Got a question about credit cards...

[Bam]

So I've got a few credit cards, 3 to be exact. One of them is a store card, HHgregg, and that's the only one I'm using since I got it to get 15months 0% interest on a purchase. Other than that I don't use my credit cards really at all, the only thing I do is like vacation (rare), and once a quarter to pay for school. Its usually the same card, and I try and use the other one everyonce in awhile for like a night out. I just hate using them because most of the time I have the money or we don't buy it, mainly because I hate not knowing exactly where I stand with my money. My debit/checks come automatically out of my account so I know my balance, where as with the CC I don't get the bill for 30 days and then sometimes I worry about it.

 

So yeah, basically what I want to know is if by NOT using my credit cards am I hurting anything or what? I've had both of them for 2years, and the HHgregg I just got. Now my credit is fine and I have no problem getting approved on whatever, but anything helps I guess and I don't want NO credit card activity to hurt me in the future.

 

thanks

[wnaplay1647545503]

I have but 1 credit card. I use it very rarely although I keep a balance on it just to continually have someone reporting to the credit bureau. I was raised to pay for everything in cash. For many years I didnt have any cards. I payed everything in cash and when I went to buy my house it was hard to get a loan. Even though I had already established credit I hadn't done so in awhile. I owed nothing to nobody and it was still difficult. I was told by my lending company to always have something happening on the account. Paying it off isn't necessarily a good thing credit is built and maintained by repeated on time account payments. I'm sure I have something wrong and will be corrected in a minute, but this has been my experience.

[Bam]

Yeah, I don't know if I was raised to pay for everything in cash, but definitely to only buy what you can pay for. I got a credit card a few months after I turned 18 just because my parents told me to build credit early and keep it in good standing forever and I won't have a problem getting a home loan, like your talking about.

 

Now I hear both sides of the credit card thing. I hear that you should keep a small balance on your cards just to show that you use them, but in my mind that waste's money (interest) and if I have credit cards I have them. But then I hear from my parents/family and some friends who have paid their cards off EVERY month for the past 40 years or whatever, have beyond excellent credit and say never leave a balance.

 

Is there like a credit guru I could ask for the almighty ultimate answer?

[Guest powers]

Most as in 80-90 percent of credit card companies will report every 90 days even if you have no balance. You will have a better credit score with credit cards open but not in use than someone who carries a balance.

 

The lack of credit thing is not use, it is number of accounts with a high credit limit. Or the time they have been open. Some companies look for accounts open for 48 months with a limit of 5K or more. So paying things off early does not help your credit but it will save you interest.

 

So to answer your question no you are no hurting yourself by not using them just don't close them if they are not in use.

 

This is why we seee older people with excellent credit scores. They have3-5 credit cards that have been open for 10+yrs with no balances.

 

Your balance to credit limit per account and total aggregate for your revolving credit is 35% of your credit score, which is the largest chunk. This is followed by payment history at 30% of your score.

[Bam]

Thank you Greg, that's what I was looking for, long-term cards with little to no balance is what I'm looking for them, and it doesn't depend on usage.

 

Cool, well yeah I don't plan on getting anymore cards for the time being, unless I want to get a 0% promotional thing at a store, and like I said, I rarely if ever use them.

 

Thanks guys.

[Guest powers]

Yeah, I don't know if I was raised to pay for everything in cash, but definitely to only buy what you can pay for. I got a credit card a few months after I turned 18 just because my parents told me to build credit early and keep it in good standing forever and I won't have a problem getting a home loan, like your talking about.

 

A home loan is the easiest loan to get. Easier than a credit card or car loan.

 

Hardest loan to get is a business loan.

[Guest powers]

Thank you Greg, that's what I was looking for, long-term cards with little to no balance is what I'm looking for them, and it doesn't depend on usage.

 

Cool, well yeah I don't plan on getting anymore cards for the time being, unless I want to get a 0% promotional thing at a store, and like I said, I rarely if ever use them.

 

Thanks guys.

Yes also 10% of your score is how long you keep the same accounts open. So think about that and then think about all the people who open new accounts and close the old ones every 12 months for the 0-5% interest intro rates on Credit cards. To those people I say quit opening new accounts and start paying that shit off instead of living above your means.

[MrMeanGreen]

Greg, the Official CR Financial Advisor

[Bam]

Yes also 10% of your score is how long you keep the same accounts open. So think about that and then think about all the people who open new accounts and close the old ones every 12 months for the 0-5% interest intro rates on Credit cards. To those people I say quit opening new accounts and start paying that shit off instead of living above your means.

 

Yeah I agree, but having never owned a Washer/Dryer and wanting something that would last me, I elected to spread the $1500 over the 0% period. I've never done this before but we needed a W/D with a 6month old and I thought this was a better option than pretty much emptying our savings for it.

 

So your saying that I should keep the Hhgregg card open even if I don't plan on using it?

 

A home loan is the easiest loan to get. Easier than a credit card or car loan.

 

Hardest loan to get is a business loan..

 

Really? Well I haven't applied for a home loan yet, but have had a few car loans and those were no problem at all. I figured since I would be borrowing more they would require more qualifications. But then again isn't Ohio the state with the greatest percentage of foreclosures? That shows lenders don't really care that much/they just want money.

[wnaplay1647545503]

I could get any credit card anytime I wanted one, yet it was still difficult to get a homeloan. I owned my own company and it was harder for me to get liability insurance than to get a business loan.

[Guest powers]

Ohio has is the highest forclosure state currently. It is because of a higher meadian income and availablity of housing IMO.

 

A home loan is the easiest to get becasue it is a MUCh safer loan. There is collateral that does not move or depreciate like a car does. A credit card is secured by nothing but your income and how well you paythings off.

