accounting for the depleting principle).

It would be stupid not to do it sometimes. I don't really get the financer's benefit. Though maybe it's because I do pay it, and if I didn't there would be 200% APY or something.

eptcyka4• 1 year ago

The seller benefits from the increased demand, the financier sells this as a service to the seller.

dzhiurgis• 1 year ago

I bought tons of solar panels with 24 month 0% interest CC for my DIY installation. Kinda makes entire system free. I wish BNPL were offering longer payment periods, few months is not worth the risk at all.

crab_galaxy• 1 year ago

Yeah, I’m not sure if BNPL loans have changed in the last decade at all but the financiers make money on the people who don’t pay the balance by the end of the term. I’ve financed a couple expensive electronics when it made more sense in my younger days and the terms were such that if you don’t pay it off by the end of the term, you owed ~24% of the total bill in interest.

jabroni_salad• 1 year ago

The merchant pays a fee for it, and they do it to get a sale that they otherwise would have missed.

If you decide to save $25/mo for a $100 product, that is 4 months for you to change your mind, have an emergency suck up that money, or score a lower price by waiting for a sale. But for some segment of the population, they will close on a pay-in-4 right now instead of waiting, and that is guaranteed money.

paxys2• 1 year ago

- No application process. You are at a store's checkout page or sales kiosk and can sign up in a couple of clicks.

- No credit checks.

- Longer payment period - usually 2-3 months with no interest.

9rx47• 1 year ago

A credit card is for gaining access to the electronic payment monopoly's network[1]. BNPL is explicitly a loan. Yes, a credit card transaction may effectively turn into BNPL if you fail to complete your end of the transaction in a timely manner, but that is a hindsight outcome, not the reason for choosing the method in the first place.

[1] Nowadays you can often also use the network with other methods, like a debit card, but those alternatives still aren't universally accepted like credit cards are.

bediger40002• 1 year ago

FICO scores are a joke. They hint at what they use to calculate them, but the algorithms are kept secret. Fair Isaac can't reveal the algorithms, otherwise they'd get gamed. Incentives to keep bad info and wrong info in dossiers are strong, too. If allowed, Fair Isaac would put rumors and other bullshit on n your file, and never take it out.

mritchie712• 1 year ago

the score is easy to reverse engineer if you have the data and pretty much every big bank has the data.

source: I worked at a big bank and did this, it was easy.

Most of the stuff is obvious and intuitive (don't make late payments). One that's not terribly intuitive is credit line utilization. It has a big impact and most people don't think about it. For example, it's better to have 2k in credit card debt if you have 20k in credit lines vs. 1k in debt on 2k in credit lines.

astura4• 1 year ago

the score is easy to reverse engineer if you have the data

In fact, FICO even provides you with a tool to "reverse engineer" a credit score given the data.

https://www.myfico.com/fico-credit-score-estimator/estimator

xyst4• 1 year ago

You forget the scoring is not based on individual performance only. It also includes your performance compared to those in similar groups or buckets.

Ever wonder why your credit score goes down randomly in one month despite nothing changing?

FICO’s black box algorithm put you in a newer credit group of higher credit scores. In that group, your profile scored much lower compared to others. Thus you get a 10-20 point deduction.

If you have a long history of good credit it probably doesn’t matter. But if you are a young person looking for auto/home mortgages, that 10-20 pt dedication _could_ lead to slightly higher APRs depending on the underwriters own scoring algorithm.

astura4• 1 year ago

They don't really "hint at what they use to calculate them" so much as "tell you exactly what is used to calculate them, how it's calculated, and even include an estimation tool so you can calculate your score yourself"

https://www.myfico.com/credit-education/whats-in-your-credit...

payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

https://www.myfico.com/fico-credit-score-estimator/estimator

For fucks sake, at least keep your conspiracy theories somewhat believable.

Absolutely nobody is worried about "gaming" credit scores because the activities to "game" credit scores are identical to the activities that make you likely to pay off debt in the future and that's what a credit score measures. So it doesn't matter if you pay off your bills to "game" or to be responsible, you're still paying off your bills.

