Just because you pay your bills on time.....

myfaskNovember 4, 2006

doesn't guarantee you have good credit

The "Paying off credit cards thread got me thinking and reminded me of a situation a friend went through.

As a few of you know my friends and family call me a "credit geek" and am a firm believer in pulling your Credit Report once a year to make sure everything is "in line". I remind them every year.

I have a good friend that use to always say "I have really good credit" I would say have you pulled your report this year? His response would be "yes, it shows everything in good standing, all paid on time"

So my next question was "Whats your score?" I almost fell over when he said " I don't know, they wanted $6 or $7 each so I figured that since everything showed paid on time that means I have good credit so it didn't matter"

I told him he needed to get the "numbers" so he could either skip eating out one night or I would pay the less than $20 if he was going to be such a "bozo" but get the numbers. lol this is a really good friend so I could "bully" him a little.

Imagine my surprise when he called me yelling "What is this crap, my credit score is 628 I pay my bills on time, I should have a higher score than that"

I told him if he stopped yelling we could take a look and find out the situation and fix it.

It turned out that he had 32 !!! 32 open accounts with a couple hundred here, a few hundred there. He did have a couple biggies but a majority were the local store cards. His reasoning with the store cards was "well it is easier" I told him that the "easier" has reduced his credit score and it was time for a plan. Especially since he wanted to buy a new house with in the year.

He had just received a commission check so we used that to pay off the small store cards then he closed them .(this is one time when closing cards was important)

We also called the "biggies" (major credit cards) and requested to have the interest rates lowered. He took the small payments he was making to the "store" cards and added it to the payments to the "biggies" which help pay them down faster.

Fast forward 1 year later his Credit Score was a nice 720 and he was able to start house hunting knowing that with his actual "good credit" that he will get a good mortgage rate.

So I thought !!!!

This post is long enough so I wont "bore you" with the details

But take me going on a cruise the week he is to sign the papers

add in one "look what I can offer you " loan person and the words words "good deal"

mix them all together and you get

"An adjustable rate interest only mortgage"

Yup he did lol . I have to laugh because if I don't the temptation to "smack him upside the head" would be to great

So now a year later his monthly payment has gone up $200 a month and we are in the middle of "fixing" his latest "venture" into the land of credit.

The only good thing about this is he has become more credit "savvy" and knows that "a good deal" is not always that and most important "just because you pay your bills on time doesn't mean you have good credit

So folks get your credit reports once a year and pay the extra to get your scores.

Karla

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Chemocurl zn5b/6a Indiana

Thanks Karla for your gentle remender that I need to pull my repost 'and' credit score sometime soon.

Yes, I agree, so many folks really don't know enough to be even handling their own affairs. They are continially taken in by those offering 'great offers'.

I have one friend who has made so many costly financial mistakes, that she finally said she would consult me on any purchase, or contract over $200.

"An adjustable rate interest only mortgage"
...surely he did not understand a thing about what he was signing. What 'was' he thinking, or was he? I think sometimes when someone is not financially savvy, all they hear when finances are discussed is blah, blah, blah, and trust that all is well and good.
I hope he has learned enough to check with you or someone knowledgeable b4 signing any 'good deals' on the dotted line.

Fools and their money are soon parted...or so they say.

Sue

    Bookmark   November 4, 2006 at 10:12AM
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harriethomeowner

Question: Is this the correct official site for requesting your credit report?

Thanks.

Here is a link that might be useful: Annual Credit Report

    Bookmark   November 4, 2006 at 1:10PM
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myfask

Harriet - Thats the one my Dh uses and it was accurate
Sue - all he heard was "good deal" and his common sense went right out the window. I have been "on his case" for the past year to refiance it. He has been "talking to various mortgage brokers" lol I finally said to him last week "are you done messing around"(well i used a stronger word than messing but this is a family site) are you ready to listen and it finally sank in that he should call the current mortgage company and see what they can do. I am happy to report that he called me today to let me know that he is refiancing it to a FIXED 6.5 % !!! ring the bells lol I told him if he walks out with anything but that, there would be "he**" to pay.

hey I have an idea
lol we should start a "I checked my credit report and all is ok thread"
what do you think
Karla

    Bookmark   November 4, 2006 at 1:32PM
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chisue

I was confused at first because I misunderstood what you meant by "paying all bills on time". I see you mean paying the MINIMUM due and carrying a balance. I thought you meant paying the balance due on time!

