Speaking of Credit

[Pablo]

This might sound weird to you guys but I am 25 and have never owned a credit card, never made payments on anything I've purchased, about the only bills I have are from my telephone, cable modem, and car insurance

Growing up it seemed like my mother was always a slave to some credit card company debt, it really made life impossible. I guess I not so subconsciously have an aversion to owing anyone any money and the whole idea of credit ratings and all that have just seemed silly to me, like hey, heres a rating that shows how good I am at being in debt to someone.

When people hear of this they are usually flabbergasted and insist I need to work on my credit, I ask why, and point out that Ive never had a need for it, ever, ive rented cars, stayed in hotels, purchased things that I want when i want (im pretty good at putting away money and allready have a fair amount invested in the market)
Basically it hasnt concerned me, the part about buying a car hasnt really been an issue to me either as all the cars Ive owned have been purchased outright.

The only thing thats been brought up has been the issue of buying a house to which I understand the VA offers a good loan to military members... im not sure of the specifics but from what I understand its not so credit dependent.


Can you guys explain this credit thing to me a little better than I understand it? Why do i really need it? (remember I really hate the concept of owing someone money and the only time I can concieve of doing so is for a home)

also, if i really absolutely need it, how do I go about building it so that I get a good score in minimal time?

The conversation came up at work and someone suggested taking out small loans from the bank and just paying them off in a moderate amount of time.

This gave me the idea of taking out a loan like that and placing it into an investment where after it was all said in done gave me more returns than the interest i paid on the loan (i guess it depends on how quickly i pay it)

Seems like its like tuning a car, a balance between how much, how long, and how often...

anyhow before i continue how about some advice from you forum financial elders

 

[John Larkin]

I think you're ok. Credit is just a reflection of your ability to pay for things in the end. You can only buy so much house based on your income. you can only buy so much car for the same reasons. Credit history gives people an indication of how you'll perform on their loan to you. So if you have none or little, you're an unknown. If you really hate credit, at least get a Discover card and buy your gas on it. Pay it off each month and you'll develop some history. After you buy a house and stay current, you'll have enough credit for just about anything.

 

[ledzeppac]

The reason most people want credit is to get a loan for a house, car, etc...

No credit no or small loan with poor interest rates.


You can build quick little credit by getting a credit card and making the payments. However, most people don't know that if you pay off the payment every month in whole, it does not build credit... I dunno why. An easy way to build credit would be to skip months. Pay the full amount one month. Then the next month only pay 75%. Then the next month pay the remaining balance and the new balance. so on and so forth.

Also you can always build credit by taking out a loan. I would go to Orange County Teachers Credit union and see if you can sign up for an account with your military status.

Take out small loans and use that money to build a new engine or whatever... When you make the payment don't make the minimal. Alwasy pay more than what is due.

I am with you. I dont like having debt. But if I want to buy a house in Orange County I better have some.

Good luck

 

[87grandnat]

Paying a credit card balance off after the end off the month doesnt help build credit because your not proving your consistancy. All credit is, is another word for "trust" when you buy a car that is x amount they look at your credit, income, job consistancy and use these in realation to the price of the car, to decide if they can "trust" you to pay it back.

The idea about getting a credit card and using it to buy gas and making payments on it is a good idea, If the phone you have that you make payments on is a cellular phone then it will help your credit too. I have been told that things like internet, and oter home things do not affect your credit, unless of course you f them out of some money then they can report it.

The best way to build credit, fast and easy that i have learned is to go take out a loan for like six months. Do not build a engine like someone else said, put the money into an account and pay the loan off in 3 months, then go take out another one, you should qualify for a higher amount the next time and do the same thing, put it into an account and pay it off in a couple of months. Just repeat this a couple of times an your credit will build pretty fast plus depending on the amount of the loan and what you put it in weather it be a account or CD or what ever. You might actually be able to make some money while building your credit.

hope this helps, im in no way an expert but these are things i have learned from talking to people who are.

Joshua

 

[ledzeppac]

Originally posted by 87grandnat
The best way to build credit, fast and easy that i have learned is to go take out a loan for like six months. Do not build a engine like someone else said, put the money into an account and pay the loan off in 3 months, then go take out another one, you should qualify for a higher amount the next time and do the same thing, put it into an account and pay it off in a couple of months. Just repeat this a couple of times an your credit will build pretty fast plus depending on the amount of the loan and what you put it in weather it be a account or CD or what ever. You might actually be able to make some money while building your credit.

