It is their own proprietory choice. In capitalism, you do NOT have to sign the car insurance if you feel you are not understood. Credit card issuing is NOT just for money. In my guess, they want to watch your living style. It is like the cell phone, to find out where you are and who you talks to. If so, your insurance premium might be much higher if you stop or rarely carry your cell phone. Think about as if you are a chairman of insurance company. Will you have contract with some customer with no CC and no cell phone, possibly with bad FICO?
They look at lots of factors including driving history, family set up, age, education, etc. At the end of the day you fit on some distributional graph. They hire 100's of actuaries to improve the predictive power of those graphs and those actuaries feel credit score is a predictive factor. And if vegetarians prove to be better drivers, they will drop them in a lower risk bucket - just like non-smokers enjoy lower health insurance premiums. Everyone has a different tolerance for risk. It's imprudent in my mind to carry no debt. Your trading book must be on margin unless you are just trading long only in a cash account. Mortgage debt is among the best debt you can have. It has low rates because it's a competitive market and asset based and in the US, it's non-recourse so the bank can't come after you for the difference if your house is worth less than the mortgage on it. Margin debt in a securities account is far more dangerous than a mortgage because margin debt can be called at any time or your broker can change your terms at any time.
Absolutely agree that point. Usually mortage forclosure takes at least 90 days, in some states. However, margin debt can be foreclosured in THE SAME day. That is why my friends never bet with margin, unless accidentally. It should be less than one time every year. No one knows 2015 or 2016 might be another blackswan, such as 1929, 1987 and 2008. Also, future/option is more dangerous than equity debt. Mortgage loan for 30 years is like poisoning with silent drug for 30 years, while security loan is like fatal car accident. Isn't it?
If I have 30% down or 50% down available, then I can buy a home for example. To do that we have to save many years. Buying a home with 10% down is a stupid choice, even if payment is lower than rent temporarily. Mortgage payment depends on the temporary interest rate by FRB. If the rate is increased, monthly rent is cheaper than mortgage payment. In the last 100 years (FRB from 1913), the last 7 years of VERY low rate is unusual. Probably the rate might be fastly going up soon. In any 30 years contract, we will face high interest time.
Buying a home for 10% down is not a unilaterally stupid choice. You could take that extra 20% and invest it for yield or put it away for a rainy day (because when you lose your job, the bank doesn't give you home equity loans then). Mortgage rates are generally fixed. So you pay the same mortgage (in dollar terms) for 30 years while rents rise with inflation over that time period.
Everyone has different choice. Of course I admit housing market is not as much volitile as security market. But remember that in 1929 depression stock prices goes down 1/7 and housing price goes down to 1/4, if I heard correctly. It can happen again as long as FRB manipulate rate.
That your math is absolutely wrong is evidenced by most wealthy people paying up cash for their home. You did not even mention the correct way to assess whether a mortgage makes sense. It would only make sense if you can lock in a lower rate than the yield you achieve from investing your cash. And even then you face lots of risk because the future returns of investments are uncertain. Taking on debt only makes sense if you are able to repay, if you can invest with certainty at higher returns than the interest on debt and if you are not able to pay up fully in cash. A lot of ifs and those smart enough evaluate very carefully. As long as you are not able to socialize losses debt makes no sense and is a bad choice. Corporations embark on debt mostly because they either believe they can invest their cash at higher yields than the debt interest payments and/or because a company can simply go bankrupt if it cannot service it's debt while the decision makers are not on the hook for even a single penny. Why do you think most Americans are living at the verge of disaster? Because they loaded up to the hilt on debt. You are giving terrible advice IMHO.
If you see this http://www.realtytrac.com/statsandtrends/foreclosuretrends it is maybe more dangerous to give a loan to the average American.
There is a difference. Buying a home costs several 100K for one share, however there is lots of stocks less than 1K per share. Personally I have equity with no loan. Sometimes I pay interest in accidental purchase with margin loan but less than once in every year. Also after I sell my home 2006, I am renting for 9 years. In the future, I can buy another one, in case that I favor the housing prices. It will be after FRB interest change.