This is location dependent though. A easy way to see if someone is from the US, is if they advice you to prefer credit cards rather than debit cards.
Meanwhile in Europe, there is no reason to have a credit card instead of debit. On the contrary, it's more risky to have a credit card rather than debit as on debit cards the limit for overdraft is usually way lower than how much someone could spend with your credit card.
I'm 30+ and never owned a credit card, nor had any reason to get one.
> in Europe, there is no reason to have a credit card instead of debit
There concrete reasons to use one in Europe (at least where I live):
It's a month's free loan - why spend your own money when you can keep it invested or otherwise working for you for a month first for free?
Consumer credit law is still stronger for paying on credit than on debit.
I used to fly transatlantic first class once a year for free based on just my credit card rewards. I'm not some unusually high earner either. What possible reason is there to turn that down?
Yeah, where I live you have exactly the same protections using credit card vs debit cards. Credit cards here don't usually have good rewards either. If you spend 10000 euros you might get 10 back in the end of the year, hardly something to hurrah for. Sometimes they give you a free TV if you open up a bank account with the bank and change to the bank to receive your monthly salary, but that's about it. So don't really have any reasons to use a credit card instead of a debit, as I only spend money I have anyways.
If I remember correctly, banks here also always give you a debit card when you sign up with them, while credit cards have to be applied for separately and also usually has a yearly fee, compared to debit cards that are free.
What do you think about the argument about it allowing you to keep your money invested for longer?
Say you're ordering something large like a car. You can pay the deposit on a debit card, and lose access to the money immediately, or you can pay on a credit card, and keep your money invested for another month or so, still earning you money, until you need to settle.
A credit card gives a consumer liquidity. I don't think it's an unusual economic concept to say that liquidity is useful and helps you use your money more efficiently.
What kind of income are you looking at for an extra month, even with a huge payment like a car (which I don't think people use credit OR debit cards for in Europe)?
I suspect for the vast majority of people it's going to be negligible at best.
In the UK, the biggest advantage of using a credit card for the first £100 of any purchase is that it makes the credit card provider jointly liable with the vendor for any failure in the contract. This is an awesome bit of consumer protection.
Atleast in my experience (NL, DE), a very small minority of institutions allow credit card payments. For example, online orders and food delivery. No car dealership or landlord will accept credit card, only direct debit or bank transfer.
Again, not everywhere. Credit cards and debit cards are treated the same way here. Same process to request money back for both, and I have the same protections with both.
> Meanwhile in Europe, there is no reason to have a credit card instead of debit
Ehh, I'm not sure I'd agree 100% with this one. You can certainly get by with just a debit card (and enjoy the access to e.g. the chargeback scheme) but I find credit cards a useful tool to build credit (and my credit history built up by never missing a CC payment undoubtedly helped me out when I applied for a mortgage).
There's also the benefit of rewards which, although are smaller than in the states (because the interchange fees are better regulated), you may as well take advantage of.
I'd add a footnote to this to say: I use my CCs purely as charge cards and have a direct debit set up to this effect.
Yeah, credit history is something I never really cared about as I don't have any interest in getting a loan or touch anything else related to credit histories, so I'm probably a bit biased in that. I also guess the cost of living is so low where I live so I (together with many others) don't need to be able to take loans, not even to be able to afford a house.
Edit: not a complaint, just found it funny that someone thought of to downvote me a minute after I wrote my comment, because me and others around me don't need credit to afford a house? HN sometimes is funny.
Credit history is equally location dependent as the use of credit cards. It's simply not a thing over here. Whether you'll be granted a mortgage (usually) simply depends on whether or not you have a steady source of income that's sufficient to cover the risk. Whether or not you missed a CC payment when you were on an extended trip really doesn't factor into it. I think I prefer it this way.
> Yeah, credit history is something I never really cared about as I don't have any interest in getting a loan or touch anything else related to credit histories, so I'm probably a bit biased in that.
Fair enough! I wish that were the case in my part of the UK ;)
How do they handle assessing creditworthiness, then? Ex. someone walks into a bank and asks for a loan to buy a house. How does the bank evaluate that?
And so on. Bunch of questions and documents back and forth until the bank is confident you'll pay back.
It's funny to hear people from North America talking about the scary new Chinese "Social Points" system when they've had credit score for such a long time they don't even think about it anymore and find alternatives strange and hard to imagine.
The credit score in the US is based entirely upon one's assets, income, current amount of debts, and payment history. It doesn't include what one posts on social media or what political party one votes for. At least not yet.
As another person responded - based on your income and situation ( family, age, stability of the job) and very basic loan history ( stored at the central bank, basically for the lender to know if you have outstanding debts and if you've defaulted on loans before)
> In the EU, there are lower charges for the merchant when a debit card is used.
This is definitely the case in the US. The fees vary between different acquiring banks, merchant gateways and cards, but generally they follow a pattern similar to the following:
If it’s a Visa or MC backed card, it’s always been against their merchant policies to surcharge a CC and merchants can lose their ability to process cards if they do. It definitely hasn’t stopped merchants from doing it though (in the US mainly, but have seen it elsewhere too).