I would disagree. Please tell me where someone can make more than 3% interest on a CD...? You can't. Rates are below 3%. More around 2.25%. Thus your "just" paying to build credit. Why waste your time AND money... Yes you will have credit but you had paid the loan back with nothing to show for it. So why not take the money and put it to use...

I know you can just use the loan money to pay the loan off. But nothign to show for it.

Phil

 

[RobsIron]

Having a good credit history is HUGE if you want to get bank loans for property, cars, small business etc.

Manage your money properly..pay your bills and use the banks money for investments. Good credit can put you on the map.

I have many stated income low rate interest only loans on homes and condos because of my good credit history.

I do not like using credit cards now, but glad I did when I was younger. Now only use them for traveling, booking flights, rental cars, accommodations. Makes things a lot more convenient.

Get a Visa. Make timely payments. Its never to late to start.

 

[Whut]

Paying twice the minimum is better than paying a loan off in a couple of months. You can save on interest by paying the minimum payment twice a month. This will help your credit score go up. I am currently working on getting my credit score up. A year ago I was at 610 and am now just over 700. In a couple of months I hope to be even higher as we are looking for our first house and I want to get the best rate possible.

 

[salvageV6]

Pablo from what you have posted you don't need a serious credit score or history.

But it might be good to apply for a credit card for emergency spending on the road etc.

Paying off the entire balance every month shows a bit of consistency to me anyway.

They are good for ordering stuff and emergencies. Assuming you have the money saved to pay it off.

You should have no trouble getting a car loan assuming you have a job and are like Pablo and gonna put down a wad of cash for a down payment.

 

[Paxel]

I think that it is great that you have not become a slave to the credit card world. It is very admirable. Unfortantely, for you to purchase a home having a credit score is very necessary. I am a mortgage banker and it is always a bit more difficult to get someone a loan who has never established credit, but not impossible. It is sad that people like you who take care of thier money and pay thier bills on time should be punished for not going into debt to prove your finacial worthiness. The best way to purchase a home without any established credit is to go through an FHA lender and get the loan. You can use letters from your insurance company, landlord, cable, electric, phone, etc to prove that you have always paid on time. So it takes a bit of work but it is not impossible by any means. The other thing to do is like a few guys above said, get a small credit card and use it then pay it off, this will help you establish credit. Either way good luck if you decide to purchase a home.

 

[XLR8]

For a VA loan, you probably have enough credit already. Like Paxel stated, an alternative credit history would be established using your rent, utilities and insurance payments. It would not hurt, however, to have a major credit card. Even if you never charga a balance to it, you would have established a tradional credit history. For what it's worth, I am the underwriting manager for the Rocky Mountain Region for SunTrust Bank.

 

[gngirlfriend]

Originally posted by ledzeppac
I would disagree. Please tell me where someone can make more than 3% interest on a CD...? You can't. Rates are below 3%. More around 2.25%. Thus your "just" paying to build credit. Why waste your time AND money... Yes you will have credit but you had paid the loan back with nothing to show for it. So why not take the money and put it to use...

I know you can just use the loan money to pay the loan off. But nothign to show for it.

Phil

You can get 4%-5% on a CD if you get a 2 year or longer term. Just got 4% for myself on a 4 year.

 

[87grandnat]

I would disagree. Please tell me where someone can make more than 3% interest on a CD...? You can't. Rates are below 3%. More around 2.25%. Thus your "just" paying to build credit. Why waste your time AND money... Yes you will have credit but you had paid the loan back with nothing to show for it. So why not take the money and put it to use...

I know you can just use the loan money to pay the loan off. But nothign to show for it.

Phil

I wasnt even saying it had to be a CD, (but thank you gngirlfriend for proving him wrong) If you are savy with the stock market you could take out a 1 year loan let it ride in the market for 7, 8, 9, or 10 months, pay it back ahead of time so your not paying all the interest plus if your good with the market you could profit some money....could you not?

plus the whole idea of this plan is to build credit, if you payed the loan of early how would you not have anything to show for it....except more money and better credit, sorry if that seems like a bad deal to you

 

[TROUBLE]

Have you ever had your credit run to see what your score is?

