Starting to Make Some Changes!

Hyper-Me

Forsaken_GA wrote: »

He stated blatantly that not using credit is a risk. By definition, if you're debt free, you're not using credit. So yeah, he's advocating that being debt free puts you in financial risk, which is absolutely absurd. Being in hock to some one else does not put you in a position of strength, unless you think being in a position to have the rug pulled out from under you is strong.

I don't buy the need for credit to get you in a position to advance. I carried a full load of classes, worked a full time job along with any other side work I could get, and paid for school, study material, and cert exams, all without ever borrowing a penny. And I'm a lazy bastard. My first car was a 91 Geo Prizm that I paid for with cash. I drove that thing for years, until I was parted with it when Bambi stepped into the road to wish me Merry Christmas one year. My second and third cars were not, because I'd been hearing the 'you need a good credit score!' mantra so much that I actually bought into it. I financed those cars, and a laptop for the sole purpose of building credit history. The only upside to the third car is that it's now paid for and I'm still driving it. A 2000 Honda Civic with well over 120k miles on it. I fully intend to drive that car for another 3 years at least, but I'll drive it into the ground before I go buy something else.

Credit card companies do not want you to pay in full, on time. They want you to be late, or only making minimum payments. Why? Because the second you overstep your bounds, you've just become a salary for them. They want you in debt, in perpetuity for the rest of your life. If everyone did this 'intelligent' use of credit that I keep hearing about, there wouldn't *be* a credit industry - there'd be no profit in it.

And yet everyone thinks they're the one exception and knows how to beat the credit card companies at their own game. Absolute hubris.



Then they need to find a better bank. I sat down with a loan officer at my credit union to discuss that very issue. As long as I was willing to put down 20% and could present a letter from my employer on official letterhead indicating my length of employment and likelyhood of continued employment, they'd be willing to manually underwrite the loan.

And I'm still not decided on whether or not I'm going to bother with it. I've gotten myself to the point where I live on half of what I make, and it'd take me somewhere between 5 and 6 years of doing that to be able to pay cash for a house in the $150k range, and that's assuming I have absolutely no increase in income over that period of time. That's better terms than I'd get on a mortgage. I can get away with that because I live cheap, and I have absolutely no debt. Rent, utilities, gas, food, and my phone bill - that's all I have to worry about, along with a few sink funds for things like clothing and car maintenance. My training material and my certification exams are things I consider as part of my cost of living, and are budgeted appropriately.

And yeah, I know, I make it sound so easy. It's not. It's hard. I have to fight my nature to be lazy every single day. I have to stay out of the mall. Don't let me anywhere near an Apple store. And when I absolutely must eat out, it's at the Waffle House instead of Longhorn. I had to trade in my Blackberry for a phone that's *just* a phone.

What keeps me going is that the goal at the end is worth it. And I'm not special, anyone can find a way to do this if they want to. In the end, everyone has to find the path that works best for them. I may not agree with the choice to use credit, but I don't subscribe to the idea that others must be wrong in order for me to be right, I hope it works out for anyone that does make that decision, I just can't go on that hayride - I've seen to many examples of what happens when it doesn't work out.

There is a risk in anything that you do. Of course a person would rather be debt free than debtful, but the fact remains that having 0 credit available to you is a risk in itself. You dont necessarily have to be in debt to have credit lines available.

Also, its a bit ludicrous to think that I would have to put 20% down and "get a letter from daddy" just to buy a home if i've been responsible enough to not need credit for anything in life. I don't know about you but I dont have 20,000$ to put down on a 100,000$ house and even if i had that kind of cash I dont think i could afford having it tied up like that.

If you and I both started today, and set out to buy a house for 100k, this is how it would play out.

Me - Buy house, 0 down, 1000$ a month payment.

You, save for house, 500$ rent in poop apartment + 500$ a month to save for house'

In 5 years I would have a house worth 125k, 50,000$ in tax write offs due to interest, and a remaining mortgage of about 90k.

In 5 years you would be trying to buy a house now worth 125k, with 30,000$ cash, 0$ tax write offs over the 5 years, and a remaning mortgage of 95k.