SirMaster8• 1 year ago

I don't know that they are really that complicated... I just do the things that they suggest the scores are based on. Pay on time, have more accounts that have been opened longer, have a lower credit utilization, etc and I watch my score go up and up.

My score started at around 670 when I was young and before I had done anything and I did the things and now it's around 820.

wat100002• 1 year ago

Why would they put rumors and bullshit in your file? The credit bureaus aren’t out to get you. Their goal is to help their clients (lenders and similar) to make money by identifying how risky their clients are. An accurate risk assessment is good for them. If you’re a good risk, they want your score to be high. They don’t gain anything by putting crap on your file to tank your score.

fred_is_fred• 1 year ago

There are no incentives for Fair Isaac to promote or use "wrong info" because if the score they produce is deemed to be an inaccurate measure of credit risk, it would not be a useful product.

mihaaly2• 1 year ago

The security and privacy nighmare that the various credit score systems bring on by collecting and storing sensitive data on individuals some way somewhere with some sort of access for someones for something (a very real big brother in esence on essentials matters), is a good incentive keeping people away from loans. The less is more in this case. Avoiding avoidables.

The crime is that in the very essential case of abode it is impossible to avoid for the generic population. Both renting and mortgages require you do disclose your life for organizations and sometimes individuals having financial incentives with you. Making you exposed and voulnarable, no choice is given. It is a must (you and your dependants cannot choose not to live somewhere).

So they do not have to risk their capital gain, allowed to risk your most sensitive personal data.

focusgroup0• 1 year ago

Why do some ancient traditions ban usury?

mcherm• 1 year ago

I suspect actually MOST ancient traditions ban usury (or ban lending altogether). Christianity banned usury, Islam banned essentially all lending, Hinduism banned some casts from lending and regulated the lending of others[1].

I think the practice was found to be corrosive to societies and thus at one point or another many of them tried to ban it. (Lending is also very helpful for commerce, so most societies also reintroduced it. Actual practice varied at different points in history.)

1. https://www.sacred-texts.com/hin/sbe14/sbe1405.htm

scarface_7410• 1 year ago

If you look up the various means of buying home without having all of the money up front that are compliant, it’s just a mortgage by different name.

https://www.guidanceresidential.com/resources/faith-based-fi...

groos• 1 year ago

All Abrahamic faiths ban lending where the returned amount is greater than that borrowed, i.e. charging interest. Judaism "worked around" it by banning it amongs Jews but allowed lending on interest to non-Jews. Christianity originally followed Jewish law in this regard but abandoned it later on. Islam, adheres to banning interest strictly, but this is subject to different interpretations. E.g., buying an item at a higher price but paying in installments is allowed by some schools of jurisprudence, while others disallow it, while there is unanimous condemnation of a loan whose interest "doubles and redoubles" [explicit in the Quran], which is the typical credit card or mortgage. The main difference in buying at a higher price + installments from a conventional interest based lone is that the profit gets agreed to at sale, and it holds regardless of whether the full payment is made early or not.

Muslims have got around the problem of not being able to pay for houses in cash by constructing a joint ownership scheme, where the lender and buyer enter into a joint ownership of the house; the buyer pays rent and adds extra to buy more equity, and the rent goes to both the buyer and lender in proportion to their equity as a business partnership. Over time, the rent part decreases and the equity buying accelerates. There are other models, but this is the most popular one. Due to Federal and state laws, such mortgages are often reported with interest rates even though, technically, interest is not being charged.

bonoboTP6• 1 year ago

There are regulations around it even today. It's not a complete free-for-all. https://www.paidnice.com/usury-laws-by-state

But to answer the question, there's quite an instinctual aversion to earning money through apparent idleness. Same reason that people hate landlords who just get "passive income" simply for owning. (Of course the owner had to buy it in the first place, or had to inherit it - and indeed inheriting too much stuff also rubs people the wrong way - except if they themselves are blocked from passing on their things to their kids).

