Credit Question...

Demiurge

MikeC78 wrote: »

Nevermind...

Anyway, good advise here.



I'm jealous! Someday...

Well, I don't own a house, so I am jealous of all the sweet options and setups you guys have. Not having any tuition debt to pay or car payments is nice, but I would love to have a place to call my own...

On the flip side, there was a decison making process I went through that has kept me renting while living in this state, so I am satisfied with my choice. I believe I will be better off in the long run when I choose to buy. I'm not looking to get married anytime soon, so the whole house buying thing is something I am also staving off until the time is right on that front as well.

I have considered buying a rental property and being an owner/occupant until I want to buy a house, but I am not sure I want that headache.

Demiurge

dkg999 wrote: »

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!).

No doubt -- I just like getting something for nothing when I spend my money on everyday stuff, you know? There's nothing wrong with choosing to not play the game for fear of getting burned, but I just don't think I am being risky. There are guys out there who play the far more dangerous "zero interest" game with credit card companies. If you can pull it off fine, but that's a whole new degree of risk which benefits don't outweigh the potential negatives, IMO.

MikeC78

Demiurge wrote: »

Well, I don't own a house, so I am jealous of all the sweet options and setups you guys have. Not having any tuition debt to pay or car payments is nice, but I would love to have a place to call my own...

On the flip side, there was a decison making process I went through that has kept me renting while living in this state, so I am satisfied with my choice. I believe I will be better off in the long run when I choose to buy. I'm not looking to get married anytime soon, so the whole house buying thing is something I am also staving off until the time is right on that front as well.

I have considered buying a rental property and being an owner/occupant until I want to buy a house, but I am not sure I want that headache.

Even though I have a house, I still don't call it "my own" until the mortgage is paid off. Until then, I still consider it the banks.

Hopefully by the end of this year, I'll be in the same shoes as you.:o (Debt wise);) It's not as easy being married, trust me.

Strong Bad

Here's a question regarding closing CC accounts. I had heard in the past that, say you have 3 CC's and decide you want to close them. I heard that keeping 1 with the longest and best payment history is good since it shows a solid good payment and credit history.

Thoughts from Secretary of the Treasury Shack?

shack

dkg999 wrote:

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!).

The low credit scores are not always a fuction of slow payments...especially in terms of those with very high net worths. It is not unusual to see very weathy individuals with scores in the low 600s and even 500s if they have large amounts of individual and business related debt. I have seen several with reports indicating "available" and current debt in the millions, with monthly debt service in the "six figure" range. Lots of loans, lots of inquires, lots of availabily and all paid in a timely manner. The reporting companies have access to debt...but not income or structure. The scores are based on "norms" and these people aren't normal.

MrNightly wrote:

I would be hesitant to call any multi millionaire an Idiot

Then you haven't met too many multi-millionaires . Lots got there through no great individual accomplishments. I've seen lots of 3rd generation wealth that I would easily consider idiots. Grandad started with nothing, built a business and lived well but not lavishly, dad followed in Grandad's footsteps and lived the wealthy life, sons (or daughters) grew up in the lap of luxury and proceeded to piss away everything Grandad and Dad built. IF they were lucky enough to have parents/grandparents with enough foresight to put sizable amounts in trust funds...they might actually be able to retain some wealth. It is a pattern that I've seen repeated numerous times.

Ramsey...is not an idiot...because he learned how to profit on other's misfortune. And yes...he does good work for many. BUT "his one size fits all" mantra does border on idiotic at times. I guess I have to realize...his message is not to those who have been very successful...THEY DON'T NEED HIS ADVICE. His primary audience is those who are on the other end of the spectrum...and for those people his advice is generally sound.

rskarvan

Dave Ramsey targets an audience of typical americans... aka... idiots when it comes to financial matters.

shack

Strong Bad wrote:

Here's a question regarding closing CC accounts. I had heard in the past that, say you have 3 CC's and decide you want to close them. I heard that keeping 1 with the longest and best payment history is good since it shows a solid good payment and credit history.

Thoughts from Secretary of the Treasury Shack?

A good strategy if you want to keep one open. The history will remaing even thought the account is closed. If you are NOT going to use any of the one you keep open probably should be the one with the longest good history. If you plan on using the one you keep open, choose the one that works best for you irregardless of the length of history.

shack

jdhdiggs wrote: »

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?

