Jump to content
Sign in to follow this  
TheNiche

Building Up A Credit Score

Recommended Posts

I knew that the residential mortgage markets were damaged, but I hadn't realized how bad it was until this week.

I've been buying and selling both residential and commercial properties since I was a lowly college student making $8 per hour. I've made good on payments, have never had a default condition (serious enough that a bank felt like reporting it to credit bureaus), and I paid my bills even when I was poor...simply by making sacrifices to my standard of living on the behalf of my creditors even though I could've ****ed them and enjoyed life.

But there's a problem. I paid for my education with cash earned by working my ass off rather than by taking out student loans, and I've only used credit cards for emergencies. I had to carry some high credit card balances for a couple years (by which I mean about $5k), but paid them all off about 18 months ago and haven't used them since. So my credit score sucks (i.e. is only "average") because I haven't either been in a state of financial distress or attempted to game the system at any point in the very recent past.

It's BS. (Perhaps I should start blaming Obama. Seems to be the fashionable thing to do in such circumstances.) I've got enough liquid assets on hand to cover the down payments on two deals of the size that I was trying to execute and also maintain six months of PITI on each of them. Yet I still can't do the one deal, which should've been easy (for once) because I was going to actually live there!

And this especially sucks because I can feel an increase in my rent coming on if I have to stay put for another year. I just know it!

The bastards.

So. The mortgage banker is suggesting that I increase the available lines of revolving credit, sign up for store credit, sign up for gas cards, and put all of my expenses that are possible on one card or another, and keep a rolling balance from month to month. A personal loan from an institution that auto-drafts each month is apparently also advisable. I am commanded to be especially generous this holiday season because after all, I've got plenty of cash on hand, and the credit bureaus evidently don't favor a Scrooge.

Am I the first person to have had the thought cross their mind that this is some kind of a government conspiracy to force the masses to consume things that they don't need? I'm not typically into that line of thinking, but the evidence supports the hypothesis.

  • Like 2

Share this post


Link to post
Share on other sites

Not a government thing, just flaws in the way credit scores are calculated. We had much the same problem, although we were able to get a loan. We did open some credit card accounts and buy some thingsthat we took time to pay for. Apparently a lack of credit activity counts against you.

Share this post


Link to post
Share on other sites

Join CreditKarma.com....it's free and will keep you up to date on your credit score, it will also let you see what happens to your credit score if you get more credit cards, add debt, reduce debt, etc......

Edited by HoustonMidtown

Share this post


Link to post
Share on other sites

I am commanded to be especially generous this holiday season because after all, I've got plenty of cash on hand, and the credit bureaus evidently don't favor a Scrooge.

Am I the first person to have had the thought cross their mind that this is some kind of a government conspiracy to force the masses to consume things that they don't need? I'm not typically into that line of thinking...

No love that in a family dwells,

No carolling in frosty air,

Nor all the steeple-shaking bells

Can with this single Truth compare -

That God was man in Palestine

And lives today in Bread and Wine.

That you must spend at Christmastime

To help extend your credit line.

(My apologies to John Betjeman for mangling his rather well-constructed final stanza.)

http://money.usnews....-it-counts-most

The Niche, there can't be anything about improving your credit score that you do not know; you must have felt like venting. I'll play along, though. The above website explicitly states that it is unwise to make large purchases in the hopes of impressing the credit scorers, as it might increase your "credit utilization ratio" if your balance happens to be reported to the credit bureau on that day, even if you were shortly to pay it off.

I'm not sure why you would need to carry a rolling balance to seem trustworthy.

You're the economist. What does that mean, "things they don't need?" Isn't purchasing things "we don't need" what we all need to do, all the time? I thought that was canon, not conspiracy. You're confusing me with these mixed messages.

Share this post


Link to post
Share on other sites

The Niche, there can't be anything about improving your credit score that you do not know; you must have felt like venting. I'll play along, though. The above website explicitly states that it is unwise to make large purchases in the hopes of impressing the credit scorers, as it might increase your "credit utilization ratio" if your balance happens to be reported to the credit bureau on that day, even if you were shortly to pay it off.

I'm not sure why you would need to carry a rolling balance to seem trustworthy.

On the contrary, I've NEVER had to game the system in the past to get the deals done that I've wanted to get done. And believe me, we're talking about some very risky, very speculative types of deals. I've also never had any problems getting good deals on auto loans. On account of that banks were doing deals with me that I wouldn't have even done with me had I been in their shoes, whatever my credit score has been, I haven't investigated how to make it any better.