Same reason that merchants were distrusted, since there was no concept of economics that would allow them to understand that in fact trading and arbitrage is actually valuable contribution for the market to properly price goods, and is a much better way to price things than gut feelings about "sentimental value" or the labor theory. But this was not well understood so making money through trade was seen as witchcraft. How come he can come to the village and buy our pig for X and then go sell it for X+Y in the city? I mean that's somewhat understandable, the transport etc. Income through interest doesn't even have that. Of course the real value proposition is again a kind of resource allocation cognitive processing. The lender's contribution is in the assessment of prospects of the profitability of a venture. That apparently this is not the case in many consumption credits is indeed some kind of system failure, and some perverse incentives set up by regulations, where somehow the financial companies are not punished by reality for misallocating. See 2008 etc.

Yizahi• 1 year ago

They didn't before? It's a credit like any other type, increasing debt burden like any credit. Seems like corru... ahem, lobbying of course. :)

Hamuko• 1 year ago

They can't keep up with techbros coming up with new names for debt.

hobs• 1 year ago

Read the article and approach, the BNPL is going to be in effect like one credit card opened per transaction.

fHr2• 1 year ago

Yep you're onto something here but surely they operate within legal reasonable frameworks of the government surely.

byteknight• 1 year ago

Regardless no one can make you buy anything

therealpygon2• 1 year ago

They also didn’t destroy people’s credit when they got upside down and had to return the $5k couch or $15k car they were talked into buying on their fixed income, but that’s usually “other people” problems.

ricardbejarano• 1 year ago

Being "talked into" is one hell of an excuse not to take accountability for your own purchases.

Hilift• 1 year ago

Your credit score can decrease if you pay off your credit card balance or pay it down too quickly. For example, paying off the last $10k on a home loan. The score is also a reflection of your value to them as a paying customer. How much money you can make them, and how reliable you are with regular payments based on past data. These types of businesses may seem off, but if the customer is reliable and makes you money, assigning a low score based simply on the business type is a recipe for litigation.

jaxn• 1 year ago

That is true when you close an account (like paying off the last $10k on a home loan), but I don't think that is correct when paying a credit card down to a $0 balance and leaving it open.

The reason is that your credit score is impacted by both your available credit (higher is better) and credit utilization (lower is better). When you pay of the last of a home loan and close that account, your available credit goes down and your credit utilization goes up (assuming you had any other debt). Both of those hurt you. When you pay the credit card down to $0 and leave it open, your available crediot stays the same and your utilization goes down.

jjice• 1 year ago

Your credit score can decrease if you pay off your credit card balance or pay it down too quickly

It can have a short term impact, sure, but long term (a few years), your score will be fine. I paid my last student loans years ago and I did see a sudden score drop and not I'm sitting right below 800 with no debt.

Quinner• 1 year ago

There's no lobbying necessary, because FICO isn't a government agency, its a private company. Why we have a private company determining such an important thing with minimal government oversight is certainly a question we could be asking.

That being said, there's an innocent explanation for this specifically. BYPL is pretty new as a common type of debt (became popular in the last five years). They're putting it into FICO 10. The last time they updated FICO was FICO 9 which was released in 2014, before that there was FICO 8 in 2008... a lot of banks are still using FICO 8 or even earlier models. Banks are slow to change, and FICO moves slowly because banks don't want their models upended every year. Fwiw if the government was more involved in this I doubt it would be taken into account any faster.

jajuuka• 1 year ago

It's crazy how many things that require credit are on a self report basis. And the only time they actually report is for a past due debt and not successful payments.

eagerpace• 1 year ago

How long until my score goes down because I don’t use these?!??

ProllyInfamous3• 1 year ago

Background: During the riskiest span of my life, financially, I used to have a 780+ score and an AMEX Gold (for about a decade, early 2000s); now I don't have any credit cards, my vehicles are entirely paid.

