Credit Question...

obieone

After spending 7 years building a credit report, I bought a house a couple of years ago. I have since then, payed off my outstanding balance on 1 card and payed off a loan for a p/u truck-(8 months early).
I have no outstanding debt other than my mortgage, and an AMEX charge card, which is 'revolving credit'.
Question: If I want to get a loan in a couple of years, will an absence of recent credit effect my rating- in other words, if I don't show SOME debt, does it hurt?

BaggedLancer

Just giving you the heads up, credit related anything on this forum is a dangerous zone.

hockeyboy

I manage my credit score closely. Keep the accounts open with little to no balance is fine. Charge some dry cleaning now and then to show activity and it's just as good as carrying a balance.

treitz3

BaggedLancer wrote: »

Just giving you the heads up, credit related anything on this forum is a dangerous zone.

Then how about PM'n your opinions to him. He can make a collective decision from there. PC police don't have to worry and he still gets his question answered.

Think I'll slide out now............

lomic

You do not need debt or to carry a balance to improve or have a good credit score. The best things you can do are keep 2-3 accounts active using them for daily purchases and paying them off at the end of the month. Also never close any accounts, especially your oldest ones.

wingnut4772

BaggedLancer wrote: »

Just giving you the heads up, credit related anything on this forum is a dangerous zone.

Really?

MrNightly

Ibld!

jdhdiggs

My wife and I run everything through our CC's and pay them off every month. Not only do we get cash back and "support the man" in keeping the poor people down, we both have credit ratings over 800.... This is only using 1 CC and having 4 others "open" and one mortgage, no other debt.

Demiurge

wingnut4772 wrote: »

Really?

The threads tend to become infected with rskarvanitis which causes acute brain damage in adults.

Demiurge

jdhdiggs wrote: »

My wife and I run everything through our CC's and pay them off every month. Not only do we get cash back and "support the man" in keeping the poor people down, we both have credit ratings over 800.... This is only using 1 CC and having 4 others "open" and one mortgage, no other debt.

Great minds think alike!

BaggedLancer

Demiurge wrote: »

The threads tend to become infected with rskarvanitis which causes acute brain damage in adults.

Game.....set.....match......

ohskigod

Having revolving credit (credit cards) with alot of available credit = good
0 balance is fine, just make sure the accounts stay open since it counts as available credit line. using it to buy little things is a good way to do it, as others have suggested. If you got a mortgage and previous paid auto's though (and not late on them) your pretty much fine either way

wingnut4772

Ok. What if you have a lot of cards with a zero balance and want to close a few?

BaggedLancer

wingnut4772 wrote: »

Ok. What if you have a lot of cards with a zero balance and want to close a few?

max em out and buy your old hosue?


or you could sell yourself....nevermind.








i'm KIDDING on BOTH accounts.

MrNightly

My goal is to get to a 0 credit score... and get there by paying cash for everything! Working on getting my houses paid off now, and then the sky's the limit! Don't worry so much about what your credit score it, just stay out of debt, stick to your budget and be smart, and you'll be fine. If you go to a manual underwriter for a house loan, they don't even look at your credit score. Your FICO is just a number, don't let it dictate your life.





***Obviously my opinions are not shared by all... Any flaming you wish to pursue, direct it toward Dave Ramsey!***

Maurice

ohskigod wrote: »

Having revolving credit (credit cards) with alot of available credit = good
0 balance is fine, just make sure the accounts stay open since it counts as available credit line. using it to buy little things is a good way to do it, as others have suggested. If you got a mortgage and previous paid auto's though (and not late on them) your pretty much fine either way

Very true. Lenders want to see the ability to borrow without a high debt ratio. Using the accounts you have without carrying a balance very long shows lenders that you are responsible with credit. Bottom line, they want you to use their money, but they want the least amount of risk. The higher your debt/income ratio, the higher the risk for them.;)

Wing, the same goes for your question as well. Closing the accounts can actually hurt your score. Instead, keep them open and occasionally use them to show responsible activity.

polkatese

wingnut4772 wrote: »

Ok. What if you have a lot of cards with a zero balance and want to close a few?

Leave the oldest opened card alone. Next, leave the highest available credit limit alone, since it helps your credit capacity score.

Demiurge

MrNightly wrote: »

My goal is to get to a 0 credit score... and get there by paying cash for everything! Working on getting my houses paid off now, and then the sky's the limit! Don't worry so much about what your credit score it, just stay out of debt, stick to your budget and be smart, and you'll be fine. If you go to a manual underwriter for a house loan, they don't even look at your credit score. Your FICO is just a number, don't let it dictate your life.





