Author Topic: Credit: To build or not to build!  (Read 4406 times)

siralkaloid

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Credit: To build or not to build!
« on: March 18, 2013, 05:08:10 PM »
I am a 21 year old college student with zero debt and zero credit established. I am self sufficient and save around 40% of my net income per month. Do I need to build credit to buy a home or is there another way to obtain a mortgage without it? If I do need to establish credit, does anyone know of a way to "hack" the credit rating FICO system using mustachian badassity aka "self-control"? By hack I mean build a strong credit score rapidly. I am continually hassled by the people around me to establish credit and have refused thus far based on principles. Please advise, thanks!

Jamesqf

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Re: Credit: To build or not to build!
« Reply #1 on: March 18, 2013, 05:23:07 PM »
Don't know about rapidly, but get a rewards card or two, charge only what you'd buy anyway, and pay the bills every month.

arebelspy

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Re: Credit: To build or not to build!
« Reply #2 on: March 18, 2013, 05:32:58 PM »
It won't be quick.

You won't get a mortgage from a traditional lender without credit.

Start with the basics, get a card (may have to get prepaid card to build credit at first).  A few types of credit may help.

The biggest factor in your credit scores though is history of on time payments.  And that takes awhile to build up.  Starting today is the quickest way.
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Reepekg

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Re: Credit: To build or not to build!
« Reply #3 on: March 18, 2013, 06:12:21 PM »
First of all congratulations. Your debt situation makes you a total badass.

The best way to hack this system is to get a cash back credit card and use it for all of your purchases. Set the money for your purchases aside in a high interest savings account so you pay in full at the end of the month.

Basically you are letting a credit card company pay you a signing bonus, pay you ~1% of everything you spend, and give you a month-long interest free loan each month (which is money that earns interest for you sitting in the bank)... all for the privilege of building your credit for you. And they give you all kinds of tools to track your spending and net worth.

Thanks credit card company, system hacked. I hate Bank of America's predatory practices and merrily take money from them every day. Proceeds from last year: $760.

Finally, read up on what goes into your FICO score. Using your card the way I describe will make your credit utilization high, so you'll want to increase your limit every year or so. Length of credit and a history of timely payments will only be improved by starting today.

P.S. If you let your lifestyle inflate and buy something you don't have the cash for, you've just let the credit card company punch you in the face instead of vice versa. You can look at credit as something you don't want to engage in on principle, but I think a better analogy is that it is an arms race that you need to win. Smart marketers at credit card companies are constantly dreaming up new ways to entice you to pay them interest and fees, but you need to keep cashing in on their gimmicks.
« Last Edit: March 18, 2013, 06:25:23 PM by Reepekg »

arebelspy

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Re: Credit: To build or not to build!
« Reply #4 on: March 18, 2013, 06:23:50 PM »
First of all congratulations. Your debt situation makes you a total badass.

The best way to hack this system is to get a cash back credit card and use it for all of your purchases. Set the money for your purchases aside in a high interest savings account so you pay in full at the end of the month.

Basically you are letting a credit card company pay you a signing bonus, pay you ~1% of everything you spend, and give you a month-long interest free loan each month (which is money that earns interest for you sitting in the bank)... all for the privilege of building your credit for you. And they give you all kinds of tools to track your spending and net worth.

Thanks credit card company, system hacked. I hate Bank of America's predatory practices and merrily take money from them every day. Proceeds from last year: $760.

P.S. If you let your lifestyle inflate and buy something you don't have the cash for, you've just let the credit card company punch you in the face instead of vice versa. You can look at credit as something you don't want to engage in on principle, but I think a better analogy is that it is an arms race that you need to win. Smart marketers at credit card companies are constantly dreaming up new ways to entice you to pay them interest and fees, but you need to keep cashing in on their gimmicks.

(Emphasis mine.)

You spent ~76,000 on a credit card last year?  You may want to rethink how your postscript applies to you..
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Reepekg

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Re: Credit: To build or not to build!
« Reply #5 on: March 18, 2013, 06:28:56 PM »


(Emphasis mine.)

You spent ~76,000 on a credit card last year?  You may want to rethink how your postscript applies to you..

Have no fear, it's not all at the 1% rate.

First there's the $100 sign-up bonus. Then there's a 10% increase in cash back rewards for redeeming them into a BoA checking account. Third, there is 3% on gas and 2% on groceries. Finally, I am able to pay my rent (at a non-mustachian Chicago premium) and utilities by credit card.

Some later reimbursed business expenses may or may not have snuck on there.

So there is a lot inflating that $760 number. Plus, I'm married, 28, still working, and we save 60% of our income.
« Last Edit: March 18, 2013, 06:51:20 PM by Reepekg »

MountainMan

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Re: Credit: To build or not to build!
« Reply #6 on: March 18, 2013, 10:06:08 PM »
Build credit.  It can make a lot of things easier.  Some rental car companies won't even rent a card to you if you don't have a credit rating.

So get a card and use it once in a while, and pay it off right away. 

Get two cards.  It'll help build credit faster than one.

