Full disclosure: I make a comfortable amount of money, but I still hate how the majority of people in our system get screwed for being poor/unlucky. I have encountered yet another way in which this is the case.
I'm looking for a loan right now for an investment opportunity, and I was reminded that paying off installment loan accounts (mortgages, personal loans, most general consumer loans) negatively affect your credit score. This is because you're “closing an account” when you pay off the loan, which results in you having one less opportunity to prove your credit worthiness. Stupid, but I can sort of see the rationale.
Of course, having a low credit score, or experiencing a significant decrease in your credit score, negatively impacts your ability to get other installment loan accounts, applying to certain jobs, and being able to rent.
When looking at my loan options, I came across Margin Loans. These are loans offered by brokerage accounts that allow you to use the funds in your brokerage account as collateral for a loan. Let's say you have $10,000 in a brokerage account, and your brokerage allows up to 50% LVR (loan to value rario): this means that the brokerage is willing to give you $10,000 to invest. The thing I noticed is that these types of loans seem to have lower interest rates than regular consumer loans and don't impact your credit score unless the value of your brokerage account evaporates to the point that you can't pay back the loan with the money in your brokerage account. The interest paid on the loan is also potentially tax deductible.
So…if you have enough money in a brokerage account (something that only half of Americans own, and only the top 25% of income earners benefit from), you get lower interest rates and it won't impact your credit score. Average Americans, on the other hand, will get screwed by high interest and their credit score will likely decrease after getting the loan and when the loan is paid off (and the decrease may stay on your credit report for 6 months to a year).
The US isn't designed for average Americans, and it makes me want to break shit