Credit score question

[Mickey'snewestfan]

For the past 9 years or so (since I paid off my last car) I have had zero debt -- none, nada, zip. I don't have any credit cards (I do have/use a debit card), I live in a rented apartment (which I pay on time), I have a good job and ive well within my means and pay cash for what I want or need.

Now, you would think that this would mean that I would be considered "responsible" but of course my credit score isn't great simply because (as far as I can figure out) I don't have any credit.

Within the next few years, I'd like to buy a house or condo, or at least consider buying a house or condo. I think I could get a loan with current credit rating (655???) but I'm sure that if my rating was better I'd get a better interest rate?

So, my question is -- should I open a credit card or two just so that I can establish better credit? Can I find one with no annual payment (do such cards exist?), and just stick it in a drawer without ever using it or should I actually use it and pay it off every month? Are there other things I should do? If I do these things how much impact would it have on my eventual interest rate?

I know all this is very naive!

 

[Cheshire Figment]

Get a couple of card, possibly the kinds with rewards that you would use (such as cash back. Use them for routine puurchases (especially gas and groceries, which tend to give high returns) and pay them off promptly. Then after a year with each, no matter what your credit limit ask for an increase.

This will give both a history of on-time payments and a very low utilization ratio and should increase your score sifnificantly.

Note that normally if you purchase your credit scores (especially if you get them from Fair, Isaacs & Co) not only do they show the scores but for each agency they will also give you suggestions on how to increase the score.

 

[ducklite]

Mortgage companies like to see two current or very recent trade lines, one revolving, one installment.

Apply for a credit card and use it each month, but sparingly. And apply for a small loan with a one year term, and pay it off in about eight months. Yes, you'll have some interest, but look at it as an investment.

Wait six months between the two applications, and apply for the loan about six months before you start looking for a home so they won't count the debt (six payments or less keft on an installment loan isn't counted in the DTI's).

Credit scores above 720 get the best rates.

ETA: I used to underwrite mortgages, so I am talking with experience.

Anne

 

[Bren's Mom]

The best place to post your question would be on creditboards dot com. They have a wealth of information! Note that the only TRUE FICO score is at myfico dot com. All other scores are considered FAKO, and can be 100 points or more different from your FICO. Try getting all 3 FICO scores and credit reports. Check them all for accuracy first...often there are errors on them. Then start adding tradelines...CB has a great database that will allow you to enter your FICO and your state and will tell you which credit cards are likely to be approved at that score.

ETA: It's a free site and I don't work for them or anything, have just found it to be a great resource for credit repair/credit score increase!

 

[ducklite]

The best place to post your question would be on creditboards dot com. They have a wealth of information! Note that the only TRUE FICO score is at myfico dot com. All other scores are considered FAKO, and can be 100 points or more different from your FICO. Try getting all 3 FICO scores and credit reports. Check them all for accuracy first...often there are errors on them. Then start adding tradelines...CB has a great database that will allow you to enter your FICO and your state and will tell you which credit cards are likely to be approved at that score.

ETA: It's a free site and I don't work for them or anything, have just found it to be a great resource for credit repair/credit score increase!

Actually there are three different scores, and usually the top and bottom are thrown out, unless one is really off-kilter from the others, and then that's a red flag to take a closer look at the loan package.

Anne

 

[Bren's Mom]

They may use the middle score for loans but not to determine credit worthiness for a credit card. Most companies only pull one credit report, so it's in your best interest initially to apply for a card that will likely pull your highest score/cleanest report.

 

[Mickey'snewestfan]

OK, so I'm in the market for a new car (or at least, new to me). Would taking out a loan for the car, even though I can pay cash, make sense? Would it matter how much the loan was for? If I put down 75% and take out 25% would that be as good as taking out 80%? If I do that, should I perhaps pay it off by making double payments so that essentially I have a 12 month loan paid off in 6 months? I'm guessing that the interest for 1/4 of a cheap car, for 6 months wouldn't be too bad.

 

[ducklite]

OK, so I'm in the market for a new car (or at least, new to me). Would taking out a loan for the car, even though I can pay cash, make sense? Would it matter how much the loan was for? If I put down 75% and take out 25% would that be as good as taking out 80%? If I do that, should I perhaps pay it off by making double payments so that essentially I have a 12 month loan paid off in 6 months? I'm guessing that the interest for 1/4 of a cheap car, for 6 months wouldn't be too bad.

THe answer is yes to all of your questions!

And the loan amount doesn't really matter all that much. I'd take eight months to pay it though, rather than six.

Anne

 

[Liverlips]

Please do not go out and get a credit card or loan to improve your score. There are many mortgage companies that will mannually underwrite your loan. This credit happy advice is part of what is wrong with this country.

The mortgage companies have gotten lazy by just depending on the credit score.

 

[Mickey'snewestfan]

I'd take eight months to pay it though, rather than six.

Anne

What's the magic about the number 8? Just curious.

 

[Mickey'snewestfan]

Please do not go out and get a credit card or loan to improve your score. There are many mortgage companies that will mannually underwrite your loan. This credit happy advice is part of what is wrong with this country.

The mortgage companies have gotten lazy by just depending on the credit score.

Thanks! I appreciate your advice. I think it's crazy that I'm considering taking out a loan that I don't need, and paying interest to prove to people that I'm responsible with money. It seems to me that the responsible people are the ones who don't take on debt unless they need to (I'm not saying one should never take on debt, just that one should have a good reason).

How do I go about finding one of these mortgage companies that will manually underwrite a loan?

 

[Toby'sFriend]

Do you have a local bank that you use - that would be a good place to start. Go in and talk to them and see what they recommend.


Also, be prepared to get payment verification from your current landlord.