GAngel

Not wanting to wade into your argument because there is some right and wrong on both sides.

To the OP budgeting is never about what you make it always will be what you consider a necessity. People live great on 30k a year while others struggle at 100k.

When i was working for a MC I was making "more money than god" and yet never saved a cent. Then I moved into an expat role and was barely making ends meet while making a fortune tax free. I ran a booming business and still never seemed to have any money. Now I've got a house (very nice part of town),car and all the goodies but yet I save a great deal of money to let me do whatever I want and I make the least I ever have at any time in my career and i'm not old only 26. How you spend your money is more important than how much you make. Once I really really figured that out and realized I didn't need to keep up with the jones life is actually enjoyable. No more 80hr work weeks, slaving to get into that fancy new country club or trying to impress 40 women at once.

Take a good look at the guys at the top of your company. Odds are overworked,overweight ,alcoholics that are totally stressed out. Why anyone thinks that's "making it" is completely beyond me now.

HeroPsycho

Forsaken_GA wrote: »

He stated blatantly that not using credit is a risk. By definition, if you're debt free, you're not using credit. So yeah, he's advocating that being debt free puts you in financial risk, which is absolutely absurd. Being in hock to some one else does not put you in a position of strength, unless you think being in a position to have the rug pulled out from under you is strong.

No, you didn't read what I wrote. You're slippery sloping once again. You're trying to twist my words into me saying that everyone should use credit for everything. I never said that. I said there are risks to everything, both using credit and not using credit. There are situations where it's very clear that you should not use credit. There are also situations you should. With all those situations, there are extenuating circumstances that must be factored in that can tilt the decision either way. I'm not gonna give another example because the one in my own life illustrated the point. If you don't recognize that without a credit card, I risked losing years of higher salary, I don't know what to tell you.

I don't buy the need for credit to get you in a position to advance. I carried a full load of classes, worked a full time job along with any other side work I could get, and paid for school, study material, and cert exams, all without ever borrowing a penny. And I'm a lazy bastard.

You are projecting that your situation is worse or as bad as everyone else's situation. You don't know that. And you're ignoring the fact that many people use credit wisely as I have and have come out better for it, too. I'm not saying everyone can, but some can.

Credit card companies do not want you to pay in full, on time. They want you to be late, or only making minimum payments. Why? Because the second you overstep your bounds, you've just become a salary for them. They want you in debt, in perpetuity for the rest of your life. If everyone did this 'intelligent' use of credit that I keep hearing about, there wouldn't *be* a credit industry - there'd be no profit in it.

Look, I don't think credit card companies are saints, but you're attempting to demonize them. I could make the same argument about credit unions or all banks in general. They make money off of loaning money. They don't want people paying loans off early typically either. Are all banks and credit unions pure evil, too?

And yet everyone thinks they're the one exception and knows how to beat the credit card companies at their own game. Absolute hubris.

Oh, it's this entangled web of deceit they got me in, eh? Or, I entered into an agreement and used their service knowingly, and I benefitted from it. It's not "their game". You calling it "their game" helps motivate you from borrowing money. I'm fine with that, but they also providing a service I knowingly, willfully, and intelligently utilized, and benefited from it. You simply won't accept that it was beneficial to me because that goes against the dogma.

Then they need to find a better bank. I sat down with a loan officer at my credit union to discuss that very issue. As long as I was willing to put down 20% and could present a letter from my employer on official letterhead indicating my length of employment and likelyhood of continued employment, they'd be willing to manually underwrite the loan.

At the very least, not developing a credit history will reduce which creditors are willing to offer you a loan, which means you can't choose among as large a pool as you could have, not to mention the same lender will give you a better interest rate for having a better credit score. Therefore, you may not get the best service or interest rates when it comes time to get a mortgage. It also has an impact on insurance rates, and even your ability to get some jobs. If those aren't worth it to you, I'm fine with that, but you should be fine with people who do think those are important things to consider.

As a final note to you and other Ramsey fans. This might surprise you to read this, but I'm GLAD Ramsey's method is working for you because you're doing better than you did apparently without it. Sharing these ideas with others is a good thing. I'm not asking you to think my way is better. I'm asking you to accept your way isn't the only way. I've said over and over again that Ramsey's ideas work very well for people who simply cannot use credit responsibly. But those who can (and there are PLENTY of those people) shouldn't shut the door on credit just because others can't use it responsibly. It's a tool when used responsibly can help you.