The no.1 personal finance advice is pay your credit card balance in full every month.
The exception is when you have a credit card offering a 0% interest promotional period. As long as your overall credit utilization is low, you can pay the minimum each month to maximize the amount of time your money sits collecting interest. I usually pick up a new 0% promo card every year to get cheap financing for large purchases while my money appreciates in the stock market.
The S&P return is not always and certainly not guaranteed to be 10% or even positve. Some months/years it is negative. It's an exceedingly bad idea to keep cash that you will need in the short term (< 5 years) invested in equities.
If you sell OTM covered calls of about 10 or 8 delta against the shares you own and keep rolling them after sufficient theta decay you can conservatively add 1% ROI each month on top of whatever appreciation your shares get. So yea you have a good chance of getting 10% ROI per year consistently this way unless S&P is down more than 2% for the year.
Unfortunately so many people use this strategy these days that the bids are lower than what they used to be though.
In the UK, at least, if a transaction paid with a credit card is between £100 - £30k and the merchant becomes unable / unwilling to render the goods / services, you get the full amount back under Section 75 of the Consumer Credit Act. This is to prevent people from being in debt for things they never receive. You don't get that protection with a debit card.
> you're using the money you have vs. taking a loan?
Why would you want to use the money you have when you can take a free loan until the end of the month? A free loan means you can keep your own money invested or otherwise working more efficiently for you somehow.
> the no.1 personal finance advice is "stop using CCs"
I've never seen this - I see 'use CC's more to build up your credit'. I use my cards religiously and have near perfect credit based on I think basically on this alone as it's the only credit I use beside my mortgage.
The problem is that most people lack discipline and run up debt. Using CCs is fine if you are extremely disciplined.
Dave Ramsey made a career out of teaching “normal” undisciplined people how to avoid and eliminate debt and that includes the advice of “never ever use credit cards or get loans.” A 15 year home mortgage with 20% or more down is the only acceptable debt in his eyes. (And that’s because human nature often leads people into debt, not because of any mathematical basis.) For the majority of “normal” people, he’s right.
We don't spend nearly enough time in primary and high school teaching practical personal finance. For many people that could be the single most important life skill they learn in 12 years of education.
You keep trying to make this "keep your money invested for a month" argument but without actual numbers I don't believe it. How much are you spending in a month that you actually get any kind of investment return on it? And what is your return?
You should really shop around! In Europe I have a free credit card, with a large line of credit, that I literally never pay any interest on, that (used to) fly me to New York in first class once a year on normal household and business expense spending. They're out there - you're throwing away money by not using them.
In the US it's easy to get a zero-fee credit card. Most have rewards programs.
The personal finance advice I've heard is not "don't use credit cards" it is "don't carry a balance on credit cards."
Carrying a balance will eat you alive on interest. As will fees for late payments or going over the limit. If you have the self-discipline to not do those things, there's no reason to not use a credit card.
The thing is CCs basically give a zero interest rate loan for upto 45 days. This means if you spent 1000£ through CC rather than a debit card, the 1000£ will sit in your bank account and earn interest, also 1000£ spent on the CC would have earned you reward points that could be redeemed as a statement credit. Thus in effect by using CC, one would have spend less for the same transaction.
Also taking credit and closing them in time with CC could boost one's credit score, which may be useful in the future ocassion when one requires a bank loan.
> the 1000£ will sit in your bank account and earn interest
You typically use a non-savings account to back a credit card. 0% interest
Most savings accounts give in the area of 0.01% interest.
While you’re right in general that you’d wanna use credit and keep cash for many things, a typical CC transaction is too small for this to be worth considering.
Use a CC for the points and pay it off every month. Forget the interest gains.
Make sure you don’t not pay. The interest on a CC loan will kill you. And that’s far more common for most people.
I don't know your country, but in many countries banks allow savings account with reasonable interest rates to back a CC. Sometimes they provide automatic gathering up of parked funds in the savings account into a higher interest rate deposit account of even higher interest rate.
This depends upon the geographical location and indeed, the amount you're spending.
I'd definitely use my Amex for items over £100 (for Section 75 protection) but under that amount my understanding was that you're reliant on the (voluntary) chargeback scheme which I can use with my bank and debit card too.
So the only thing you really gain for the smaller purchases is the money not leaving your account with the CC, I think?
It's strange to me that legal protections vary per payment method where you're from. If you bought something defective, warranty should cover it. If your flight gets cancelled, there's probably some kind of consumer protection in place. If you were robbed or defrauded in some way, there's laws and protections against that as well. Some CCs come with insurance over here, but those are just that: insurance.
Meanwhile in Europe, there is no reason to have a credit card instead of debit. On the contrary, it's more risky to have a credit card rather than debit as on debit cards the limit for overdraft is usually way lower than how much someone could spend with your credit card.
I'm 30+ and never owned a credit card, nor had any reason to get one.