What's so frustrating is that I'm trying to do something that is very safe, to purchase a house out of foreclosure at a below-market price (below its own lot value) in order to live in it. It's the safest deal I'd have ever done. That, I have a good employment history, probably double or triple the liquid assets that they require, and have fewer contingent liabilities than I've ever had. Nope. Still can't get a loan. The bankers themselves are frustrated. They blame regulators for their being unable to override my credit score with solid biographical evidence of my creditworthiness.

I actually got dinged for having insufficient credit utilization of my revolving line of credit and for having credit card limits that are too low. My banker told me that carrying a rolling balance of up to about 25% of the limit would help, as would opening up some lines of store credit (for instance, Macy's), or even taking out a short-term personal loan just for the sake of paying it back.

Of course, "fixing" the problem entails them pulling my credit score and granting new lines of credit that have a short-term adverse impact on the score. So I'd have to wait for those to burn off in order to realize a higher score. And in the mean time, that means that I should probably stay in the same job and forgo opportunities to make more money at a different company. (If I do change jobs, I won't be eligible for certain types of government-backed residential mortgages. Note that I don't like government-backed mortgages in principle, but that if everyone else is taking advantage of them, I need to be too.)

You're the economist. What does that mean, "things they don't need?" Isn't purchasing things "we don't need" what we all need to do, all the time? I thought that was canon, not conspiracy. You're confusing me with these mixed messages.

Allow me to clarify my statement by explaining that I am frustrated at the market distortion caused by the requirement that I should game the system. This entails me using more credit (which entails consumption expenditures) and paying more debt service. These are expenditures on services or assets that are rapidly-depreciating. They are being made in the wrong order, IMO. I'd rather pay a below-market price for a lot-value house, an appreciating asset that I can live in, before taking a vacation or upgrading my car so that everyone in a three-block radius can hear it guzzle gas from inside their homes. But now my priorities have been distorted. And I think that that's wrong. I don't like it.

Edited by TheNiche

Share this post


Link to post
Share on other sites

I had forgotten how keenly you feel these distortions to the market. Is it even possible to discern the pure market anymore? Christmas shopping it is then. You can use your credit card to make charitable donations in honor of those who don't like gifts. Then I would buy scarves, not from Macy's, for the women - but be sure to get a gift receipt; the new Robert Caro book and a right-of-center recent history, "Manifest Destinies," for Dad; then go to the chi-chi toy store there in Houston and ask what little girls are collecting, and expect to be underwhelmed (last year what I bought as instructed for my niece looked like a Happy Meal toy to me; so I ended up knitting her a scarf out of the loveliest alpaca also; anyway these things were not noticed in the excitement of playing with her longed-for "iTouch"). I don't know what to get for little boys. For brothers a fly rod if you want to drop some do-re-mi; for brothers-in-law grilling accessories or Cabela's gift card. If you have a grandmother Guerlain skin creme will set you back nicely. You still won't have spent enough, though, so you should finish by going to Joseph Banks and getting yourself a really nice suit. Product of market distortion or not, it will come in handy.

Then, on Christmas Day, while helping with the dishes, why don't you ask your parents to co-sign the loan with you? People like to be needed.

Share this post


Link to post
Share on other sites

Nah, I'm not drawing my parents into this. Behind my 'safe' deal is a second very risky deal that could be executed by owner financing. I won't do one without the other, and I won't draw family into it.

Share this post


Link to post
Share on other sites

I think it is cute that bankers blame "regulators" for the ways that they screw the consumer. You know good and well who is to blame here. The FICO is designed for bankers and it rewards more borrowing. What a coincidence! That is also how banks make more money!

I am not sure what caused your situation. I cut out virtually all credit card use in 2005, and it hasn't seemed to adversely affect my ability to borrow, though I have only bought a couple of cars since then...no mortgages. But, make no mistake, it ain't the government screwing you, it is the banks.

  • Like 1

Share this post


Link to post
Share on other sites

I've only used credit cards for emergencies. I had to carry some high credit card balances for a couple years (by which I mean about $5k), but paid them all off about 18 months ago and haven't used them since. So my credit score sucks (i.e. is only "average") because I haven't either been in a state of financial distress or attempted to game the system at any point in the very recent past.

How does one game the system?

Wait, don't answer that, I don't want to know.

Anyway, you're doing it all wrong.