I wonder what percentage of accounts are paid in full every month? Is there some positive financial reason for not doing that? (You have money invested that is earning MORE than the credit card charges?)

If you are NOT going to be applying for credit anytime soon, it seems to me that it is adequate to just get your report without a score -- right? (Especially if you do pay every balance due on time?)

    Bookmark   November 8, 2006 at 1:05PM
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saphire

6.5 sounds high, rates are down

    Bookmark   November 11, 2006 at 12:14AM
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myfask

Chisue yes if you aren't planning on any new credit purchases with in 6 months just getting just the report is fine. However if you haven't gotten you score in a couple years or more it's not a bad idea to get it so you can have a "baseline"

saphire
It is about 6.25 avarage
I did some research on the "lower" rates that you see out there since we are in the process of starting the mortgage process and they are usually with a "buy down"
We won't be locking till 60 days b4 closing (end of feb) so I am curious to see what the next 2 months bring.
Karla

    Bookmark   November 12, 2006 at 5:35PM
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kats_meow

FWIW, it probably was not the number of open accounts that hurt your friends credit score. It was most likely the number of credit inquiries from opening the accounts. For those people who have balances on their accounts, closing accounts can actually decrease credit scores as it causes credit utilization percentages to go up.

I do agree that if someone doesn't have any balances that it can make sense to close accounts just not to leave them out there. But alone it usually won't do much to the credit score.

    Bookmark   November 12, 2006 at 11:33PM
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jaceysgranny

Is there a catch to checking your credit rating at the link noted above? Any joining fees that will show up after you've given them all of your information?

    Bookmark   November 30, 2006 at 1:50AM
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myfask

it is free unless you want your actual score then it is around $6 or $7
if you are not aware of your credit score I would pay so you can have a baseline for future reference

Karla

    Bookmark   November 30, 2006 at 4:25AM
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emma

I recently have been pre approved for a loan to buy a new home. What impressed them most was my 8 year old home was paid for, no debts at all except maintenance that life requires. They asked my how much of my savings I wanted to use and they would loan me the rest. This is a bank that doesn't make out of state loans, but they found a way to do it for me.

In case you don't know credit cards will bring your rating down. When applying for a new card or canceling a card the rating takes a hit especially if you apply for their card to save money then cancel it right away.

    Bookmark   July 10, 2014 at 12:06AM
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MrsShayne

About 8 years ago I co-signed for my bf to get a car loan. We later broke up so I signed up with Experian and got a monthly credit report and score. Years later, his loan was paid off and my credit remained excellent (per Experian). I don't know my other two scores but I figure they are close. I too recommend people check their scores at least once a year.

Growing up I played the credit card game and transferred balances and opened up several cards. At one point I had 12 credit cards and about 10,000 in debt. I never missed a payment and my available credit was about 30k so I never suffered with my credit score. Today I'm down to only using 2-3 cards and manage things much better. Through it all, I always had good credit because I paid on time and kept my available debt ratio under 50%. A lot of people think closing cards help your credit, but sometimes it can do the opposite. Always consider how much you owe, vs. your available credit. If your available credit isn't much then don't close all cards. Your debt ratio will sky rocket and your score will likely suffer quickly.

I use to tell one of my best friends, whatever you do with credit cards - remember these two things: 1. Never miss a payment and 2. Always make at least the min. payment (it's better to pay more but if all else fails, at least pay the min. payment ON TIME). I even told her, if she can't afford the min. payment then I would pay it for her.

She didn't listen to me and later paid about 15% interest on a car loan because her credit wasn't any good. Years later her and her husband wanted a new house. She stayed off the loan because her credit would have gotten them a higher rate. Funny this is, she makes good money, she just didn't care to pay her bills on time. You live and learn I guess.

I've taken full advantage of my good credit. I have gotten several 0% interest loans for things like appliances, TV's, and other big purchases that I couldn't pay all at once. Every loan I ever took advantage of was paid off in time to avoid any fees or interest.

People don't realize that bad credit can mean the difference of paying $100,000 MORE on a home loan over a long period of time. It's sad that schools don't teach the importance of maintaining good credit. The crap I had to learn in school hasn't helped me much thus far. Oh well, I was lucky enough to figure it out on my own I guess.

My advice to people - always pay your bills on time. Keep your debt ratio low, and always make at least the min. payment due. This sounds simple, but people are proof it's not that easy.

