Establishing credit!

[wexford65 0]

I read the OP's question which has VERY little to do with the fool that decided to call everyone an idiot and started quoting The Bible. Calling everyone that posted to this thread an idiot is not only ignorant it flies in the face of another quote...Judge Not Lest Ye Also Be Judged.

Building a credit history is a sensible thing to do. It does NOT necessarily involve paying large amounts of interest regardless of what a certain poster has tried to indicate. This possibly reflects their lack of education on the topic.

I moved to the US 4 years back and have learned the hard way that credit IS something you need to pay attention to. I bought everything cash including two cars, not smart. I have now migrated much of my spending to an AMEX and VISA card, each of which is fully paid at the end of each month. Interest payments...zero. Each of these accounts report to the three credit reporting agencies (Experian, Equifax and Transunion). The downside for VISA is that the credit used is low compared to the credit available. This does not help the FICO score. A mortgage is obviously a huge help. Utility bills are also included within the credit report. You can purchase certain items, furniture etc, on interest free credit. Again these are all reported and allow you to build history at no additional cost, just careful planning.

Do NOT rely on freecreditreport.com or similar services. The FICO number is what lenders and institutions look at and it rarely looks much like your freecreditreport numbers. As a point of reference when I first moved to the US I checked into freecreditreport after several months and had credit scores from the three reporters in the 710-735 area. I then checked my FICO which reporting 610. I spoke to someone who explained that my lack of credit usage and short history (they consider anything less than 3-4 years as insufficient) were to blame. I now don't even look at the Experian et al numbers but only focus on FICO which is now thankfully well above average.

Final point re FICO. Lenders and institutions can see a different FICO number for you depending on their sector. A mortgage company for example might ask for a number that is more heavily loaded to look at length of history whilst Rooms to Go or Best Buy might be more interested in your current level of credit and less concerned at the length of history. So the mortgage company might see a FICO os 735 whilst Best Buy might see 680. It is not as simple as the TV ads would like you to believe.

The length of your credit history is VERY important and until you have reached 3-4 years you will be marked down somewhat as a result. Remember, 15% of your FICO number relates to the length of your credit history. Look to build a credit history early to get the clock ticking.

I did see earlier posts from people saying they hit 700+ in under a year and I wont comment other than to say this wasn't my experience. It could be they are talking about Experian/Equifax/Transunion but if they managed that with FICO then well done, I haven't a clue how you did it.

A final thought before someone posts again that we are all idiots and praying the the FICO altar. Your credit score is NOT just used to allow you to avail of better interest rates or be approved to buy a car or house. Many employers now use credit scores to evaluate new candidates. It allows them to ascertain whether a potential employee is a solid choice or not. SO, no effort to build a credit history could impact your employment status as well as your ability to get a mortgage/car.

Edited July 23, 2009 by wexford65

[Nik+Heather 121]

I hadn't seen this point made, though I have read a lot of posters commenting that they never wanted to get a credit card, and only do so in order to build credit.

Credit cards have their own advantages completely separate from the "credit" part...If your card is ever stolen or fraudulently charged, you can contest the charges, and have them removed from your account. Some people think that they are safer to stay using debit cards, but if the same thing happens with that account, the money is GONE and cannot be recovered. For similar reasons, I also do not have the bulk of my savings in that account, as I do carry my debit card in case of emergency.

Best practice: Use a credit card the same way as you would a debit card - don't spend more than you have, and pay it off every month. I rarely have any transactions on my checking account...Credit Card payment, mortgage payment, electric bill (they don't take credit cards), and the odd ATM withdrawal. All other transactions run through my CC.

Also, to others still wondering, I had an excellent credit score with only a credit card, utilities/cell phone history. I'm not sure how long it took to build up (Had the card for less than 3 years, but cell phone/utilities for 5+), as I didn't try to use it until I bought my house, but it is possible to get a good score without paying interest.

(Snipped - all good points)

The downside for VISA is that the credit used is low compared to the credit available.

(Snipped - all good points)

What I have read is that it also damages your score if you use TOO MUCH of your available credit as well. If you're always at your credit limit, that's not good. This follows with the advise given to a previous poster to not use more than 50% of her available line ($250 on her $500 limit).

Also, having too much credit available to you can be harmful when looking for a loan - the reasoning being that while they may be alright with you running your credit card up to $3000, using your full $9000 limit may put your debt/income ratio higher than is recommended. It is possible (and in some cases recommended) to decline automatic credit increases.

SO, no effort to build a credit history could impact your employment status as well as your ability to get a mortgage/car.

Additionally, many cell phone companies will check your credit history if you want to get on the monthly contract plans w/ free phones. Yes, its a lower bar to pass, but I have known people who were denied. I think insurance companies are looking now too.

