ORIGINAL: GMMAT
Compare it to a guy who has two car payments, carries a small balance on his credit cards, has a HELOC etc... If he loses his job the chances of him defaulting are great since he has so many financial obligations.
Too many variables to make such a broad statement. Income/debt. ratio is the key....along with a payment history. If a man has a solid repayment history.....he's PROVEN he's not a high risk by his prior actions.
There is nothing better......when you're applying for credit......than a strong payment history. It's FAR better to have paid for something over time.....and lived up to one's obligations....than it is to show no evidence of such (as in paying cash for everything).
I'm not sure about individual state's laws.....but in NC....a minor can't enter into a contract (like say....a credit agreement). I would say, as parents, the best thing we can do for our kids, credit-wise, is to have them borrow money from an institution (even if we have to co-sign) at an early age.....to teach them the value of such. Kudos to you guys who are doing this.
Here's another scenario to highlight something I mentioned, earlier. Let's say that new truck you want is $25K. You have the cash to pay for it......but you'd be pulling that cash from a place where it's earning 10% return on investment. The dealership or other lending institution is offering you a 5% interest rate. Do the math.
Let's take your example of earning 10% while paying 5% on a vehicle. Sure you are paying less of an interest rate, but that money you are earning the 10% on is taxable income. So, 10% starts to look like 7% to me. Also, you are factoring in risk, especially if you lose your job.
What I have done is paid cash for all of my vehicles and I pay $500 into mutual funds each month. I am averaging 12% and every 6-8 years I tap into it and buy another car. So essentially I am doing what you are talking about, but my spread is larger because I am not paying a dealer/bank 5% interest.
Also, even if someone wants to check my credit score it isawesome. Just pay your house payment on time or early and you will have a high credit score. You don't need a credit card or a car payment to build good credit.
Obviously you have made a lifestyle choice of borrowing money, but I think it will slow down your true potential. I have just seen far too many people win with money who refuse to borrow it. My parents make a 6 figure income, but their net worth is really low due to car payments, credit cards etc...
The golden rule is not how much you make, but how much you keep.
PS: Yes Dave Ramsey inspired me 5 years ago and it has been the biggest blessing of my life. I used to think just like GMMAT.