Hyper-Me

Sorry to bump an old thread, but I thought this might be a good place to post that I just paid off my last couple credit cards.

*dances*

HeroPsycho

Congrats! Almost always good to pay off those!

Hyper-Me

I didnt cancel them, because the open lines of credit help the score. Plus I dont have much of an emergency fund built yet so they make a decent emergency backup. for now.

dynamik

That depends; having a lot of available revolving credit can hurt you.

Hyper-Me

dynamik wrote: »

That depends; having a lot of available revolving credit can hurt you.

Well its not like tens of thousands. Just a few grand.

Its always helped me in the past to keep the debt/credit ratio lower. Just gotta use em for something once in awhile or they get shut off.

HeroPsycho

dynamik wrote: »

That depends; having a lot of available revolving credit can hurt you.

It can also help you, too. A major part of your credit score is the percentage of revolving credit utilization you have. The more available credit you have, the lower the utilization percentage is with the same balance amount.

And absolutely do not close your oldest credit card if you can help it, and make use of that card every month for a small purchase or two and pay it off so they don't close the account on you because of inactivity.

dynamik

HeroPsycho wrote: »

It can also help you, too. A major part of your credit score is the percentage of revolving credit utilization you have. The more available credit you have, the lower the utilization percentage is with the same balance amount.

Yes, and zero of any amount is 0%. If you have cards with high limits, and you aren't using them, dropping the limit down to a more modest amount would more than likely be the best course of action.

Scores aside, people will also scrutinize that information when deciding whether to give large loans. If you're looking at a big-ticket item that might be pushing the bounds of your budget, they'll be much less likely to give you the loan if you have the potential to pile on a load of additional debt the next day.

HeroPsycho

Again, depends on the situation. My point is a blanket statement that having open lines of credit hurts your credit score is incorrect. "A lot" is vague. There are people on this forum that consider having any credit card accounts is too much credit, while others feel differently.

Also, some people like myself use credit cards for virtually all purchases and pay them off every month for various reasons. I do it to firewall my checking account to prevent a chance of overdrafting or fraudulent debit charges and for rewards. That means that all of the time except for the beginning of the month there is a balance on one or two of my credit cards.

What matters is how those who score your FICO see it if you're concerned about your credit score. I would suggest using the free Free Credit Score & Free Credit Reports. No Credit Card Needed to see what the projected impact is on your credit score before canceling cards. They have a simulator feature for the most common actions that would impact your score including paying off all your credit cards, canceling specifically the card you've had the longest, and applying for new ones. It's not exact, but it's the best I've seen since how FICO is calculated is not completely public. Unfortunately, there's nothing for closing a credit card other than your oldest. It will however show you why your current score is the way it is, which may give you a clue about if closing an account will help or hurt.

veritas_libertas

Since the fire is still going (and I love these kind of arguments ,) I will mention that I have never used any sort of credit. My wife and I pay for everything in cash and that has worked out fine for us so far. At this point we are getting approved for a loan and not having a credit score has only meant that we need several letters stating that we paid car insurance, etc. on time. I am amazed at how many people think you have to have credit history in order to get a house loan. Don't get me wrong it would have been easier if we did have credit score but I am vehemently opposed to Credit Cards, even those ones from Sears, etc.

HeroPsycho

veritas_libertas wrote: »

I am amazed at how many people think you have to have credit history in order to get a house loan. Don't get me wrong it would have been easier if we did have credit score but I am vehemently opposed to Credit Cards, even those ones from Sears, etc.

You don't have to have a credit score, but it certainly does help you get a better rate because you'll find more willing lenders to choose the lowest rate from and the same lenders will often give you a better interest rate for better FICO scores.