***Obviously my opinions are not shared by all... Any flaming you wish to pursue, direct it toward Dave Ramsey!***

Dave Ramsey's beliefs are based on the notion that most Americans don't use credit, rather they abuse themselves with it by making stupid choices.

I use credit and I make money doing it. If you don't have the financial self control some of us have -- stay away from it. If you do -- you will gain. I happen to use a Sony card almost exclusively, I am well on my way to getting a free full 1080p HDTV just because I use that card for all my purchases I would be making with cash.

Instead of paying with cash I put the cash in the bank and write the check to the credit card company at the end of the month. I pay my full balance off every single month and they give me stuff for doing it.

Great gig.

There's nothing wrong with what you're doing, Mr.Nightly, but if you have financial self control you're only missing out on free money.

obieone

Thanks for all the info gals & guys! I was unaware that closing acct.'s was bad. It doesn't make sense to me why paying off loans early is bad? I can understand it if were affecting the amt. of interest the lender was getting, but the payoff amt. should be the same?

shack

I listen to Ramsey from time to time and met him a few years ago while on business in Nashville. He's an ok guy, but I find myself almost yelling at the radio "YOU IDIOT". Ramsey didn't get rich following his priciples as he would like you to believe...he got rich selling people with credit problems and no financial discipline a plan to get out of trouble. It CAN work...but it is very simplistic and while it may keep people from going broke...it doesn't allow for financial leverage to expand and grow wealth. He throws the risk/reward matrix right out the window.

You don't generate wealth by yelling "I'm debt free".

His investment strategies are just as bad. Simple plans offer average to mediocre results. Not a lot of risk...but when you limit your downside...you limit the upside as well.

shack

Credit score is not the ONLY indicator that will get you the best rates and terms. There is misconception that leaving lots of credit lines open improves your CS. It doesn't necessarily hurt...but it doesn't help either. It is a very complicated forumula that takes a lot into consideration. It also is not static and scoring criteria changes. As for the open available credit, while there are those that will tell you it helps your CS, I will tell you that lots of available credit will hurt your debt ratio (monthly debt obligations/monthly income). I think you will see financial institutions starting to AGAIN consider an available line of credit or credit card limit as fully funded for calculating debt ratios. The reason is that an open line can be fully funded at anytime and should be treated as such. The ability to service debt has become a high priority when approving all types of loans.

I have seen thousands of credit reports and scores over the last 30 years and I will tell you that the highest scores universally are the ones with the least amount of funded and unfunded debt.

wingnut4772

shack wrote: »

Credit score is not the ONLY indicator that will get you the best rates and terms. There is misconception that leaving lots of credit lines open improves your CS. It doesn't necessarily hurt...but it doesn't help either. It is a very complicated forumula that takes a lot into consideration. It also is not static and scoring criteria changes. As for the open available credit, while there are those that will tell you it helps your CS, I will tell you that lots of available credit will hurt your debt ratio (monthly debt obligations/monthly income). I think you will see financial institutions starting to AGAIN consider an available line of credit or credit card limit as fully funded for calculating debt ratios. The reason is that an open line can be fully funded at anytime and should be treated as such. The ability to service debt has become a high priority when approving all types of loans.

I have seen thousands of credit reports and scores over the last 30 years and I will tell you that the highest scores universally are the ones with the least amount of funded and unfunded debt.

That's what I was wondering. I have LOTS of available credit and I would like to streamline some of it. I don't need it all and it gets me in trouble. Which ones can I or should I close?

dkg999

Some good information in this thread, and some not so good. The actual way FICO and other bureau's credit scores work may surprise you. There's actually some good information out on experian.com, equifax.com, and transunion.com on how to improve and maintain your credit score. Unfortunately we keep the actual mechanics of a credit scoring model secret because it is proprietary information, and those models do change.

shack

wingnut4772 wrote:

That's what I was wondering. I have LOTS of available credit and I would like to streamline some of it. I don't need it all and it gets me in trouble. Which ones can I or should I close?

If you don't use it...close it. You can close any and all credit cards to further advances and remove the limits even if it has a balance. They will continue to bill you for monthly payments as long as there is a balance until you pay it in full. They will try to entice you to reopen the account as they are quite profitable.