My Conclusion: Credit scores demonstrate ability to re-pay interest (i.e. lender profits); it is a score that demonstrates how profitable you might-could-be, not necessarily representative of fiscal wisdom.

Meditation: not caring about your credit worthiness is a fantastic approach to life, as long as you've already bought your house (or have alternate plans, not involving a mortgage).

hk13372• 1 year ago

This seems like it’s going to harm more people than help. Encouraging fiscal irresponsibility under the guise of improving your credit score. All it’s really going to do is give lenders another metric to deny you a loan, either because of delinquent accounts or too many accounts opened and closed.

xyst4• 1 year ago

Maybe not deny in case of too many accounts opened or closed but risk profile can change. So think higher APRs compared to people without bnpl.

__mharrison__2• 1 year ago

Circular much?

__mharrison__2• 1 year ago

For the downvoters... having worked in this industry, these loans are already heavily modeled with FICO scores. Who is wagging which tail?

9cb14c1ec0• 1 year ago

Good, it will bring the stupid BNPL ecosystem back to earth, when people stop using it as free money.

xyst4• 1 year ago

yet another vague data point mortgage underwriters can use to deny your loan

In corporate back room, "persons score is high enough to qualify and income is good enough but there’s a strong history of bnpl usage. Over 200 accounts ranging from food to groceries and luxury items. Risk to default has increased, thus approval for slightly higher APR compared to peers with none to lower BNPL usage.”

Rinse and repeat this for hundreds of thousands of loans and now bank is raking in (more) profits

wat100002• 1 year ago

How do banks make more profit by issuing fewer mortgages?

segmondy• 1 year ago

So are some of us going to get penalized for not having a buy-now-pay-later history?

asdfasvea• 1 year ago

Depends on your definition of 'penalized'. FICO is all about identifying good ROI candidates.

Say you are a lender, you want someone who constantly uses credit, always pays their bills and has the capacity take on new debt. That's what FICO is for.

It's not some consumer reward system. It's not your score to game, it's a score on you for companies to game. Quit playing the game.

Credit score NULL.

benmanns2• 1 year ago

IMO the game is to get the highest credit score while spending the least on credit. That way if you e.g. need to acquire housing, a reliable vehicle, business loans, even employment or insurance, you will be able to and can get a good deal. Sure, paying nothing saves you money, but it also costs you the opportunity cost between what you could earn/save by utilizing credit vs waiting months to years to save up and pay cash.

alkonaut2• 1 year ago

Does anyone else live in a place where there isn't a visible "score" for how valuable you are, but rather only a "credit check" for how risky you are, which is performed if you apply for new credit (buying anything with an invoice, getting a credit card, or taking any other kind of loan)? Meaning that if you have a good income and no history of failing payments, you are basically passing the check with flying colors, and will have the same "score" as someone who has had tons of well-served credit before?

This thing where the score as in "risk" and score as in "business opportunity for lenders" is intertwined, and creates weird incentives for consumers, is that only a US thing or do any other countries have something similar?

ch4s32• 1 year ago

Credit scores aren't a score of how valuable you are, they're a score of creditworthiness or how unlikely you are to default on a loan. The largest factors are age of credit and payment history. Utilization is also a factor. Someone who occasionally misses payments and has high utilization is going to be more profitable but higher risk to lend to.

parpfish2• 1 year ago

Just because that’s what a scores is designed to do it doesn’t mean that’s what businesses use it for downstream.

The fact people always debate what a credit score really means suggests that there are too many factors rolled up into a single number when we should really have a few distinct sub-scales. Anybody that has made a dashboard for a ceo with a short attention span that refuses to deal with nuance and just wants to see “a number” knows this problem all too well

bananalychee• 1 year ago

Credit scores in the US function similarly to this risk assessment you describe, with the caveat that there is no standard way to measure risk without a credit history. In my experience, it does not take very long to establish that baseline, and there are inexpensive vehicles to do so, such as secured credit cards. Small-scale lenders are likely to accept alternative documents like income statements or proof of payment history to qualify. FICO scores, as imperfect as they are, merely simplify the risk assessment process.

alkonaut2• 1 year ago

I suppose it may be related to the overall "looser" grip on who exists, and what counts as collateral. If I "default" on a loan, the lender is still pretty safe to get back most or all of it, since any loan is secured by my future income. So there's not as much need to prove my credit history - my income is public and always was, and my future income is collateral for any loan, including mortgages if my house is suddenly under water in a recession.

