Funny thing about debt...

[imported_admin]

Isn't it ironic that in order to build credit you must first build debt?

I used to have excellent credit. In my early twenties I had enough available credit on several credit cards to buy a new Trans Am if I wanted to. Things were going really well. Then about four years ago my employment status went sour and for quite a while I was barely scraping by: cash advancing credit cards to pay rent, ended up late on a few credit card payments, etc. We moved up here to D.C. a year and a half ago and have been doing fine ever since.

My credit rating, however, is still recovering. Last year I applied for the first new credit card I had in years... it ended up being a Capital One card with a $200 limit even though I was then making $40k a year. Though part of me took this as a grave insult, I kept my chin up and said it was only temporary.

Sure enough, after a few months I started getting better and better pre-approved offers in the mail. Then I bought my new Toyota and didn't have any problems getting approved for financing through Toyota Financial Services. The interest rate is pretty high, granted, but I was approved no questions asked. My next credit card had a $1000 limit, the next one after that $1500, now I'm getting pre-approved offers for $5000 again.

Now our plan is to buy a house. We're getting married in May of next year so the house purchase will be sometime around July of 2005. I have until then to get back into the good graces of creditors.

The ultimate irony is the only way to do that is to max out credit cards, pay everything on time, and then make sure they are fully paid off before we apply for the loan. So in order to achieve that end, last month we did some refinancing and ended up with some surplus cash. I bought her the ring and spent an additional $3000-ish on misc. car parts, junk for the house (DVD burner, video capture card, new top-of-the-line Norelco beard trimmer, lawn furniture), and stuff for the garage. How ironic it is that today I have quite a bit more debt than I did three months ago... yet once I pay this all off (should be by December) my credit rating will skyrocket.

The only way to build credit is to use credit. You spend a lot of money, show the banks that you're heavily in debt, then mysteriously pay it all off, showing them that you can easily handle large balances without flinching.

Weird, eh?

Yeah, so that's how I justified that new DVD burner, Jenn's rear suspension package, my line lock, her boost/fuel pressure gauges, my video capture card, the SLP manual fan switches, all the other junk... ;)

[epic]

Yeah, for being almost 21, I'm a bit deep in it. In October, I was about $25,000 in debt personally. I've managed to cut that down to about $15,000 while buying tons of toys.

Things I bought since October: FLP Headers, Torque Converter, Cam, Nittos, 32" Sony TV, 250GB HD, another PS2, new Headunit, 2.6Ghz computer, 19" flatscreen; those are just to name a few. I got kinda nuts. [img]graemlins/slap.gif[/img]

Since then, I've hidden my major credit cards away from myself or give them to my girlfriend so I don't charge anymore crap. Half the battle is knowing when to stop! The other half is really budgeting out the money you have AT HAND rather then projecting "I will have this much in a month". Doing that is deadly..

Another pointer that I learned from my Accounting teacher is to make sure you call those phone numbers on credit applications if you are not willing to accept their card. Every card sent to your home in your name lowers your credit rating. Simply calling them and saying "take me off your list" will help that number rise back up, as well. Gotta love the little things that no one tells you about.

[sac2165]

I really don't think maxing out your credit is all that necessary, you're better off lowering your debts & saving for a down payment. Me and Jen were in your same boat & did'nt run into too much trouble with getting a decent house. I personally think the best thing you can do for your credit is get married.

[Turbo V6 Camaro]

im 20 and check my crdit report every month or 2 months and i got it up to that 685 mark and cant get it high then that, little picky bastered they are. lol never miss payment or any thing never plan too i want my dodge viper lol

[Smitty]

IM in the same boat as well. Although my debt is not as high, i undertsand what you guys are saying. I just love it when companies say you have no credit but yet no one will give you a Credit card to earn any credit. Its so stupid how that whole system is set up if you ask me.

[ellik]

Coming out of college two years ago I had about $10k in credit cards, $15k in personal bank notes to pay off as well as my $24k in student loans. I tried consolidating some of the debt to get better interest rates and the credit union I talked to just laughed at me. After the first few months I put a hold on all credit cards and though I was making decent money, I spent none and continued my starving college days while paying vigorously to get rid of the debt. I am now down to about $8k in bank notes (that I haverecently moved to another bank at under 5% APR) and the remainder of the credit cards will be wiped out by my christmas bonus this year. College debt will be worried about after we get our house. Lately I have been doing just what you are talking about Stefan. I have one credit card that has the remainder of the $2k on it, and I dump like 5-10 times the min. payment on it each month at least. I have a Gander Mountain MasterCard (racking up bonus points to spend in their store :D ) and basically all my expenses go on that building a balance and paying it off. Sometimes I'll electronically wire them money twice a month if I have some bigger things I need to put on it. Within 3 months of having it they raised my limit from $500 to $2000.
Theres a lot of toys I would have liked to had over the past two years, it was hard turning down Tiago's GP..... but its a whole lot better feeling knowing you are in the clear (or 16 months away from it... man I look forward to next August)
Stefan, from me and my wifes house hunting and inquiries that we have made on mortgage options, make sure you have 3-5k min. into a savings account and let it sit there for at least 60-90 days before you fill out apps for mortgages. From what we have been told, to get the best rates they like to see that you have seasoned money just sitting there that hasnt been touched.

