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The ultimate life hack the government doesn't want you to know
(sh.itjust.works)
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this post was submitted on 17 Oct 2023
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I got a credit card as a teen and have always just treated it like cash. Zero issues doing that and it helped build up my credit score by giving me such a long credit history with good payments.
As an European credit scores sound so weird to me 😮
They're basically a black box and can do some really weird shit (I had mine drop by 80 points, which is a lot, all because I paid off my student loans), but their purpose and basic workings are pretty straightforward. You show that you can be trusted when you're given a loan and can pay it back? Score go up. Do things that make the bank question if you can pay them back? Score go down.
Now, there's a shitton of complexity to it I won't go into, but it's not always as bad as people make it out to be and really only matters when you're trying to get a loan and sometimes when you're renting somewhere.
That I understand, but adding your kids on your credit card so their score goes up and things like having debt just to pay it back is weird to me
So co-signing (the having your kids on your card you mentioned) is just sharing the responsibility. Basically everyone signed on the line of credit (loan, credit card, etc) is considered equally responsible and expected to contribute financially to pay for the line of credit. Most commonly it's a husband and wife buying a house, you both contribute financially towards the loan and you both reap the benefits of the loan, and you're both in trouble if the loan isn't paid, and it affects both of your scores depending on how well you manage that line of credit.
There's different kinds of lines of credit you can get, from really bad ones like personal loans and credit cards (both are very high interest and not recommended) to moderately decent ones like car loans (interest rate is okay, but the item you're buying loses value) to good ones like a mortgage for a house or a Home Equity Line of Credit (HELoCs are weird, but it's using the equity on your house for what spends like a credit card but is paid back like a mortgage)
Fair enough. I have a question though so apologies for my ignorance.
But how do lenders in your area determine if someone is a good borrower or an unreliable borrower without something like a credit score. I'm not saying the way the US does it is the best answer or anything. I just legitimately don't know how it works elsewhere.
In most European countries you're innocent unless proven guilty. That means that instead of a credit score, which is 0 by default and you have to prove to everyone that you're a good boy, we can take any loans straight away. But if a person defaults, then they get a mark in their financial profile and other lenders will be wary.
Pretty sure we have some sort of database or Registry for people who don't pay back their loans. And loans do show up when for example mortgage people do a background check on you
Probably the best advice I've gotten was "it may be a loan and someone else's money but you best treat it as your own money because it will eventually be your money and you have to pay for everything"
What does "treated it like cash" mean?
I treat it like a debit card. I don't put more on the credit card than I have in my bank account. And I don't keep a running balance each month. I pay off the card bill each month so I don't pay credit card fees.
Just because your credit card limit is $5000, doesn't mean you should load it to the max if you only have $1000 in your bank account. I recognize that people sometimes need to do something like this to pay bills, but as a general rule you should do everything in your power to just treat it like a debit card and you won't be in debt.
Also, I know you didn't ask this... But I also tend to use my credit card instead of my debit card because I get cash back rewards points for using it (unlike with a debit card). And I'm the US (not sure about other countries), it tends to be much easier to dispute a fraudulent charge to your credit card than your debit card. Because when something is debited from your bank account, it's almost immediately gone. But when you get a charge to your credit card, it's kind of like a mini loan, so money is not immediately deducted from your bank account.
Here in Germany you can get back money that somebody took via direct debit, but not if you transfer it yourself. And many supermarkets use direct debit at their own risk after some automated risk analysis, because it has lower fees than girocard/maestro/vpay. (They extract the bank code from the card and print a form for direct debit authorization with the receipt printer)
Not letting the balance be higher then your checking. Auto pay off your statement in full every month.