You're putting your credit card under your mattress for an emergency and pay for every monthly expense with cash.

Put emergency cash in a savings account (these days the interest rate makes it like putting it under your mattress), and pay for every monthly expense on the card, and pay off the card every month.

What happens in your scenario is after an emergency you're paying someone 15 points every month until you get it down. I'm sure you're more experienced at amortization tables than me, but that is a lot of money when you look at your scenario of 5k for a few years. your normal monthly expenses aren't being leveraged to your benefit, and you're having something long and hard shoved somewhere you don't want.

What happens in my scenario is that you have your emergency money sitting in a bank paying you 1 point (oh yay) until you have an emergency. Every month you have expenses that you normally pay with cash (gas, food, utilities, extraneous), put that cash in the bank, use your credit card, and send the credit card company a check when they send you a bill and pay off 100% of your credit card every month.

I personally have a credit card that gives me points, using this method, I get about $500 worth of points a year, and I usually have them give me a gift card around thanksgiving for every penny of that $500 with which I use to buy Christmas gifts for family/friends.

Only drawback to my method is that you have to be VERY responsible with your spending. It is very rewarding, and I have excellent standing with credit agencies.

Yes, banks make money off my style of banking, way more than I do, but so long as I am making a little something too, it doesn't bother me in the slightest, especially when the alternative is that they still make bundles, and I end up footing a lot of that bill.

Granted, I don't know if this gets you a short term solution.

  • Like 1

Share this post


Link to post
Share on other sites

The banks are telling him to carry balances on the cards, thus giving the credit card companies some interest profit.

However, his score will go up even if he doesn't take that particular advice and just increases his amount of available credit by opening cards. It doesn't have to cost anything to increase the score.

Share this post


Link to post
Share on other sites

I think it is cute that bankers blame "regulators" for the ways that they screw the consumer. You know good and well who is to blame here. The FICO is designed for bankers and it rewards more borrowing. What a coincidence! That is also how banks make more money!

I am not sure what caused your situation. I cut out virtually all credit card use in 2005, and it hasn't seemed to adversely affect my ability to borrow, though I have only bought a couple of cars since then...no mortgages. But, make no mistake, it ain't the government screwing you, it is the banks.

It's probably both government and banks that are screwing me (and anybody else that thinks that they can get away with it). The difference however is that if regulators were intelligent, responsible, and honest, then they would act on their own in ways that banks may or may not like, but that would allow people with proven creditworthiness to obtain debt financing. They could act unilaterally in the public interest, but they are not, and so they should share in the blame.

How does one game the system?

Wait, don't answer that, I don't want to know.

Anyway, you're doing it all wrong.

You're putting your credit card under your mattress for an emergency and pay for every monthly expense with cash.

Put emergency cash in a savings account (these days the interest rate makes it like putting it under your mattress), and pay for every monthly expense on the card, and pay off the card every month.

What happens in your scenario is after an emergency you're paying someone 15 points every month until you get it down. I'm sure you're more experienced at amortization tables than me, but that is a lot of money when you look at your scenario of 5k for a few years. your normal monthly expenses aren't being leveraged to your benefit, and you're having something long and hard shoved somewhere you don't want.

What happens in my scenario is that you have your emergency money sitting in a bank paying you 1 point (oh yay) until you have an emergency. Every month you have expenses that you normally pay with cash (gas, food, utilities, extraneous), put that cash in the bank, use your credit card, and send the credit card company a check when they send you a bill and pay off 100% of your credit card every month.

I personally have a credit card that gives me points, using this method, I get about $500 worth of points a year, and I usually have them give me a gift card around thanksgiving for every penny of that $500 with which I use to buy Christmas gifts for family/friends.

Only drawback to my method is that you have to be VERY responsible with your spending. It is very rewarding, and I have excellent standing with credit agencies.

Yes, banks make money off my style of banking, way more than I do, but so long as I am making a little something too, it doesn't bother me in the slightest, especially when the alternative is that they still make bundles, and I end up footing a lot of that bill.

Granted, I don't know if this gets you a short term solution.

My liquid assets comprise a mix of sources. Cash, checking, stocks, a short term promissory note, etc. I feel good about how I keep my assets. You're right that I should start putting as many of my expenses on credit cards as possible and paying them down almost completely each month. That's the easiest part, but it will not yield immediate results.