Edited July 23, 2009 by Nik+Heather

[featherB 1]

I did see earlier posts from people saying they hit 700+ in under a year and I wont comment other than to say this wasn't my experience. It could be they are talking about Experian/Equifax/Transunion but if they managed that with FICO then well done, I haven't a clue how you did it.

I'm one of those people. Yes, those were FICOs (when you say "it could be that they are talking about Experian/Equifax/Transunion", yes, I was... but the "real deal" FICO scores, as opposed to the CRAs' own worthless scoring systems that they like to push), as pulled from myFICO.com, back when you could actually get all three scores. I was actually surprised to see that they EXACTLY matched the scores pulled by our mortgage lender at the time, as I'd read that most lenders use an enhanced version of the scores. My TU and EX scores were something like 703 and 701 (I have the reports at home so can check later!) and EQ was 690-something. It wasn't that difficult... no doubt helped, though, by opening a (Macy's) card within days of arriving in the US, followed by a (US Bank) secured card a few weeks later when I got my SSN.... then Capital One as soon as a preapproval came in the mail, and ditto for AmEx.

Do your utility bills really show on your credit reports? Ours don't, so I guess different utility companies must do things differently. I have inquiries from then from setting up the accounts, but they don't report the fact that the accounts exist or that the bills are paid on time. Not sure how I'd feel about that.... for a new immigrant, anything positive appearing on your credit file has to be helpful, but if you ended up with effectively a new credit account on your reports every time you switched cellphone provider/moved house and changed utility companies/etc, your average age of accounts would take a nasty FICO-lowering hit, which seems a bit unreasonable!

[featherB 1]

Credit cards have their own advantages completely separate from the "credit" part...If your card is ever stolen or fraudulently charged, you can contest the charges, and have them removed from your account. Some people think that they are safer to stay using debit cards, but if the same thing happens with that account, the money is GONE and cannot be recovered.

Very very true. You get a whole host of additional protections and benefits by using a credit card that you just don't get by using a debit card.

Best practice: Use a credit card the same way as you would a debit card - don't spend more than you have, and pay it off every month.

Agreed! If you think of your credit card as being a realllly slow (as in, the funds don't come out of your checking account until you pay the bill!) debit card which you never use unless you have money in the account to cover the purchase, you can reap all the benefits (cashback/points rewards, purchase protection, the ability to charge back should anything go wrong, sometimes an extended warranty, etc etc) without paying interest or running into trouble by overspending.

(Snipped - all good points)

The downside for VISA is that the credit used is low compared to the credit available.

(Snipped - all good points)

What I have read is that it also damages your score if you use TOO MUCH of your available credit as well. If you're always at your credit limit, that's not good. This follows with the advise given to a previous poster to not use more than 50% of her available line ($250 on her $500 limit).

Yep.... credit-scoring-wise, FICOs are only hurt if you are not using ANY of your available credit, at all. As in, if every single credit card you have is reporting a zero balance, they actually ding you for that. But if you have one card reporting a one dollar balance, and zero balances on all the others... FICO will like you very much for that. As far as the scoring model is concerned, the lower the percentage of your credit you're using (so long as that percentage isn't zero), the better - it does NOT penalize you for not using enough of your available credit. Even 50% utilization will hurt - less than 30% is better, less than 20% even better than that, less than 10% is great, and some tiny % will make the scoring model very very happy! (Yes, I have spent WAY too much time reading up on this, for some reason I find it interesting - plus I have noticed that yep, this IS how it works when pulling my own FICOs).

Also, having too much credit available to you can be harmful when looking for a loan - the reasoning being that while they may be alright with you running your credit card up to $3000, using your full $9000 limit may put your debt/income ratio higher than is recommended. It is possible (and in some cases recommended) to decline automatic credit increases.

Shouldn't really hurt if the lender is sensible... I know mortgage lenders calculate debt-to-income ratios by adding up your CURRENT monthly payments (which for credit cards, means the minimum monthly payment required on each, rather than what you actually pay on them) rather than your potential monthly payments if you ran up an enormous credit card bill. But I've read of a few examples of people being given that "you have too much available credit" line - I can see it if you're applying for another credit card ("why do you need another one, you already have a ton of credit available to you, and wouldn't be able to pay your bills if you used it all!" - makes sense) or maybe an unsecured line of credit... but they really shouldn't even take that into consideration if you're applying for a mortgage or auto loan. Any lender that tried that one on me... well, I would take my business elsewhere! I'd look at it another way - having lots of available credit and NOT using it all shows, um, some kind of restraint and willpower and ability to handle credit, surely! I know credit card issuers can and do deny applications based on "too much available credit", but... there's no point staying away from credit cards in case the limits prevent you getting approved for... a credit card.

Oooops, I've rambled on WAY too much, as usual!!

[Kathryn41 3,205]

Offensive post has been removed. While it was a while back, personal insults are a violation of TOS and not acceptable on this forum. Please make any personal statements on the topic without insulting other members.