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 Post subject: Credit Score Question: Buying a home?
PostPosted: Fri Oct 08, 2010 7:05 am 

Joined: Tue Sep 28, 2010 6:48 am
Posts: 10
My credit union just ran a credit check on me. My credit score is at 665. I recently destroyed 30k of credit card debt, so this is to be expected.

Cursory internet research tells me my score is decentish. My wife is slightly higher than I am, but still in the 600 range. 675 - 685 or something.

My credit union has told me that our score could be much higher if we had higher available credit. Right now we just have a single car loan (6%) and a tiny personal loan ($600 @ 12%, we refinanced our 20% Citi loan with our CU, CU said they could only cover up to a certain amount on our car, so we took out a small personal loan to cover the rest. Deal is still a thousand times better).

No credit cards. No other loans. No mortgage. We share a checking account with two debit cards attached to it. That's it. (Of course we have a rapidly growing savings, but that's not relevant.)

My CU suggests taking out a CC with them and it'll increase our score, so long as we use it responsibly (immediately pay off, etc.)

Your thoughts? They have their own motives, I'm sure. But they've always helped us in the past. Will just having the card itself increase my score? We'd of course use it responsibly.

We're saving for a home, so we'd like to qualify for a decent loan. I'm not at what point we should start looking. Now? 700? 750? The reports are otherwise clean, we just have zero available credit.


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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Fri Oct 08, 2010 10:28 am 
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Joined: Wed Sep 23, 2009 9:01 am
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Your credit union is right that having a CC with them will likely increase your score after a while. You could shop it around to look for better deals - no fee since you'll be paying it off every month.

But the inquiries could hurt in the short term, especially if you apply for several cards.

Your score is not bad. It might increase on its own over time given that you have paid everything off. The biggest hits would be for any late payments you might have on your record. There is nothing you can do about those except wait.

Since you only recently paid off your debt you might want to wait about 6 monts before taking any action.


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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Fri Oct 08, 2010 11:08 am 

Joined: Mon Sep 29, 2008 7:32 am
Posts: 289
Why not get a charge card (e.g., Amex) so you won't be tempted to carry a balance?


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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Tue Oct 12, 2010 8:12 pm 

Joined: Sat Jun 06, 2009 11:49 pm
Posts: 263
Location: Cincinnati, OH
Revolving debt (ie. credit cards) are vital to getting and maintaining a good credit score. I have seen credit scores increase as much as 60 points (generally from the high 500's to the mid 600's) by simply opening a credit card and using it responsibly for a couple months. I have always told people to NEVER EVER put more than 30% of the limit on the card ($1000 limit, never have a balance above $300) and to pay it off each month. Another key is to USE it. A credit card sitting in a drawer doesn't do much good. You have to use it to get your scores up.

Hope that helps.

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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Wed Oct 13, 2010 6:38 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1778
Location: Ottawa, Canada
Why not just ask your credit union to manually underwrite your mortgage, rather than relying on a flawed, archaic rating system? That way, you'll get a true reflection of what you can actually afford, with an interest rate that reflects your real risk level.


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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Wed Oct 13, 2010 7:49 am 
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Joined: Wed Sep 23, 2009 9:01 am
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kombat wrote:
Why not just ask your credit union to manually underwrite your mortgage, rather than relying on a flawed, archaic rating system? That way, you'll get a true reflection of what you can actually afford, with an interest rate that reflects your real risk level.

The credit score system might be flawed and archaic. But there is virtually no way around it. A noncompliant mortgage like that could never be securitized or sold and would be an albatross around the neck of the bank or CU. If I were in charge of the financial institution I think I would fire the loan officer that issued such a note.


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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Wed Oct 13, 2010 8:11 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1778
Location: Ottawa, Canada
DoingHomework wrote:
A noncompliant mortgage like that could never be securitized or sold and would be an albatross around the neck of the bank or CU. If I were in charge of the financial institution I think I would fire the loan officer that issued such a note.


Ah, I see. I was just repeating the advice Dave Ramsey gives when someone calls in and asks, "Don't I need to have a good credit score to get a decent mortgage?" Dave brushes it off and just tells them to find a bank that does manual underwriting, so I was under the impression it's fairly common.


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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Wed Oct 13, 2010 10:40 am 
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kombat wrote:
Ah, I see. I was just repeating the advice Dave Ramsey gives when someone calls in and asks, "Don't I need to have a good credit score to get a decent mortgage?" Dave brushes it off and just tells them to find a bank that does manual underwriting, so I was under the impression it's fairly common.

Once again, not sure which planet and which century DR is living in. Banks like that probably exist but it certainly would not be as simple as he suggests.


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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Wed Oct 13, 2010 7:34 pm 

Joined: Sat Apr 07, 2007 2:03 am
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Location: Taishan, Guangdong, China
If you live in rural areas where the type of economy (say seasonal timber industry) means people can't qualify for securitized mortgages, the community banks there often will keep their mortgages in-house and use manual underwriting.

DR probably is extrapolating this tiny universe into something "anybody" could get. Sure in theory, any bank could keep your mortgage in-house instead of reselling it. But why? Why would they waste their time and money on that when they can get a guaranteed fee at no risk and pass on a mortgage to Fannie/Freddie/FHA?

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 Post subject: Re: Credit Score Question: Buying a home?
PostPosted: Thu Oct 21, 2010 11:42 am 

Joined: Thu Oct 14, 2010 2:56 pm
Posts: 51
Location: California
When planning to purchase a home, paying off your credit card debts is the correct thing to do. Closing the accounts is not. Leave them open with a zero balance.

When you close your credit card accounts you potentially kill your chances of qualifying for a loan.

The FICO scoring system takes all of the following into account.
Length of Credit History - This roughly translates to how long ago was your oldest active credit account opened? The longer the better. Revolving accounts and mortgages tend to greatly influence this. For a renter that means credit cards.
Credit Utilization - This is a calculation of total available credit vs how much you have actually borrowed. Ideal figure here is about 30%. No revolving accounts (credit cards) means credit utilization can't really be calculated. Hurts your score.
Types of credit utilized - The scoring system favors a "balance" of types of debt. This means that your score will be higher if you have some credit cards, an installment loan from a finance company and a car loan that are all paid on time.

I've found that someone in your circumstances can increase your credit score as follows:
1. Get a credit card with no annual fee. Don't worry about the interest. Good candidate is a department store card. Use the card once a month and pay it off in full at the end of the month.
2. You'll start getting more and more credit card offers in the mail after a couple of months. Accept two major credit card offers (MasterCard or Visa) that carry no annual fees. Use each for small purchases you have normally paid for in cash. Pay the bills in full when they come.

These days banks are closing inactive credit card accounts so you need to keep using the cards. You don't want to rack up debt so don't buy anything you cannot pay in full when the bills come in.

Be aware that new credit accounts will negatively affect your score until an adequate payment record is established. My experience has been that six months of use as above will give a pretty good boost to your score. Continuing to use credit cards this way will continue to improve your credit score over time.

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