There are pros and cons to using credit cards and avoiding them. It's all about what works best for you, and figuring that out in an honest way. If you can't responsibly use them, then get rid of them. There's no shame in that. It's the same reason I don't walk into pastry shops and the like because my lard arse can't resist fattening foods.

veritas_libertas

HeroPsycho wrote: »

There are pros and cons to using credit cards and avoiding them. It's all about what works best for you, and figuring that out in an honest way. If you can't responsibly use them, then get rid of them. There's no shame in that. It's the same reason I don't walk into pastry shops and the like because my lard arse can't resist fattening foods.

and yet I like Krispy Kreme donuts...

I agree with you to some extent HeroPsycho, and I was not trying to weigh in on either side. Just making an observation.

dynamik

HeroPsycho wrote: »

Again, depends on the situation. My point is a blanket statement that having open lines of credit hurts your credit score is incorrect. "A lot" is vague. There are people on this forum that consider having any credit card accounts is too much credit, while others feel differently.

Um, disproportionally large in relation to your income? I'm not sure why you're nitpicking this since you know exactly what I'm saying. If you make $30k, and you have an empty credit card with a $15k limit, it would be advantageous to drop it down to $2 or $3k if you're considering getting a large loan for something.

veritas_libertas wrote: »

Since the fire is still going (and I love these kind of arguments ,) I will mention that I have never used any sort of credit. My wife and I pay for everything in cash and that has worked out fine for us so far. At this point we are getting approved for a loan and not having a credit score has only meant that we need several letters stating that we paid car insurance, etc. on time. I am amazed at how many people think you have to have credit history in order to get a house loan. Don't get me wrong it would have been easier if we did have credit score but I am vehemently opposed to Credit Cards, even those ones from Sears, etc.

Years ago I was turned down for a cell phone because I didn't have a credit history. I had to get someone to co-sign. Not having good credit sucks. As stated, it's not impossible to go through life like that, but you're making things more difficult on yourself and may be missing out on better rates. Go to your bank and get a $100 secured card (you give them the $100, so you're not at risk for going into debt), and just put a tank of gas or something on it every month. There's no excuse not to do that.

mikedisd2

dynamik wrote: »

Years ago I was turned down for a cell phone because I didn't have a credit history. I had to get someone to co-sign. Not having good credit sucks. As stated, it's not impossible to go through life like that, but you're making things more difficult on yourself and may be missing out on better rates. Go to your bank and get a $100 secured card (you give them the $100, so you're not at risk for going into debt), and just put a tank of gas or something on it every month. There's no excuse not to do that.

This credit history stuff must be an American thing; Forced to use credit cards for your own good? Never heard of it.

When I applied for my home loan, the broker advised a high credit card limit is a liability as it is seen as a potential debt.

I will mention that I have never used any sort of credit. My wife and I pay for everything in cash and that has worked out fine for us so far.

Hooray, I thought I was the only that lived like this anymore.

HeroPsycho

dynamik wrote: »

Um, disproportionally large in relation to your income? I'm not sure why you're nitpicking this since you know exactly what I'm saying. If you make $30k, and you have an empty credit card with a $15k limit, it would be advantageous to drop it down to $2 or $3k if you're considering getting a large loan for something.

FICO scoring is actually pretty complex, and many (dare I say most) people have very little idea on how it works since the only public knowledge about it is some vague info about the criteria, and what people have derived about weighting of the various criteria based on what has happened to people's scores after various events.

And no, I don't know what you meant exactly. What exactly is disproportionally large? I don't know what the amount is to be perfectly honest where having additional open credit hurts and when it helps beyond extreme cases either way. Do you? That's why I recommended the site above.

Sorry, just trying to help...

Edit: Let's all settle down and imagine eating a Krispy Kreme donut... lol...

dynamik

mikedisd2 wrote: »

This credit history stuff must be an American thing; Forced to use credit cards for your own good? Never heard of it.

Yes, we're penalized for being responsible.

HeroPsycho wrote: »

And no, I don't know what you meant exactly. What exactly is disproportionally large? I don't know what the amount is to be perfectly honest where having additional open credit hurts and when it helps beyond extreme cases either way. Do you? That's why I recommended the site above.