That means that barring any failures to service credit in the past, I don't need a history of successfully servicing credit in order to get credit.

charles_f• 1 year ago

For the line to go up you need people to keep buying more, and reducing costs. But when these costs are people's salary, you end up paying them less, so they can't buy more, thus credit.

The overreliance on credit as a new step in the consumption cycle is an indicator that the whole system is collapsing, but somehow it's supposed to be good news that buying a burrito might be used against you to further drawn you down.

The town is on fire but good news, your house being burned down will get you air-miles.

thomascountz5• 1 year ago

I left the U.S. several years ago and have completely forgotten about "credit scores" in this sense. I get reminded every once-in-a-while how things that used to feel so obvious and inevitable and necessary for society to function are completely artificial.

lisper• 1 year ago

Society itself is completely artificial. Money, property rights, laws, taxes, even the words I'm using to write this very comment... all of these are just human inventions, reified mythology.

thomascountz5• 1 year ago

What struck me about credit scores is that, from the outside, it seems so obviously ripe for corruption and predation. But growing up, it just felt that it was the way things had to be; how could it possibly be different?

jmcqk6• 1 year ago

It's useful to remember this when tempted to make arguments that assume there is a Right Way to do things. We are exploring a massive possibility space where components interact in non-linear ways. There isn't a right way, there is no golden path. The reality of our society is an integration of each individual experience. We build theories as abstractions of that integration in order to manage and engage with that massive complexity. It can be useful, as long as we remember that they are abstractions. When we forget that our abstractions are only abstractions, we tend to cause additional problems on top of that which we were already trying to engage.

tqi• 1 year ago

What's the process of vetting people for loans in your current country?

thomascountz5• 1 year ago

You can have debts totally only up to a certain percentage of your income. Banks require that you produce a monthly budget demonstrating that you have a certain amount left per month after all expenses and debts are paid. You have to be able to prove this by giving them access to your tax and financial records. Most rates for things like homes and cars are consistent from bank to bank across the country.

LeafItAlone• 1 year ago

Where are you now? And what is the system like there?

From my extremely naive understanding, obtaining credit and low rates is, in general, much easier in the US than other places. So it makes sense to me that it has “artificial” tools to help determine risk. How do other countries handle this and provide the availability that can be found in the US?

dsign• 1 year ago

Can't speak for every country, but in Sweden for example tax data to a certain level of detail (income by labor, income by capital) is publicly available for each citizen. Same for debts. And debts that go to the collection authority, which has a very dark name (kronofogden), are very public and somewhat worse than having to wear a scarlet letter. So credit institutes have enough of an idea of your finances to decide your rate.

thomascountz5• 1 year ago

Banks are required to prove their loans are affordable. They can only lend someone an amount that they can prove the borrower can afford.

In my experience, rates are not low in the U.S. They are high because high risk loans are able to be granted.

The availability of debt for things like housing and cars is very complicated, but high taxes, a high degree of education, livable minimum wages, and realistic employee rights helps increase stability and decrease risk. I don't say it to be flippant. It is more complex than even I understand. It's only to say that, given that these systems are designed artificial systems, there are multiple implementations that work under various constraints and incentives.

altacc2• 1 year ago

In some countries a credit score is a mysterious value calculated by a private company based on patterns of consumerism and money usage that greatly affects your life. You must earn the score through engaging with other private companies, to the company's profit. This is why in the US & UK people get credit cards early, to improve their score whilst trying to avoid the debt trap.