[ellik]

Smitty - start out with just a cell phone or actually any kind of bill in your name and make all the payments on time. Anything where you are making regular payments in your name will help you.

[wannabe]

Our credit system bugs me for exactly that reason, Stefan. People who've been responsible and just paid cash for things that they could afford and saved up for things that they couldn't are punished by being turned down when they want to purchase a car or house. People such as myself who made some mistakes two or three years ago are considered to be deadbeats for seven to ten YEARS (and I've never even had a bankruptcy or foreclosure or anything major, just a few late payments like you). Worst of all, mistakes in the system become fact and incredibly difficult to remove. I had set-up automatic payment with Bank One for my car payment and they transposed the last two numbers of my checking account and that caused two payments to not occur. I ended up with a 60-day and a 30-day late payment on my credit record that I am STILL fighting with the bank to have removed.

[Turbo V6 Camaro]

the best place to get credit is a jewlery store

i walk in with 0 credit and they gave me 300 limit after that my credit skyrocket (and my car loan finally got on there) but that really helped my credit

[Tiago]

**** I had to have 15k "seasoned" in my account for buying the house. Depends on your down payment but plan on at least 10k for a decent place. It has to be "marinating" in yoru account for 3 months prior to the closing process. Fun Fun. Those ****ers pissed me off soooooo bad.. :mad:

[4thgenowner]

I couldn't get a car loan because there were "problems" on my credit score. But I haven't done anything but quit a job because I had to move. I don't think that would hurt it but then again im stupid when it comes to credit and all. :(

[wannabe]

Originally posted by 4thgenowner:
I couldn't get a car loan because there were "problems" on my credit score. But I haven't done anything but quit a job because I had to move. I don't think that would hurt it but then again im stupid when it comes to credit and all. :(

See, that's the problem! Things that a normal person would never equate with their creditworthiness end up killing their rating. It's such a corrupt business. I've talked with guys who work in the loan business and they will even tell you behind closed doors that they'll scam you just as hard as a used-car salesman.

[L32Projekt]

Credit's a tricky thing. I just got out from under $10 G's of debt (not including car loans) and it's worth it to get it all paid off. I was lucky, my credit rating's been pretty high for the longest time, I bought my first new car when was 19, had a checking account since 16, multiple credit cards (and it took a while for me to learn how to control my spending on them, bad me....) and with all that going on I managed to not screw up on payments and such. At 24 my credit score hovers around the 800 mark (you all know that your score fluctuates from day to day, right?).

It's all a matter of establishing yourself as being credit-worthy. Start with a checking account and keep it in order. Move to a phone (normal landline or cell, but it's easier to get the landline, cell companies want people with good credit) and then see about getting a low-limit credit card, maybe even one that's secured. You may have to pay an annual fee, but look for the lowest APR you can and try as hard as you can to make sure it's fixed. Read the fine print, most of the time the APR you see is low, but it's only for the first 3-6 months and then goes up and is variable (bad deal). Once you establish your credit you can move onto lower interest rate cards that are fixed APR and have no annual dues.

If you get a card, stick with the best one and only have that one! Having multiple cards can and will get you into trouble if you don't handle yourself appropriately, that's what happened to me. If anyone has any questions about any of this, feel free to ask. I'm not a professional financial advisor, but I know a few things. ;)

[ellik]

800?!!?! [img]graemlins/bowdown.gif[/img] to L32Projekt

[imported_admin]

Originally posted by ellik:
Stefan, from me and my wifes house hunting and inquiries that we have made on mortgage options, make sure you have 3-5k min. into a savings account and let it sit there for at least 60-90 days before you fill out apps for mortgages. From what we have been told, to get the best rates they like to see that you have seasoned money just sitting there that hasnt been touched.

We have several grand sitting in investment accounts, that's not a problem. ;)

Originally posted by L32Projekt:
If you get a card, stick with the best one and only have that one! Having multiple cards can and will get you into trouble if you don't handle yourself appropriately

Sort of...

Can and will get you into trouble IF you are irresponsible. However, using several credit cards responsibly will build your credit much quicker than using one will. As long as you can handle yourself, having TEN credit cards is better than one... in the long run. Say you have ten cards with a $10k limit on each. Even if your balance is zero your credit will be terrible--because you have $100k of potential debt. Though today you are in great shape, tomorrow you could be $100k in the hole.

But...

Run up some debt on those cards, pay everything off on time, then close nine of them, wait a few months for the credit bureaus to catch up and reflect that those accounts have been closed and your credit will skyrocket. Then they will see that you had $100k of potential but handled it responsibly, now you only have $10k potential so you're the perfect customer.

Max them out, pay them off, close them, then apply for the big loan. Weird but what part of that business isn't?