What happens in your scenario is after an emergency you're paying someone 15 points every month until you get it down. I'm sure you're more experienced at amortization tables than me, but that is a lot of money when you look at your scenario of 5k for a few years. your normal monthly expenses aren't being leveraged to your benefit, and you're having something long and hard shoved somewhere you don't want.

Once I was able to see that there would be tough times ahead, I immediately began marketing my least liquid assets and converting them to cash when possible. (There was one asset that I couldn't sell or refi-, so my only purpose in life was to protect it.) I drew down my holdings of stock in the mean time. Having done that and after it became clear that the situation was an emergency, I totally liquidated my remaining stock and retirement accounts and charged everything to credit that I could, using my last remaining cash reserves to pay only minimum amounts for as long as possible. It got down to where I had only enough cash for a couple of weeks of personal expenses before there was any income that kept me afloat. I got really close to defaulting on a lot of stuff all at once, but barely pulled through.

I think that I managed my finances and expenses well enough, although in hindsight I probably should've swallowed my pride and been begging on a street corner for at least a few hours per day to help on the income side of things.

Share this post


Link to post
Share on other sites

The banks are telling him to carry balances on the cards, thus giving the credit card companies some interest profit.

However, his score will go up even if he doesn't take that particular advice and just increases his amount of available credit by opening cards. It doesn't have to cost anything to increase the score.

I increased my limits over the weekend. That helps the score, but only a little...and it actually hurts me at first. I have to establish a payment history to substantially increase the score.

Share this post


Link to post
Share on other sites

Niche,

My wife had a similar problem, and I fixed it for her in a year by doing the below (got her to nearly 800).

1. Get two credit cards (rewards card if you can qualify... Discover, etc.). If you don't qualify, another major card.

2. Pay all utility bills w/ auto-draft on one of the cards. Make that one card your "online/auto-payment card". Don't use if for anything else.

3. On your other card, use that as the one you pay everything else with. Gas, groceries, etc. This is your "public use" card. In other words, if it gets hacked you don't have to go online and change your passwords and billing info because the other card is setup for that. If you swip it at enough gas stations, it will get hacked eventually.

4. Set both cards up for auto-payment of the full balance each month. In other words, NEVER carry a balance.

5 (optional). If in market for a car, go ahead and do the crappy dealer financing. Pay the payment (plus a little extra) for a year, then after the year is up pay the rest off in cash. It sucks paying the finance charge, but think of this option as a fast track to build your credit.

That was it. Plus, if you can get a rewards card, you'll get gift cards and crap for basically just paying your bills. The credit agencies just want to see that you're using credit and are consistent in how you pay it off. In other words, you're out in the world racking up transaction fees they can charge retailers, and you're consistently paying it off so you aren't a risk to them.

Edited by brian0123

Share this post


Link to post
Share on other sites

Join CreditKarma.com....it's free and will keep you up to date on your credit score, it will also let you see what happens to your credit score if you get more credit cards, add debt, reduce debt, etc......

And it is truly free. No CC # required.

Share this post


Link to post
Share on other sites

How does one game the system?

Wait, don't answer that, I don't want to know.

Anyway, you're doing it all wrong.

You're putting your credit card under your mattress for an emergency and pay for every monthly expense with cash.

Put emergency cash in a savings account (these days the interest rate makes it like putting it under your mattress), and pay for every monthly expense on the card, and pay off the card every month.

<>

I personally have a credit card that gives me points, using this method, I get about $500 worth of points a year, and I usually have them give me a gift card around thanksgiving for every penny of that $500 with which I use to buy Christmas gifts for family/friends.

This is pretty much what I do also. It really works well and it must piss'em off that I pay-off the card every month, if not twice.

Going to original point - mortgage lenders pretty much make you prove you're not a world class criminal while till recently letting everyone that had a pulse or commiting fraud get a loan!

Share this post


Link to post
Share on other sites

Once I was able to see that there would be tough times ahead, I immediately began marketing my least liquid assets and converting them to cash when possible. (There was one asset that I couldn't sell or refi-, so my only purpose in life was to protect it.) I drew down my holdings of stock in the mean time. Having done that and after it became clear that the situation was an emergency, I totally liquidated my remaining stock and retirement accounts and charged everything to credit that I could, using my last remaining cash reserves to pay only minimum amounts for as long as possible. It got down to where I had only enough cash for a couple of weeks of personal expenses before there was any income that kept me afloat. I got really close to defaulting on a lot of stuff all at once, but barely pulled through.

