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Posted by Daniel T. on May 19, 2008, 9:22 pm
[much snippage to help focus]
> 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.
The above is the heart of the issue AFAICT. The question in my mind is
this, if you use *credit* but never have a *loan* (i.e. you always pay
off your credit cards before the grace period ends,) does it help or
hinder your FICO (or neither)?
It seems to me that timely payments on loans increase your FICO while
credit use (paying off the cards before interest accrues) does not. As
such, a good FICO cost considerably more than the eight dollars the OP
mentioned. Am I right? I can't say because there isn't enough
information for me to work with. There doesn't seem to be enough
information for *anybody* to figure out the right answer.
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