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 air****t, 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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