Like I said, this extends beyond a simple credit score. When you're attempting to get large loans, having a large amount of revolving credit will hurt you when your information is manually reviewed by someone with the authority to give you a loan. Maybe you haven't experience this personally, but I have. This hurt me significantly when I was shopping around for a mortgage. Since I regularly pay off my CC, the bank keeps regularly extending my limit. I have what I consider to be an enormous amount of revolving credit on one CC alone. People take note of that and take that into account when considering whether to give you a loan. You might be well within your means for a mortgage, car loan, etc., but if there's a possibility you might max out your revolving credit and create another large monthly payment for yourself, they will be more hesitant to give you a loan. I'm not sure why this is even a debate.

HeroPsycho wrote: »

Edit: Let's all settle down and imagine eating a Krispy Kreme donut... lol...

Edit: I want you to have my babies. Why do we fight?

HeroPsycho

I'm not debating that can't happen. You could also close or lower your credit limits on accounts and hurt your chances of getting a loan, too. It depends on your situation.

the_Grinch

Well couple of updates. One credit card and one student loan paid off. No call on the second job (will have to go searching elsewhere) and been running everyday!

Hyper-Me

HeroPsycho wrote: »

Again, depends on the situation. My point is a blanket statement that having open lines of credit hurts your credit score is incorrect. "A lot" is vague. There are people on this forum that consider having any credit card accounts is too much credit, while others feel differently.

Also, some people like myself use credit cards for virtually all purchases and pay them off every month for various reasons. I do it to firewall my checking account to prevent a chance of overdrafting or fraudulent debit charges and for rewards. That means that all of the time except for the beginning of the month there is a balance on one or two of my credit cards.

What matters is how those who score your FICO see it if you're concerned about your credit score. I would suggest using the free Free Credit Score & Free Credit Reports. No Credit Card Needed to see what the projected impact is on your credit score before canceling cards. They have a simulator feature for the most common actions that would impact your score including paying off all your credit cards, canceling specifically the card you've had the longest, and applying for new ones. It's not exact, but it's the best I've seen since how FICO is calculated is not completely public. Unfortunately, there's nothing for closing a credit card other than your oldest. It will however show you why your current score is the way it is, which may give you a clue about if closing an account will help or hurt.

Excellent tool. I've always had a hard time figuring out why certain things weigh on my score.

Good news is my score is way way up from last year (probably that refinance of the home).

It really pisses me off that my "length of credit accounts open" scores me at a D, because the oldest is 3.5 years. Im 24 years old...WTF do they expect?

HeroPsycho

Hyper-Me wrote: »

Excellent tool. I've always had a hard time figuring out why certain things weigh on my score.

Good news is my score is way way up from last year (probably that refinance of the home).

It really pisses me off that my "length of credit accounts open" scores me at a D, because the oldest is 3.5 years. Im 24 years old...WTF do they expect?

You can't demonstrate a history of responsible use of credit when you're young. That takes time unfortunately. My FICO is in the higher 700's. While that's good enough, there's not much I can do other than stay current on my bills, keep the credit cards I have, etc. I have far more ways to lower my score than raise them. I get dinged a few points everytime I inquire about refinancing my house because those cause a hard pull inquiry on my credit as an example. Conversely, I'll only gain a point or two every year by doing the only things I can do.

Wouldn't surprise me if the FICO scoring process is reformed in the next few years, or at least be more transparent about how it's scored.

Hyper-Me

I was at a 713, which I guess isnt bad for someone my age.

Funny thing is, the payments on my cards hadnt shown up yet so I did the credit simulator and it says it wont change my score a bit, lol.

I was only using 33% of my available lines, anyway.

nel

Im probably going slightly off track and arent going to elaborate on whats been said but whilst what you are doing is fantastic - please dont forget to have some form of social life and entertainment! otherwise, if it were me, i would become pretty miserable fast!

Everything in moderation as they say!

Good luck with your journey, hope it all works out OK.

HeroPsycho

Hyper-Me wrote: »

I was at a 713, which I guess isnt bad for someone my age.

Funny thing is, the payments on my cards hadnt shown up yet so I did the credit simulator and it says it wont change my score a bit, lol.

I was only using 33% of my available lines, anyway.

713 for your age is excellent! Also, remember the site is best thought as a faux scoring/simulating site. It's not 100% accurate, but it's the best I've found.