I think that I managed my finances and expenses well enough, although in hindsight I probably should've swallowed my pride and been begging on a street corner for at least a few hours per day to help on the income side of things.

I must apologize, I didn't mean for it to sound like I was questioning your circumstances. You seem a very reasonable and intelligent person and I'm sure you had things set up in a way to give you a nice cushion. The way life is, a person can't plan for every eventuality and will most likely be backed into a corner at some point.

Share this post


Link to post
Share on other sites
Plus, if you can get a rewards card, you'll get gift cards and crap for basically just paying your bills.

Definitely get a rewards card - I use it for every last thing (paying the balance every month) and I opt for the statement credit. No fees, a credit every month (or whenever I remember to cash in), and the retailers are the ones the card company is making money on..

Share this post


Link to post
Share on other sites

I feel impishly obliged to counter all that sound advice, the reason being, it's too much like what I do: pay off three cards each month, never carrying a balance; plow the reward back in as a credit; no debt, not even so much as a car payment. And whatever I do, money-wise, is necessarily the wrong thing, done not rationally but out of an abhorrence of financial insecurity. I'm the offspring of a gambler who subjected his family to wild swings of fortune, which left me perennially uneasy about money. To telegraph: this is recalled to me every April when I write off a capital loss I suffered as a little girl. It was probably not a very dramatic loss by current standards, but I'll be making use of it until I die.

If there is a game to the system, play it! I'm pretty sure you could figure out a way to use those 0% checks the credit card companies send you every month, the ones I virtuously tear up:

http://www.moneycras...transfer-offer/

Or bypass Wonderful Old Building and Loan and use your credit card to buy a house:

http://www.realtor.c...aspx?source=web

Comes with a warning this could lower your precious FICO score, and this caveat:

"Using credit cards to purchase a home should be considered your last option unless you are a real maven with creative financing and can calculate all the risks out to the fullest."

The Niche, they're practically double-dog daring you!

Share this post


Link to post
Share on other sites

I feel impishly obliged to counter all that sound advice, the reason being, it's too much like what I do: pay off three cards each month, never carrying a balance; plow the reward back in as a credit; no debt, not even so much as a car payment. And whatever I do, money-wise, is necessarily the wrong thing, done not rationally but out of an abhorrence of financial insecurity. I'm the offspring of a gambler who subjected his family to wild swings of fortune, which left me perennially uneasy about money. To telegraph: this is recalled to me every April when I write off a capital loss I suffered as a little girl. It was probably not a very dramatic loss by current standards, but I'll be making use of it until I die.

If there is a game to the system, play it! I'm pretty sure you could figure out a way to use those 0% checks the credit card companies send you every month, the ones I virtuously tear up:

http://www.moneycras...transfer-offer/

Or bypass Wonderful Old Building and Loan and use your credit card to buy a house:

http://www.realtor.c...aspx?source=web

Comes with a warning this could lower your precious FICO score, and this caveat:

"Using credit cards to purchase a home should be considered your last option unless you are a real maven with creative financing and can calculate all the risks out to the fullest."

The Niche, they're practically double-dog daring you!

well, all the talk of responsibility goes out the window when someone mentions crazy low interest rates.

case in point, in 2008 I purchased a brand new WRX, the dealer called me up 6 months later and said "we can put you in a STI at 0% interest and keep your payments the same" um, yes. I don't think I have ever driven to a dealership faster, lol. at the moment, if I traded it in today, it'd be worth 10k more than what I have left to pay. and once subaru comes out with a turbo version of their little rear wheel drive coupe, I have a distinct feeling I'll be leveraging that to my advantage :)

if someone offers you free money, you take it. generically though, credit card interest rates are no where near free money.

Share this post


Link to post
Share on other sites

What's so frustrating is that I'm trying to do something that is very safe, to purchase a house out of foreclosure at a below-market price (below its own lot value) in order to live in it. It's the safest deal I'd have ever done. That, I have a good employment history, probably double or triple the liquid assets that they require, and have fewer contingent liabilities than I've ever had. Nope. Still can't get a loan. The bankers themselves are frustrated. They blame regulators for their being unable to override my credit score with solid biographical evidence of my creditworthiness.

Is this a short-sale?

These are typically are pretty tough deals to execute and usually take at least 30-60 days.

If it's already post-FC, it's either a 3rd party your buying from or it's in REO (the latter I'm assuming).

If it's REO you could look into some other types of financing like FHA or Homepath.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

×
×
  • Create New...