In Scandinavian countries there are registries of your income (from the tax authority), your debts (including buy now pay later which are technically flexible loans) and any bad debts you have that have gone to debt collection. No history of previous balances, repayments, how long you've had a credit card, etc... Companies use this to come up with a score, either themselves or a company like Bisnode will do it for them. So basically it's a simpler calculation based mainly on current situation than history.

highwayman47• 1 year ago

The only appeal of these loans is that they weren’t incorporated into FICO score. These companies will all fail once people start noticing their scores drop.

Glyptodon2• 1 year ago

That seems like it makes sense whatever one think of credit scores, it's actually surprising to me that a form of credit didn't show previously.

veggieroll2• 1 year ago

Ok, do rent next.

Paying rent doesn't count towards your credit score (at least it didn't a decade ago when I was getting my mortgage). And it's a glaring signal of how the system isn't built for what it claims: evaluating your ability to pay obligations on time. No, the system is built to trap people in poverty and enrich the rentier class.

nwah1• 1 year ago

Landlords like the idea of incorporating rent payments into credit scores, since it adds extra incentive to pay on time. Or, phrased differently, extra punishment for failing to pay on time.

Framing the current default as a help to the rentier class is just silly.

The rentier class are indeed a major cause of stagnation and inequality in our economy, but they are innocent of this one.

gamerdonkey• 1 year ago

The current default is that missing a rent payment can harm your credit score, but paying on time will never improve it.

https://www.experian.com/blogs/ask-experian/can-late-rent-pa...

This benefits the landlords for the reasons you outlined, and tenants must interact with the credit industry through additional (often predatory) means in order to build a credit history that may allow them to buy their own home. Further, landlords have an incentive against providing this positive feedback, as doing so makes it more likely that tenants would exit a relationship that is profitable to the landlord.

daft_pink• 1 year ago

Is having your payments reported to a credit bureau really a benefit to you to allow you to have a better credit or is it a collection activity intended to help the creditor collect?

The reason buy now pay it later is being added, is because those lenders are having trouble collecting, so they want to add it to the credit score so there is an additional consequence if they don’t get paid. It’s a collection activity, not something that’s designed to help the payor.

Adding rent is mostly a benefit to the landlord not to the poor people.

x0x0• 1 year ago

The shitty software my landlord used to use -- the Buildium / Realpage scum -- decided to put a popup on every rent payment trying to get me to pay the Realpage scum $5 to $10 to report the rent payment to the credit bureaus.

Y_Y2• 1 year ago

A popup? How? If you can't pay by cash or bank transfer then wtf are they doing?

ramoz• 1 year ago

Have seen this first hand. E.g. tenants with a terrible credit score, but 36mo of proof on-time rent payments. They've always made their future payments (in my experience).

sathackr• 1 year ago

Just what we need, every sleazebag landlord who owns 3 apartments and thinks he's hot shit holding his ability to fuck your credit up over your head.

kylehotchkiss• 1 year ago

Aww so I can't use BNPL for my $10 California burrito anymore?

I was looking forward to 4 $2.50 weekly payments!

thebeardisred• 1 year ago

Man, I wish for a $10 California burrito. In Los Angeles I'm often looking at $5+ tacos.

zoklet-enjoyer• 1 year ago

I always take on debt if it's an option at 0%. Or sometimes even if it's a low promo thing, like 3%.

chasd004• 1 year ago

I do that too, I actually get a kick out ripping off those predatory 0% interest traps. I had no idea the BNPL things didn’t impact credit scores. If they’re unsecured with no credit worthiness impact then why even pay them back?

nailer• 1 year ago

I honestly have no idea whether buy now pay later is considered good or bad. The article is email-walled so I don’t know.

I was fiscally responsible and didn’t buy things on credit. I had a low credit score.

Now I deliberately pat for things on credit then pay them off immediately to have a high credit score.

Maybe we could replace credit score with an actual measure of financial responsibility?

FICO to incorporate buy-now-pay-later loans into credit scores

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