I can't think of the name of the Mortgage Company that sponsors the Dave Ramsey show but I'm sure that if you go to DaveRamsey.com there will be a link.

 

[ducklite]

Please do not go out and get a credit card or loan to improve your score. There are many mortgage companies that will mannually underwrite your loan. This credit happy advice is part of what is wrong with this country.

The mortgage companies have gotten lazy by just depending on the credit score.

You are VERY incorrect. Mortgage companies will NOT give a mortgage to someone with no credit. Yes, you can manually "develop" credit by using letters of good standing from utilities and doctors, but for anything over the most modest loan amount, without established conventional credit, you'll often be asked for a co-signer or denied a loan. Or if the loan is given it will be with sub-prime rates. Part of that is due to PMI and FNMA/FHLMC underwriting guidelines. It's not just a result of desktop underwriting--which does put empahsis on credit scores.

If you want the best rate, you need to have two recent tradelines, one revolving, one installment. To refuse to open a couple of tradelines to get the best rate on a long term loan is simply cutting off your nose to spite your face.

Anne

 

[ducklite]

What's the magic about the number 8? Just curious.

They want to see more than a six month payment history. Eight is about the lowest acceptable number of months. A full twelve months showing account closed, paid as agreed on an installment loan is optimal.

Anne

 

[ducklite]

Do you have a local bank that you use - that would be a good place to start. Go in and talk to them and see what they recommend.

Banks only write portfolio products for their very VIP/high net worth customers. When a bank writes a mortgage, 99.9% they use the same U/W guidelines that any other bank or mortgage company uses, bucause the loans are sold to investors through FNMA/FHLMC. There are u/w criteria that they require to buy those mortgages. (This isn't the same thing as servicing, btw.) Loans that don't meet FNAM/FHLMC criteria are sent back to the bank, and due to the most recent changes, that can mean an entire block of funded loans that the bank can't recoup the money for and has to hold.

Also, be prepared to get payment verification from your current landlord.

That's always required unless it's reported on the bank statement or credit report.

I can't think of the name of the Mortgage Company that sponsors the Dave Ramsey show but I'm sure that if you go to DaveRamsey.com there will be a link.

They have the same underwriting guidelines as everyone else.

Anne

 

[tinaluis]

Anne's right about the length of payment for an installment loan. When DH and I bought our first car in our teens, his mom had to co-sign because he had no credit history to speak of. We took out a 2 year loan term, but paid the car off in 6 months and thought we'd done ourselves a favor. We didn't. The next time we were going to buy a car, she still had to co-sign. It was then that the bank explained the 12 months of on-time payment history to us.

 

[Toby'sFriend]

Banks only write portfolio products for ....

I didn't say that he would be able to get a mortgage through the bank.

I said

"go talk to them and see what they recommend."



Personally that is something that I'd do before I ran out and took out a couple of loans that I didn't want or need just on the advice of an internet bulletin board. I'd go TALK to the people to see what they think would get me the best rate.

 

[ducklite]

I didn't say that he would be able to get a mortgage through the bank.

I said

"go talk to them and see what they recommend."



Personally that is something that I'd do before I ran out and took out a couple of loans that I didn't want or need just on the advice of an internet bulletin board. I'd go TALK to the people to see what they think would get me the best rate.

The average consumer loan officer doesn't know the first thing about mortgage financing. He needs to speak to a mortgage loan officer. That is generally a seperate division from the bank, usually a wholey owned subsidiary. I'm sure they will tell him the same thing I have.

Anne

Anne

 

[disneymom3]

I used to be in real estate and my special area was first time buyers. I teamed with a mortgage consultant who also specialized in first time buyers. I am not sure if I can say the name of the company on here as it may seem to be a referral. However, we did a LOT of loans that would not have passed desktop underwriting. One young couple we worked with had NO credit lines. Both of them had lived at home and had purchased inexpensive cars for cash. The mortgage co was able to use their cell phones bills and car insurance to look at past payment histories. Another client I had had just moved from Kenya. We were able to get him a loan after only 9 months in this country. He did pay rent and I had him get a gas station credit card and use it each month. There are companies out there who don't look at the number. My advice would be to look in your local paper for first time home buyer seminars and find out who is sponsoring them. They may be a good place to find out where to start and who to talk to. We also have a mortgage guy who works for Wells Fargo who is just awesome. When we were trying to repair our credit after a really bad spell he was able to give us great advice about what we needed to do and what would look best.

Good luck!!

 

[ducklite]

I used to be in real estate and my special area was first time buyers. I teamed with a mortgage consultant who also specialized in first time buyers. I am not sure if I can say the name of the company on here as it may seem to be a referral. However, we did a LOT of loans that would not have passed desktop underwriting. One young couple we worked with had NO credit lines. Both of them had lived at home and had purchased inexpensive cars for cash. The mortgage co was able to use their cell phones bills and car insurance to look at past payment histories. Another client I had had just moved from Kenya. We were able to get him a loan after only 9 months in this country. He did pay rent and I had him get a gas station credit card and use it each month. There are companies out there who don't look at the number. My advice would be to look in your local paper for first time home buyer seminars and find out who is sponsoring them. They may be a good place to find out where to start and who to talk to. We also have a mortgage guy who works for Wells Fargo who is just awesome. When we were trying to repair our credit after a really bad spell he was able to give us great advice about what we needed to do and what would look best.

Good luck!!

While it is true that you can build alternate credit histories, these buyers DO NOT GET THE BEST RATES!

The best rates go to buyers with a FICO of over 720. You can't build a FICO score with cell phone bills.

When talking about a mortgage, and the amount of interest you'll pay over the life of the loan, it's worth paying $200 in interest on a car loan over the space of a year to get a rate that could conceivably save that much in ONE MONTH!

Anne

Anne