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Posted by Default User on May 17, 2008, 11:16 pm
Elizabeth Richardson wrote:
>
> >
> > You don't have to have a loan to have a FICO. I didn't have anything
> > but credit cards up until I bought a house, and I certainly had a
> > FICO.
>
> In what way is a having and using a credit card not a loan?
You call that a loan? That's not any definition of a loan I ever heard
of.
Brian
--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)
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Posted by Elizabeth Richardson on May 18, 2008, 3:00 pm
>> >
>> > You don't have to have a loan to have a FICO. I didn't have anything
>> > but credit cards up until I bought a house, and I certainly had a
>> > FICO.
>>
>> In what way is a having and using a credit card not a loan?
>
> You call that a loan? That's not any definition of a loan I ever heard
> of.
>
You buy something, but don't pay cash. The guy who sells it to you wants to
be paid promptly. So Visa loans pays the guy who sells you something and
puts the charge against your account. If you don't pay the card balance in
full by the due date, they'll charge you interest. Whether or not you are
charged and pay interest, you've had the use of their money for xx days, and
you have to pay it back. If that's not a loan, I don't know what is.
Elizabeth Richardson
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Posted by Default User on May 18, 2008, 11:22 pm
Elizabeth Richardson wrote:
>
> > You call that a loan? That's not any definition of a loan I ever
> > heard of.
> >
>
> You buy something, but don't pay cash. The guy who sells it to you
> wants to be paid promptly. So Visa loans pays the guy who sells you
> something and puts the charge against your account. If you don't pay
> the card balance in full by the due date, they'll charge you
> interest. Whether or not you are charged and pay interest, you've had
> the use of their money for xx days, and you have to pay it back. If
> that's not a loan, I don't know what is.
That's credit. It's not what I've ever heard describe as a loan. A loan
is generally a specific amount for a specific purpose. The fact that
both loans and credit have interest (possibly) doesn't matter.
More specifically, I don't believe that credit cards were what the OP
was talking about. It is possible that I misinterpreted that.
Brian
--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
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Posted by Mark Bole on May 19, 2008, 1:29 pm
Default User wrote:
> Elizabeth Richardson wrote:
[...]
>> You buy something, but don't pay cash. The guy who sells it to you
>> wants to be paid promptly. So Visa loans pays the guy who sells you
>> something and puts the charge against your account. If you don't pay
>> the card balance in full by the due date, they'll charge you
>> interest. Whether or not you are charged and pay interest, you've had
>> the use of their money for xx days, and you have to pay it back. If
>> that's not a loan, I don't know what is.
>
> That's credit. It's not what I've ever heard describe as a loan. A loan
> is generally a specific amount for a specific purpose. The fact that
> both loans and credit have interest (possibly) doesn't matter.
Upon first reading this sub-thread, I was inclined to agree with
Elizabeth, but after spending a few minutes with the dictionary, I now
know that "loan" and "credit" have clearly distinct meanings -- but see
my comment at the end as to whether or not the distinction pertains to
this thread.
Credit is routinely extended as part of many business transactions.
Store owners, construction contractors, patrons in a bar, even employers
-- all are commonly the recipients of goods or services provided up
front on credit, the only requirement being that the provider trusts
that they will receive payment at some point. There is no expectation
or desire that the original good or service will be returned, only that
it will be paid for. (The root meaning of "credit" is "trust").
A loan actually requires the return of the original thing borrowed,
frequently with a charge for the use of it. In the case of money, this
is interest; in the case of a DVD movie or a car at the airport, it is a
rental fee.
A "credit card" muddies the waters to the extent that it is a two-phase
transaction. During the first phase, the card holder's grace period, a
balance on the card represents credit extended to the holder, which the
merchant has outsourced to the card company in exchange for a service
fee paid by the *merchant*.
After the grace period, if the credit balance is not paid in full, the
merchant is out of the picture and the card holder now has a loan from
the *credit card company* and is expected to return the money which was
borrowed to close out the credit balance. A cash advance is a pure loan
from the outset, with no credit or merchant involved, which is why there
is no grace period for a cash advance.
For purposes of this thread, it seems the distinction is irrelevant, as
the FICO score forecasts *payment* ability, regardless of whether those
payments are to close out a credit balance, settle a utility bill, pay
rent on an apartment, or return borrowed money.
The huge thing that is missing from the forecast, of course, is the
existence of present or future income, or liquid assets. What strikes
me as peculiar is that I can have a great FICO score, take out a huge
loan, and then quit my job tomorrow, with the lender being none the
wiser nor having taken this risk into account when they made the loan.
-Mark Bole
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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Posted by Elle on May 19, 2008, 2:15 pm
> For purposes of this thread, it seems the distinction is
> irrelevant, as the FICO score forecasts *payment* ability,
> regardless of whether those payments are to close out a
> credit balance, settle a utility bill, pay rent on an
> apartment, or return borrowed money.
>
> The huge thing that is missing from the forecast, of
> course, is the existence of present or future income, or
> liquid assets. What strikes me as peculiar is that I can
> have a great FICO score, take out a huge loan,
But of course, one generally cannot get a mortgage loan
without a satisfactory income. I think what is missing from
the thread is that, per many sources, the three Cs of
mortgage underwriting are credit, capacity, and collateral.
The FICO score takes into account only the credit part.
Capacity takes into account income (not just amount but type
of income and so apparent stability). Granted, as you
proposed, a person could quit tomorrow. The algorithms are
only as perfect as the inexact science of financial
planning.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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