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Is consumer credit overrated?

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Matvei posted on Fri, Oct 29 2010 6:37 PM

Often, I've heard that credit cards (consumer credit) is "good" because it introduces one to using credit responsibly, builds a credit rating, etc.  Is there truth to this?



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It depends on what you want to do.  I first got my credit card 5 years ago at a college giveaway.  I used it to buy things and pay it before the due date to builda credit history.  The limit started at $3000.  It's now $10000.  I have over $3000 balance from expenses for my  current career project.

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Consumer credit is good because it gives people an option that helps them better accomplish their goals and satisfy their wants.

Now, whether people use that option wisely or responsibly is another question. One would hope that consumer credit is not used irresponsibly, but to minimize the risk you need proper incentive structures that encourage behavior in ways that are sustainable. The free market is excellent at providing such incentives because it is dynamic, flexible, and quick to adjust to new information. Government, while it could theoretically manage incentives, in reality is bureaucratic, rigid, and slow to adjust to new information. Given an option of the two, the free market will be the better choice every time.

So to address the OP, I'd say that consumer credit is not overrated; although it could potentially cause problems down the road if it is managed by the government.

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