this post was submitted on 14 Aug 2023
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Consider two potential creditors:
Can you see how B is a less risky client than A? A is essentially an unknown risk, but B has demonstrated the ability to manage their debt. A could still get, for instance, a car loan, but likely not a mortgage. And B will get a lower interest rate.
Dept is fascinating, our system seems to be build around it. And still, I was raised with 'Don't spend money you don't have' which makes person A more trustworthy to me compared to person B, who seems to live a financially risky life. But of course the bank earns more with person B, paying interest. I would reward this behavior as well, but it's not the kindest system for gullible people.
How is A an unknown? They've demonstrated that they don't make a habit of spending money they don't have, which most people would consider conservative and responsible.