FICO to incorporate buy-now-pay-later loans into credit scores

Theoretically, credit should be used for one thing: to make more money. (not less)

However, instead of using it to buy or construct a machine to triple what you can produce in an hour, the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later.

At some point, you run out of hours available and the house of cards collapses.

i.e., credit can buy time in the nearly literal sense, you can do an hour's work in half an hour because the money facilitates it, meaning you can now make more money. If instead of investing in work you're spending on play, then you end up with a time deficit.

or, e.g. you can buy 3 franchises in 3 months instead of 3 years (i.e. income from the 1 franchise), trading credit for time to make more money, instead of burning it. It'd have been nice had they taught me this in school.

Do you also think that way about buying a house with a mortgage (credit)? I don't.

A mortgage isn't used to make more money. It's used so people can own a house after saving for a few years, rather than waiting until they've saved for a few decades.

A mortgage doesn’t make money, but it (can) enable spending less money. If you buy a place such that interest, maintenance, insurance, taxes and the opportunity cost of not being able to easily relocate are less than rent, then you have saved the difference.

It’s also a way to force saving, which is psychologically useful (and thus valuable).

If you buy a house for 500k on a 5% mortgage over 25 years when you are 25, and you plan to live until you are 85, you will live there for 60 years.

It will cost you 35k a year for 25 years, or 875k a year

After 25 years you have no more expenses.

If instead you rent it for 20k a year, increasing with 2% inflation each year, by year 25 you're paying 33k a year in rent, and by year 60 you're paying 66k a year.

Over 60 years you pay 2.4m in rent, or 900k in mortgage (you could also then sell that house for 1.6m with a 2% annual inflation).

You'd have to invest the savings and get way higher than inflation returns to break even.

Of course there's maintenance costs of the house too, but that's with rent far cheaper than the mortgage. In reality rent tends to be a similar amount as a mortgage (in the UK it tends to be higher - as people won't rent places out if they aren't covering their mortgage - at the very least the interest part of it). You'll likely find house prices appreciating more than inflation too - just like stock prices do. Rent tends to track income.

Now you could argue that you'll get more by investing in high return growth stocks. And you might be right. In the 80s there was a whole "endownment" mortgage craze where you paid the interest on the mortgage, and then the rest rather than paying down the mortgage capital, instead was invested.

This was a massive scandal as many investments didn't have enough to cover the mortgage amount upon maturity. With a mortgage you know that no matter what happens with inflation, growth, returns, stock crashes etc, you will own one house after X years.

> people won't rent places out if they aren't covering their mortgage

btw this is usually false, and mostly irrational.

1. Realize that every landlord has a different capitalization structure. Many likely bought decades ago and thus only owe a fraction of what the current market selling price is. Additionally we also have had a long period of ultra low interest rates so their interest rate is different than what new entrants are paying. Because their capital cost is lower they can actually offer for far less than the (Interest+Taxes+Insurance+Maintenance) costs that a home owner would have to bear.

2. The rational move of a landlord is to price competitively based on what the market can bear, even possibly losing a little money per month in cashflow (but less bad than the appreciation rate and cost of disposal/selling/defaulting).

> and mostly irrational

I'd say it is quite rational. Real estate represents value, and value should be earning at all times. Owning it free and clear does not change that one iota. Rents are based on the value of the property, not the mortgage on it.