    Bookmark   July 10, 2014 at 9:44AM
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jkom51

>> It's sad that schools don't teach the importance of maintaining good credit. The crap I had to learn in school hasn't helped me much thus far. Oh well, I was lucky enough to figure it out on my own I guess.>>

I agree. We were lucky as well, plus I ended up working in several segments of the financial svcs industry and learned a lot from some very good folks.

I get a lot of catalogs and there is a wonderful T-shirt emblazoned with the words, "...And another day passes that I didn't use Algebra"

LOL!

    Bookmark   July 28, 2014 at 12:33PM
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SnidelyWhiplash

It's parents who should teach their children social and life skills. Schools have more than enough to do focusing on academic subjects and shouldn't be expected to pick up the slack for parenting deficiencies.

Your credit score isn't a goal, it's a report card. Teach your kids that they can't buy something until they have money to pay for it and the rest will take care of itself.

Algebra like some other subjects is taught to give developing minds experience with and tools for critical and analytical thinking. It's only partially about algebra itself. If you don't see that, you missed the point of it all.

    Bookmark   July 28, 2014 at 3:07PM
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dahoov2

I used to work in a bank; I ran credit reports daily, we looked at people's credit and scored it on our own system to determine their rates of loans etc we used to get two of the score then compute them with ours. Anyway, I learned a lot about credit reports. Here are things that affect your score:

1) too many open accounts. (it's a risk that you'll go off the deep end and start spending wildly or that you could be a victim of fraud)

2) address continually changes. Nobody looks at that but unless you're military, ability for creditors to contact you makes it difficult (part of my job was repossessing cars and also skip tracing people)

3) too many inquires on your credit. It's a red flag to creditors who think you are out to do a lot of stuff and about to become over burdened in debt you can't repay. So don't let every car dealer and dept store see if you're eligible etc for this or that deal.

4) too much credit card debt. What it is, is a balancing act. A good credit report will have say a mortgage, maybe a car and maybe one or two credit cards; if you have too much revolving debt, that's not good.

5) income to credit ratio should be balanced. In other words, if you make 20k a year, you should not have a very large amount of credit open to you (or debt to income ratio either)

6) charge off accounts. If you've not paid something and it goes into charge off status, you can bank on the creditor reopening your case and calling you just before the statute of limitations runs out. I HATE to say this publicly but I'm going to share a secret with you; do NOT pay it. Once you agree to pay back the debt, it goes back to open status and will remain on your credit report, for as long as it takes to pay if plus they can possibly (for a while anyway) see it was a charge off or delinquent. It's far better to NOT start payments again.

7) paying late - really, creditors will not judge you for a payment or two late. It shows up on there but they all know stuff happens. It's chronic lateness that's the problem. It's also 30-90 days overdue. We used to contact people at the 15 day past due mark to remind them and I used to give interest only extensions so they didn't go into 30 day and get reported to the credit bureau. So if you are late and can't pay, call the credit and arrange for interest only extension. You'll pay basically one month's interest extra and extend your loan an extra month.

I hope that helps people. Oh and the longer you have credit but don't use it, the better. New credit is bad. And do NOT take out credit cards to save 10-20% one time. They have high interest rates, it's new credit, it's revolving, and it's a new inquiry... ding, ding, ding, ding... all bad.

    Bookmark   October 20, 2014 at 2:33AM
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western_pa_luann

LOL @ "New credit is bad. And do NOT take out credit cards to save 10-20% one time. They have high interest rates, it's new credit, it's revolving, and it's a new inquiry... ding, ding, ding, ding... all bad."

That is what is keeping me from an even better score...
" 1. LACK OF RECENT INSTALLMENT LOAN INFORMATION:

Your report shows no open or recently reported non-mortgage installment loans. "

    Bookmark   October 21, 2014 at 3:48PM
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Peter1142

Credit score is absolutely pointless. There is no universal standard and even among FICO scores there are so many versions it will be totally different from one place to the next (unless you are applying for a mortgage.) Don't waste your money.

3 Things really matter on a credit score:
1. Payment History
2. % utilized of available credit
3. Age of credit history (opened and closed accounts) and new accounts

Everything else is minor or not a factor.