Until last year, I had never owned a credit card always payed everything in cash or I wouldn't buy it. Purchased 1st vehicle brand new in cash (saved up for a few years and had help from grandmom) Have owned 4 vehicles since then and had good enough credit to finance them with out ever having had a credit card. I also bought my first house before having a credit card. BTW I'm 26 now.

 

[myclone]

Originally posted by TROUBLE
Until last year, I had never owned a credit card always payed everything in cash or I wouldn't buy it. Purchased 1st vehicle brand new in cash (saved up for a few years and had help from grandmom) Have owned 4 vehicles since then and had good enough credit to finance them with out ever having had a credit card. I also bought my first house before having a credit card. BTW I'm 26 now.

You can buy all the above without having any credit cards or much if any credit history but normally you will pay a higher intrest rate than someone with a good credit history. Like was stated previously your credit history is really the only indicator of how well you have previously "paid your bills" so thats what most lending institutions go by. Yes, there are still mom n pop type banks that take into consideration other things but they are the exception rather than the norm.

BTW, a LOT of car insurance companies are turning to credit reports to figure rates so you can possibly save money there too. From what Ive read some insurance companies look at someone with bad or no credit as a possible fraud/claim risk and will charge them higher rates. The local paper ran a story here a year or so ago about an elderly woman that was from the depression era who paid EVERYTHING in cash so she didnt have any credit. The ins company doubled her rates because of that (which I think is pretty crappy).

Too much credit is almost as bad as no credit too so dont go out and apply for every credit card you can either. Lending institutions look at how much credit you have available and if you have a bunch of unused credit cards then your a bigger risk in their eyes since you could technically start using all of them and get in over your head and become a collection risk. Not that you would do that but it is something they look at.

To establish credit do as others have said and get a credit card with a reasonable limit and use it occassionaly and pay more than the minimum payment every month. You dont have to spend thousands just a few hundred bucks but dont pay it off every month. Most credit card companies have introductory plans available for 0% (or close to it) intrest for several months so if your savy you can establish credit without paying any or much intrest at all. So, once the introductory "deal" is over and assuming you dont have a balance you have spent their money without paying much if any extra as well as established a good credit history.

Mrs myclone is a mortgage broker and I have picked up quite a bit of good info from her on the dos and donts of credit ratings.

HTH

 

[myclone]

I forgot to mention that you should avoid store specific credit cards (sears, JC Penny, etc) as their rates are usually outragious even for new customers. Read the fine print on a store specific card application and youll see what Im talking about as I recently thumbed through a sears credit card app while waiting in line at the check out counter and their rate was like 22% .

Stick with one from the likes of VISA, Mastercard, or Discover as those guys can offer a better deal.

 

[ledzeppac]

Well I work at the second largest bank in the world and I have never seen rates above 3% even from our competitors. So if your getting 4% I would put more money in it.

So (but thank you gngirlfriend for proving him wrong) didn't really prive me wrong.

 

[bishir]

Lets see I was in a similar situation when I got out of College except I had credit cards I hardly used. The only debt I had was some student loans which wasn't much. My car was paid for so no loan there. My beacon was ~600 and was basically classified an unknown when I tried to get a car loan. I got a car loan though for a lower amount than I wanted and paid it off in a year. Some loans later and a home loan and I had a beacon of 800 at 25. My beacon is now 790 for some reason though.

 

[87grandnat]

she did prive you wrong

 

[AZ Vic]

Originally posted by 87grandnat
she did prive you wrong

LOL

 

[BLACK6PACK]

As has been said, the main reason is to buy a house or big ticket items at the lowest possible rate you can. My grandfather never took out a loan or went in debt in his life. Always bought cars with cash as well as houses, and he was a simple dirt farmer, but times have changed. If you can get good rates for a house by being in the military then I wouldn't worry too much about it. It is nice to have a CC for emergency purposes. I have several CC's, but haven't charged anything on them in 2-3 years. I use my bank card.

My parents are very frugal with their money too. They retired a year or so ago with a decent amount of money, built a house here in florida and are now putting a $50k pool in. Did they pay with cash? No they didn't they took out loans. Why? Their investment portfolio is bringing in 8-12% apr. while thier loans from having good credit are running at 5%. So, by having good credit and leaving their money in investments, they probably make $12000 a year by taking out loans instead of paying with cash on just those two items.