Debt Is Your Friend! (I Think)
I have always paid my bills on time, and been conscientious in handling my money. But, frustratingly, my FICO score has never gotten much above 640.
Then, we had to charge a bunch of stuff to credit cards (about 10k worth in all). Just checked my score again, and it's now above 700! Nothing else has changed in my circumstances. I am still exactly the same person when it comes to money (apart from having more fire in my belly when it comes to RE investing, but that's another story!).
So, it seems that the system actually rewards you for being in (and being able to manage) a certain level of debt. I'm not in a hurry to pay it off now!
Manageability is KEY! Do not succumb to the "credit trap." Stay focused and protect your credit.
GREAT NEWS!
Eric & Rosa
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When determining a person crediblity, the following formula is used
Credit history
Credit Depth
Income
Assets
Liabilitities
The more you use and pay off the better risk you become
Lori
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Andrewb you are correct. Yes, you are rewarded for debt. In October I sold my vehicle which decreased my liabilities by $14K and $440/month and my fico decreased by 14 points I still have not gotten over it! The system sucks! :
I joined the board at www.creditboards.com and learned alot about credit and the way it works for and against you. I still plan to get even one day with that 700 score .
How much debt is too much? Which type of cards are beneficial? Are Department store cards good or bad? Should you only keep major credit cards?
When a lender is considering you for a loan, I thought that they would be looking at your debt to income ratio, rather than the amount of debt you can successfully handle? Wouldn't it make sense to eliminate your current debt so that you are a better risk to a potential lender?
My question is, am I doing the wrong thing by paying off all or at least most of my current debt before I go to a lender to try and get myself a loan?
wishbonejones,
I have heard that department store credit cards are bad, but to a certain extent.
If you have had one for a long time, it might be beneficial (increase the length of time you have had credit). No one seems to be able to give any black and white answers on this stuff. Just a bunch of maybes. I just cancelled a Structure card from about 4 years ago. We'll see if it helps.
JohnCl
Quote:
On 2004-02-21 09:10, wishbonejones wrote:
How much debt is too much? I never want to know the true answer to that from the banking industry but the practical side of me says when you "must" go to work a 9-5 to pay bills!
I was told on boards to keep credit card utilization under 35%.
Which type of cards are beneficial? I really think they are all the same. The key is how they are listed by the credit granter. Revolving is usally the type for a credit card or line of credit which weighs more heavily than an installment loan (car loan).
Are Department store cards good or bad? All are the same when it comes to your FICO.
Should you only keep major credit cards? See previous ? above.
When a lender is considering you for a loan, I thought that they would be looking at your debt to income ratio, rather than the amount of debt you can successfully handle? Each lender is different I have had some tell me approval is necessary for 4 tradelines open for 24 amount of months and then another say 2 positive tradelines in last 12 months. It just depends on the lenders critieria.
Wouldn't it make sense to eliminate your current debt so that you are a better risk to a potential lender? NO! Your score will tank! Bottom out! Decrease! Got it! The Fair Isaacs scoring system defies all logic.
My question is, am I doing the wrong thing by paying off all or at least most of my current debt before I go to a lender to try and get myself a loan? Depending on your score you may not need to decrease your current debt. Determine your score and check with various lenders before paying down your debt. If you do pay it down do it only on "revolving" under 35% percent utilization.
I pulled my fico at a site and used the score simulator and decreased my debt on revolving accounts only and my fico shot up 30 points. That is why I say pay down the revolving first.
Dear fellow TCI-ers
I once asked Experian to delete an OLD and paid credit card account, because it sad on the record that was compromised. What a mistake this turned out to be.... that comment concerned no one I negative sense but when they did delete it, my score went down about 20 points flat.
I was just one among thousands of other Bank of America credit card accounts that got compromised in the way the tiffs were using it in Singapore and Malaysia at their will. Those scoring system love closed up and paid off accounts. They also like department store accounts with the low caring balance. So keep spending and keep supporting our banks because believe it or not it meters not who you are; you've been merchandised. Welcome to www.METRIX.Inc.
Where crdit cards are concrned it helps to have open, available credit. Just keep the balances down to a low percentage.
Also, keep the same credit cards for a long period of time. Close one and open another, score will go down because of the new credit.
Cards with a low balance (under 30% of limit) are better than zero balances because at zero they count against you as you have unused credit you can use at any moment. The low balance cards they look at as that is all you typically use and give you a better credit score.
These scoring systems are still widely a mystery but I think there are some common themes.
The bottom line is: Bank would beg to give you money when you don't need it and would always turn you down when you do. Ah, not exactly but still...Go figure.
Quote:
On 2004-02-21 08:41, fmmp wrote:
Andrewb you are correct. Yes, you are rewarded for debt. In October I sold my vehicle which decreased my liabilities by $14K and $440/month and my fico decreased by 14 points <IMG SRC="images/forum/smilies/icon_evil.gif"> I still have not gotten over it! The system sucks! :
<IMG SRC="images/forum/smilies/icon_razz.gif"> .
No one said that you have to have negative debt to get a good credit score.
If you own money on things that go up in value you get the same positive bump in your score while you net worth grows.
John
Hi,
How long does it take for you're FICO to change once you've either charged a bunch of $$$--, or paid off a bunch? Just curious...
It can vary a lot. I have seen a change in the score very quickly while other times it takes 30 days or more.
If you have a lot of accounts it is hard to tell just which change might have moved the score.
Johm
Quote:
On 2004-03-09 13:19, bml wrote:
Hi,
How long does it take for you're FICO to change once you've either charged a bunch of $$$--, or paid off a bunch? Just curious... <IMG SRC="images/forum/smilies/icon_biggrin.gif">
Thanks for the reply, for some reason I was thinking it would take 3 months or so.
Breanna