    Bookmark   October 21, 2014 at 4:03PM
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dahoov2

this is not really true; credit score does matter. It's a flag to us. For example, though we didn't loan car loans (I was in that dept not mortgage) based upon your score, we used that as a basic flag to check further your scores. If you had a low percentage, we would go in and ask why... maybe it was innocent like you just bought a new house or you were military, moved a lot or you got divorced and some of the debt was with your new spouse and some with old etc. There were just so many factors involved. BUT if you had say an 800 credit score; that did save us a lot of time justifying... and you'd get our best rate. If you had low, you were considered a risk and the rate would be higher; but on those which extenuating circumstances, we could flux the rate. But the number is just a guide and an indicator of what's going on in the report. But most of the time, we don't base loans on just the number.

    Bookmark   October 21, 2014 at 7:49PM
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Peter1142

What mean is not that your score doesn't matter, I am saying that you don't have a score: you have hundreds of scores. Thus making them not really useful for a consumer to purchase... the score you buy is almost certainly not going to be the one your bank is using. FICO scores are the ones used by most creditors but even those have so many different versions now. And they can vary by a hundred points or more sometimes.

The rules to getting good FICO scores are very simple. Follow them and you will get the loans you want. Getting a perfect score is unnecessary.

Addresses are not considered by any credit score and neither is your income, which is not in your credit report (though of course may be considered separately). Payment history (and delinquent accounts, bankruptcy foreclosure etc), age of accounts - both open and closed (and recent new accounts), and utilization of available credit (considered both completely and per individual tradelines) are the main factors. Inquiries matter little unless excessive, mix of credit, number of accounts with a balance, consumer finance accounts, these things have some small effect. The exact formula and all of the factors in a FICO credit score is actually a trade secret...

You can get your credit reports for free (with or without scores that no creditor uses) online from numerous places.

This post was edited by Peter1142 on Tue, Oct 21, 14 at 21:50

    Bookmark   October 21, 2014 at 9:45PM
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dahoov2

I disagree; a credit score is necessary; it simplifies things for lenders. It saves dollars and cents that are then passed on in savings to the consumer. It's less time weeding through 40 pages of a long credit history.... and some do use these scores in determining your interest rate, so yeah, it's good to know your score and to get it as high as possible. Savings on interest rates could mean THOUSANDS per year saved depending on what you have out there/your income. But it's all relative too. Savings of even HUNDREDS of dollars to someone with a low income, it's important there too.

    Bookmark   October 22, 2014 at 2:12PM
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dahoov2

PS what I meant was the score alone isn't what lenders look at. It all depends. It's a case by case thing. If your score is above 800 say, I, as a lender will not spend a lot of time reading over your report. If your score is super low as well, I'm not even going to bother. It's going into the reject pile. If your score is in the middle, then the score is an indicator something is going on. That's the point where lenders will take a shot on someone or not and/or give them a decent interest lending rate. It's a needed indicator, but it's not the be all and end all of things if that makes sense. It's "just a number" per se, but it just helps streamline the process for lenders and it is an indicator to the consumer whether you should keep an eye out more or less on what's going on in your financial life.

    Bookmark   October 22, 2014 at 2:17PM
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Peter1142

You are misunderstanding me...

    Bookmark   October 22, 2014 at 4:16PM
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armjim

I don't know if it was delineated here, but you can get your credit report from freecreditreport.com. Annually they will provide all three credit bureau reports at no cost. They do not provide the scores, but it is still very useful to review the reports. (The scores can be bought from each bureau as was pointed out).

Discover card is now proving the FICO score in each monthly statement.

    Bookmark   November 21, 2014 at 5:48PM
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dreamgarden

"It's "just a number" per se, but it just helps streamline the process for lenders and it is an indicator to the consumer whether you should keep an eye out more or less on what's going on in your financial life."

Financial stability should be measured by how little debt you owe rather than how much debt you are allowed to accumulate.

Credit scores are a racket set up by the financial industry to punish people who don't want to go in debt.

That is why a person who has a ton of debt (maxed out cards) are able to get a better loan rate than a person who has no debt or doesn't need the money.

I am thankful I do not need to borrow money. I also do not need lenders or the credit bureaus keeping tabs on me. Which is why I pay with cash as often as possible.

People wonder why identity theft is the top reported crime for the past 12+ years by the FTC. It is because people you DON'T know (credit bureaus), are allowed to buy and sell your personal info WITHOUT your permission. Same with the BMV. WHY should perfect strangers be able to access/PURCHASE about you without your permission or knowledge?

If more people quit using credit and started saving for what they need (not want) then the economy would be much more stable.

    Bookmark   December 2, 2014 at 3:17PM
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