Building credit

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Turtle
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Building credit

Postby Turtle » Fri Aug 17, 2012 2:17 pm

While I was growing up I was under the mistaken impression that if you got a credit card, paid it off, and paid on time, you could get a loan for a large purchase at a good rate. It turns out that even when you have high income, a good (but limited) credit history, and have enough for a ridiculous downpayment (35%), you're still out of luck.

I've learned recently that lenders need you to have different types of credit on your profile in order for you to get a loan. So I'm stuck in the odd situation of having to borrow money for a car I don't want just to establish better credit so I can make a big purchase like a home. They said I could have a co-borrower but that's too much to ask anyone.

I guess my options are to take a loan out on a cheap car, pay it off as quickly as I need to for it to show up on my credit history, sell it and then apply for the loan I want.

Has anyone else run into this problem of maybe being too much of a saver?

fantasma
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Re: Building credit

Postby fantasma » Fri Aug 17, 2012 3:16 pm

Have you tried getting a small personal loan from the bank to try and raise your score that way?

do you ever keep a balance on your card or do you leave it open? I would try and talk top TC Straight a member here who can help you with something like this....

This is interesting...
Be what you want to attract.

Turtle
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Re: Building credit

Postby Turtle » Fri Aug 17, 2012 3:49 pm

I've got nothing on the credit cards right now and have sworn it off except for small purchases on random months to keep the account "alive".

I haven't considered a small personal loan yet. The biggest thing that bothers me is paying for interest just to help my credit profile. I guess if the amount of interest is low enough, it might be worth it. Like buying a better credit profile. :)

tdelamater
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Re: Building credit

Postby tdelamater » Fri Aug 17, 2012 4:37 pm

I'm no expert on credit, but this is what I do know.

Your credit score is:

Payment History – 35%
Total Amounts Owed – 30%
Length of Credit History – 15%
New Credit – 10%
Type of Credit in Use – 10%

So we're talking about two categories that makes up 20% of your score "New Credit" and "Type of Credit in Use".

On the other hand, your credit score will go up just by continuing to pay off your card in full every month "Payment History" and "Length of Credit History". Basically your credit score will go up just by waiting.

For the total amount owned make sure you don't use more than 20% of your available credit. I don't know the exact percentage but it's greater than 20% so use 20% to be safe. You can also call your CC and ask for a credit limit increase. This might help your score but they will need to do a "hard pull" to check your credit which will lower your score for about a year.

Tightwad
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Re: Building credit

Postby Tightwad » Fri Aug 17, 2012 8:06 pm

If you have a spouse, relative, etc with excellent credit, ask them to add you as an authorized user to one of their credit cards so their credit usage on that account it will boost your score. It can backfire though so be careful.

jaiko
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Re: Building credit

Postby jaiko » Sun Aug 19, 2012 3:22 pm

>>your credit score will go up just by continuing to pay off your card in full every month>>

Actually, this is a common misconception. It is NOT always true. The reason is that far more weight is given to % of credit utilization than payment record. Understand that your credit score fluctuates constantly, based on the previous month's usage/reporting. For example:

You have 2 credit cards. One has a $5K limit, the other has a $2K limit. You like to use the $5K card because you're accumulating points or miles. Every month you average about $3500 in charges (therefore, past month expense), which you promptly pay off when due (current month expense).

BUT, to the credit scoring system, you have a $7K limit and are at the 50% utilization rate. They don't care that you pay it off; what your history is showing is that every month your utilization rate is higher than lenders want to see.

Every young person should read this webpage at The Privacy Clearinghouse website and learn how to manage their credit properly: https://www.privacyrights.org/fs/fs6c-C ... ores.htm#4

The OP should pay particular attention to "#6. You Have to Play to Score" about three-quarters of the way down the page. It is a very clear explanation of why s/he is having trouble with lenders because of following advice that does not work in today's society.

Ms Kitty Cliche
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Re: Building credit

Postby Ms Kitty Cliche » Mon Aug 20, 2012 9:24 am

jaiko - that is a great resource. Thanks!

Turtle
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Re: Building credit

Postby Turtle » Mon Aug 20, 2012 8:07 pm

Awesome link jaiko! Thanks for the information. This'll definitely help me reach my goals.

TCstr8
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Re: Building credit

Postby TCstr8 » Tue Aug 21, 2012 2:38 pm

Most mortgages now a days are approved via automated underwriting system (AUS). Fannie Mae uses Desktop Underwriter (DU), Freddie Mac uses Loan Prospector (LP), FHA uses FHA TOTAL Scorecard.

The automated system analyzes the file as a whole, assets, credit score, credit history, etc, etc. and spits out its findings (approval or denial).

Individual lenders have the ability to impose stricter requirements than what the AUS calls for. For instance, quite often the AUS findings will ask for 1 year tax returns for a self employed borrower. Some lenders will trump that, and ask for 2 years returns.

Same goes for credit history. Some lenders don't care, and as long as you have credit scores and the AUS system approves it, you are good to go. However other lenders will require that you have X accounts open for X many months before they will close your loan.

It sounds like you may have been dealing with a lender with some of these "overlays". You may want to contact a mortgage broker about the home purchase, as they generally work with dozens of lenders and can help you navigate the mine field that lending has become.

If I can be of any help, feel free to email me at tc DOT strait AT gmail.com
T.C. Strait
Ohio Loan Officer / Manager @ Mortgage Broker
NMLS ID 164070
<a href="http://www.ohiomortgagesolutions.com">Ohio Mortgage Solutions</a>
<a href="http://www.ohiofha.com">Ohio FHA Mortgage</a>

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Eagle
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Re: Building credit

Postby Eagle » Wed Aug 22, 2012 6:53 am

Wow jaiko that is an awesome link. Thanks for much for sharring! Adding that to my favorites and sending it to family.
~ Eagle
www.eaglesoaringhigher.com


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