I only have an American Express CC that I use and pay in full each month. Everyting else is closed.

jdhdiggs

Shack:

Is there any ideal rule of thumb for actual debt/income and credit line/income in relation to credit scores? Also, do liquidable assets come into play at all? For example: If I have say a $50K credit limit on a CC and $50K in a money market account, would the asset have anything to do with the pull of the credit limit on the score?

MrNightly

Demiurge wrote: »

Dave Ramsey's beliefs are based on the notion that most Americans don't use credit, rather they abuse themselves with it by making stupid choices.

I use credit and I make money doing it. If you don't have the financial self control some of us have -- stay away from it. If you do -- you will gain. I happen to use a Sony card almost exclusively, I am well on my way to getting a free full 1080p HDTV just because I use that card for all my purchases I would be making with cash.

Instead of paying with cash I put the cash in the bank and write the check to the credit card company at the end of the month. I pay my full balance off every single month and they give me stuff for doing it.

Great gig.

There's nothing wrong with what you're doing, Mr.Nightly, but if you have financial self control you're only missing out on free money.

I agree with you. I personally use a discover card and pay it in full every month and get plenty of little perks for the family.... movies dinnners... toys... At the same time, I think it's a great idea to get debt free. While DR's may not be the only way to get there, he outlines some thoughts on how to do it. I would be hesitant to call any multi millionaire an Idiot, but I do know what everyone is saying.

Regardless, I know you have to be very very careful with CC and if you charge up 1000 dollars one month, and intend to pay it off, but an emergency happens, that balance may get rolled to next month and interest accrued. Also, over half the people he works with I would call IDIOTS! As always, take it with a grain of salt.

dkg999

Keep in mind the credit scores are propensities to repay, not so much a score rating how well you have handled your debts. Also keep in mind that there is intense competition in the market for selling credit reports, and this is a private for profit business. Thus credit scores change and the formula changes to drive product differentiation and better scores, as bureau's want to sell as many positive reports to lenders as possible. The risk mitigation aspect of credit reports hasn't been as profitable, although with the sub-prime mess that may be changing.

rskarvan

May I suggest that we open a thread entitled.... "Shack's Financial Advice". No postings should be allowed from anyone but Shack. No arguing. It should be complete silence and the motto of the thread should be... "When Shack speaks... Polkies listen".

Demiurge

MrNightly wrote: »

I agree with you. I personally use a discover card and pay it in full every month and get plenty of little perks for the family.... movies dinnners... toys... At the same time, I think it's a great idea to get debt free. While DR's may not be the only way to get there, he outlines some thoughts on how to do it. I would be hesitant to call any multi millionaire an Idiot, but I do know what everyone is saying.

Regardless, I know you have to be very very careful with CC and if you charge up 1000 dollars one month, and intend to pay it off, but an emergency happens, that balance may get rolled to next month and interest accrued. Also, over half the people he works with I would call IDIOTS! As always, take it with a grain of salt.

I hear you, just to add for discussion...

I'm not sure why an emergency would be any different for me than someone who pays cash at the point of sale. If you're saying there is temptation when you have $50,000 at your fingertips, I guess I understand that, however I am wise enough financially to know never to touch that unless I have the cash at hand to pay whatever I buy in full.

The cash is always sitting in the bank and is set aside to pay the credit card bill in full every single month. Emergencies happen and you can't be prepared for everything, but I have liquid cash in the bank for a rainy day.

I agree with Shack, this guy didn't get to where he was by doing the things he professes now. He has some good ideas, but I really feel most of his stuff is geared towards the more irresponsible spenders out there, and I wish he'd phrase it that way. Credit cards are only the devil if you're not responsible enough to handle them.

I'm 100% debt free right now, of course I don't pay a mortgage/own a home, but my debt free status and immaculate credit gives me a ton of options when I decide I want to buy. If I stuck with Ramsey's no credit card nonsense I would be a risk to nearly all lenders. As a consumer, I want access to everything so that I have options and leverage.

MikeC78

Nevermind...

Anyway, good advise here.

Demiurge wrote: »

I'm 100% debt free right now, of course I don't pay a mortgage/own a home

I'm jealous! Someday...

dkg999

Demi - having the ability to spend (as shown by open tradelines) and demonstrating the wisdom to not spend and ability to repay when you do, is pretty much one way to a high credit score. Having a high credit score isn't necessarily the key to financial success, plenty of multi-millionares with low credit scores (ie sometimes those with money think they can set their own terms for repayment!).