It will be interesting to see how financial institution react to the current credit crisis and those yet to come (CC defaults). In the past the rule of thumb was an individual's debt ratio should not exceed 38-45% of gross monthly income. Of that, primary residence debt should not exceed 28% ± of gross monthly income. The lender would also assume any credit limit was maxed and assign a payment based on that limit when calculating the ratio. An experienced lender could often tell if the credit lines were not used and make exceptions case by case. This was based on historical norms. In the past few years, especially in mortgage lending, this was pretty much ignored and they became asset based lenders, focusing on the collateral instead of the ability to pay. That's fine as long as the collateral is always readily marketable and doesn't significantly decrease in value. See the problem? I think we will be getting back to lending where ability to pay is THE key factor.

The credit score knows nothing about your assets or income...only your debt. The lender can certainly take those assets in consideration when making a loan. Most mortgage and CC lenders are "formula" lenders. If you meet the criteria you get the loan. The computer approves or disproves and the "lender" who took your application may or may not even be able to understand a balance sheet.

As I've said before...good bankers are risk averse and have to look at "worst case" scenarios. In your example, one could blow through the 50K and have the CC at it's max in a matter of hours leaving the lender in a bad situation. Your history and relationship with a lender comes into play in those situations...but alas...there are not a lot of us left who even look at those sort of things.

Strong Bad

shack wrote: »

A good strategy if you want to keep one open. The history will remaing even thought the account is closed. If you are NOT going to use any of the one you keep open probably should be the one with the longest good history. If you plan on using the one you keep open, choose the one that works best for you irregardless of the length of history.

I have 2 with balances. 1 is closed and the 1 with my longest history I kept open. Now, I just got approved for 1 at my credit union that can consolidate both balances at a much better and lower rate.

Taking what you said, i should just consolidate to the new one and close the one card I currently have open. I'll have a single card with lower rate and not nearly as high OPEN and AVAILABLE credit.

Thanks Mr. Secretary!

John

wingnut4772

5 Tips To Improve Your Credit Score:Bankrate.com

jdhdiggs

Thanks Shack, I was just curious.

Strong Bad

jdhdiggs wrote: »

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?

I often wondered this myself. If I have 401k and IRA's out there that far far exceed the amount of debt I have, would be interesting if they took that into consideration.

Speak on Shackasaurus Rex!

John

shack

Strong Bad wrote:

I often wondered this myself. If I have 401k and IRA's out there that far far exceed the amount of debt I have, would be interesting if they took that into consideration.

Not as much as you might think. IRAs and 401Ks are protected assets and financial institutions cannot take liens or sue to get a judgment against them in a default. They are even protected in bankruptcy. The ability of your soon to be ex-wife to get to them is a different story. :eek:

Even if the borrower states he would be willing to cash in an IRA or 401K to pay a debt, the lender would value them at most 50% of face value. Why? If you currently have a 401K you probably know it is not worth what it was 6 months ago. Secondly even IF times are good and you are willing to cash it in, the distribution will be considered ordinary income and probably be taxed at a 25-33% rate PLUS the 10% early withdrawal penalty. A very steep price to take an early distribution. Having the ability to borrow against one's 401K may have some value when borrowing if one can demonstrate the ability and willingness to do so to pay off a loan.

shack

wingnut4772 wrote: »

5 Tips To Improve Your Credit Score:Bankrate.com

This is a good, basic read with valid points. I especially like the "PAY YOUR BILLS ON TIME" one. Who knew...:rolleyes:

wingnut4772

I actually pay my bills the moment I get them. I just need to get them to 0 now.

rskarvan

The day a bill comes in my mail is the same day it gets placed back in the USPS blue box for pickup. This system works very well.

wingnut4772

rskarvan wrote: »

The day a bill comes in my mail is the same day it gets placed back in the USPS blue box for pickup. This system works very well.

Yep. And you are sure not to forget it that way.

PhantomOG

The same day I get my email notification of receipt of my e-bill, is the same day my electronic payment is processed.

I was very weary of going to online payment through my bank but have been very happy ever since I switched. The system is very nice and customizable. I not only receive email notifications for e-bills, but I also receive emails when an expected bill has not been received by a certain date. I still do get some paper bills, however, all my payments are paid through online bill pay. I wish my few remaining paper billers would get with the times and offer paperless statements like everyone else. No stamps, no more writing paper checks!