Kierun

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Re: Credit: To build or not to build!
« Reply #7 on: March 18, 2013, 11:13:28 PM »
Build credit responsibly.  No credit can make things difficult for you later on in life.

nuclear85

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Re: Credit: To build or not to build!
« Reply #8 on: March 19, 2013, 06:54:45 AM »
I'm going to take the contrary view here and say that you don't need credit! I'm 27 now, and recently my credit score has gone to "unable to calculate" because I don't have one anymore (I had some credit & store cards and student loans when I was younger). Like you, I don't want to deal with credit card companies on principle... and I don't like the idea that I'm only valuable if I constantly get myself into debt. To address a couple of topics...

1) Rental cars. I've rented cars a couple times without a credit card. Usually if you're willing to put down a bigger deposit, this isn't a problem.

2) Mortgages. There is such a a thing as 'manual underwriting' which doesn't require a credit score... harder to find, but it exists. Anyway, I plan to buy a house in cash or not at all, as I don't believe in having debt.

3) Insurance, etc... maybe this is an issue? I guess you could be charged higher rates, but I haven't had any trouble with getting good, cheap car insurance so far.

4) Rewards -- the hassle of dealing with sneaky companies is, IMO, way more trouble than it's worth for rewards. Between my husband and I, we didn't have a single card that didn't either add some kind of 'identity protection service' charge, get the number stolen by someone, or screw up our on time payment at least once, so that we had to pay interest. The companies are scumbags, and it's not worth the frustration to 'stick it to them' by getting a few rewards. I use my debit card, where the account gives me 2% APY on the account balance, and for a while I had another rewards debit card (2% on purchases). There are other ways to get rewards without dealing with the sneaky CC companies.

If you want to deal with a lot of hassle and play by other people's rules, get credit. Me, I prefer just having money.

rugorak

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Re: Credit: To build or not to build!
« Reply #9 on: March 19, 2013, 08:04:38 AM »
Assuming your only concern is buying a home look for manual underwriting. There is no hack as one of the components of your score is length of time your longest account has been open. And even if you start building now I doubt you would get the best rate from a pure credit score standpoint. Manual underwriting will probably give you the best deal. That or just save up and buy the property outright with no loan what so ever.

Building some sort of credit record isn't a bad idea. A rewards card you pay off every month is a good place to start. It could make certain things easier in the future. But if you aren't comfortable you don't have to go down that path. There are always options.

sherr

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Re: Credit: To build or not to build!
« Reply #10 on: March 19, 2013, 08:16:47 AM »
2) Mortgages. There is such a a thing as 'manual underwriting' which doesn't require a credit score... harder to find, but it exists. Anyway, I plan to buy a house in cash or not at all, as I don't believe in having debt.

You can do that if you want, but you are depriving yourself of a (when used correctly) great opportunity. Interest rates in the US today are so low that I expect them to be lower than the long-term average rate of inflation. If so the bank is literally paying you to lend you money, and the money you would have spent to pay cash for the house can be invested to provide you with additional income you otherwise would have missed out on for a double-whammy. Having a low-rate mortgage (or several if you own rental property) is probably the best way in existence to insure yourself against the risk of inflation.

For the OP, I agree with everyone else: get a rewards card, use it, and pay it off every month. Regardless of credit score or future plans, you are passing up free money by not doing this. Just don't let the fact that you have credit available affect your purchasing decisions.

Hotstreak

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Re: Credit: To build or not to build!
« Reply #11 on: March 19, 2013, 08:53:10 AM »
2) Mortgages. There is such a a thing as 'manual underwriting' which doesn't require a credit score... harder to find, but it exists. Anyway, I plan to buy a house in cash or not at all, as I don't believe in having debt.

You can do that if you want, but you are depriving yourself of a (when used correctly) great opportunity. Interest rates in the US today are so low that I expect them to be lower than the long-term average rate of inflation. If so the bank is literally paying you to lend you money, and the money you would have spent to pay cash for the house can be invested to provide you with additional income you otherwise would have missed out on for a double-whammy. Having a low-rate mortgage (or several if you own rental property) is probably the best way in existence to insure yourself against the risk of inflation.

For the OP, I agree with everyone else: get a rewards card, use it, and pay it off every month. Regardless of credit score or future plans, you are passing up free money by not doing this. Just don't let the fact that you have credit available affect your purchasing decisions.


There you go!  With the low rates available you will (on average) beat the system by getting a mortgage and investing your cash.  You can also use good credit to get one low rate credit card and one low rate cash access Credit Line, and use that cushion to reduce your emergency fund (by investing those funds) and rely on the credit line in the rare event you need more than a few months cash.

Depending on your job situation, you may one day apply for a new job that requires a credit check, and having no credit whatsoever may raise a few eyebrows.

Having a credit card gives a buffer between fraudsters and your real money.  To the person above who wrote about unauthorized transactions on their card.. it is much more of a headache dealing with a fraud claim on your debit card or god forbid your ACTUAL BANK ACCOUNT, than your credit card.

Lots of the benefits are fringe, and you can sure do almost everything you want without them, but why would you?  You don't mention what these principles are that you referred to in your first post.  Is it like those guys who don't use the cross-head screwdriver because they don't like name Phillip?  I don't get it.