 

Your credit card balances tells alot about your finances. If you are at the limit on your credit cards you need mroe money than you currently make to live the way you are choosing to live with no signs of you being able to pay it off.

 

Now compare someone who has availabe credit and is choosing that they do not need to use it. This show that this individual knows how to live in the budget they have. Very simple if you think about it.

 

And then there is the guy who has NEVER EVER EVER made a late payment in his life has TONS of credit because he uses it. HAs 10 credit cards all near the limit, has a home that the payment is higher on than the bank would like for his income and has 2 new cars one if a truck that cost 35K and the other is some car his wife wanted for 28K. They have several installment loans for furniture or a boat or something like that.

His credit score is 580 on the nose, and he can't figure it out. He has never missed a pyament and says I have perfect credit I have never missed a payment on anything. While he is correct that he has never missed a payment credit is a risk evaluation. Imagine what would happen if he lost his job, or was in a car accident and he lost a few weeks work. While he would be compensated for this later on down the road he would have a VERY HIGH chance that his credit castle he has built would crumble. Banks look at thing different than the average person. I guess the lesson is don't be that 580 guy, he is the biggest pain in my ass.

[Guest powers]

I could get any credit card anytime I wanted one, yet it was still difficult to get a homeloan. I owned my own company and it was harder for me to get liability insurance than to get a business loan.

If you can get credit cards and had problems getting a home loan you went to the wrong place.

[Bam]

Thanks Again Greg, hopefully I'll be coming to speak to you sometime mid next year in our quest to purchase something. House or condo, we're not sure but renting gets old.

[wnaplay1647545503]

If you can get credit cards and had problems getting a home loan you went to the wrong place.

 

I owned my own business at the time. I started looking for a house shortly after starting my business. I was told I would need to work for myself 10-15 years and have every record until I would find a company to give me a loan. I was told to work for someone else for 4-5 and I would have no problems. And since I was fed up and was on the brink of a breakdown working for myself (stress) I did just that. After 5 years I got more offers for loans than I knew what to do with.

[Guest powers]

I have done loans for people self employeed for a year. I have done loans for people on the job 3 weeks after not working for over a year. It is all in what you know.

 

The reason I point this out is I don't want this kind of misinformation to keep people from pursueing a home of their own. There are several people on this board not to mention the many people I have helped realixe there is alot of misinformation about these types of subjects. I have seen Loan Officers completely drop the ball and when they can't get the loan done becasue they screwed something up they will tell the customer it was something other than the truth just to pass the blame.

[Total Sign]

Just for refrence, could you also post the "perfect credit report" What kind of accounts, length, etc.

 

Also, on home mortgages, say 20% down, based on income, what is the limit to stay within (house total = annual income, house total = 2 yearly incomes?)

 

Thanks Greg.

[88lx5oh]

i have had like 12 credit cards....ive got my self in and out of debt and then back in it ....as long as u pay on your credit cards it really helps build your credit...since i had so many i was able and have 3 car loans in my name.....so as long as u keep paying them ur credit will get better

[Guest powers]

This is the perfect credit report.

 

Mortgage 24+ months old

Installement 24+ months old

3 Revolving credit cards balance below 25% of the limit 48+ months old

 

No Judgements paid or unpaid

No tax liens (unpaid taxes report as a lien that will attach to anything you own)

No same as cash accounts ever

no BK ever

no lates ever

No collections paid or unpaid anywhere on the report

No new accounts opened in the last 12 months

less than 8 total inquiries in the last 12 months

 

This would be a perfect credit report with a score in the high 700 to low 800 range. The older your accounts get with no new stuff opened the better it gets. Most younger people have an issue getting over 750-760 for this very reason.

 

The credit reporting companies do not know how much you make so that is not a facotr for your credit report just for the creditor you are asking for credit from.

 

When a mortgage company looks at your income this is how we figure what you can afford.

 

There are ALOT of exceptions to what I am gonna tell you so if you see something that I put down that you disagree with remember there are alot of loopholes and things we can do like get people homes with no job at all or any money to put down.

 

Now on with the basics

 

We have debt ratio "guidelines" we have to follow. Every investor that buys loans from us the mortgage company is a little different unless you have ggod credit and are trying to get the best rate. So I will seperate the 2 classes as prime and non prime. Please me mindfull that people with excellent credit sometimes go a non prime route becasue the want a loan that prime lenders do not offer.

 

So we take your total gross income and figure out what you make per month. If there are 2 people on the loan the person who makes more money is the primary borrower no matter what.

 

Easiest way to figure the way we do is take you last 2 W-2's add them up and divide by 24. The primary wage earner is the credit score we use to underwrite. So if you wife has a sweat credit score but does not work sorry we are using your credit score becasue you will be the main repayer on the loan.

 

Now once you have your number for monthly income for eitehr you if you are alone on the application or the combined if there are 2 of you on the application take that number and divide by 2. Now you have 50% of your gross income.

 

Every payment on your credit that you currently have plus the house you are looking to buy including the monthly obligation for the taxes and insurance for that property has to fit into that number.

 

For example.

Johnny makes 3900 a month gross.

The loan he is applying for has a max debt ratio of 50%

he has 1300 in monthly credit obligations.( this does not include utility bills and food and gas and so on)

he wants to buy this house that the payment will be about 1200 a month on.

That means with the house he will have 2500 a month in monthly credit obligations.

2500 divided by 3900 = 64% debt ratio

So he is way over for what he wants.

 

Now he could apply for a loan where his income is no verified and buy the house if his credit score is good enough for that. But he can not get the best rate out there for that house. Now if he paid some stuff off then came back sure. Credit was not his issue it was income.

 

Here are the general guidelines, remember every lender is a little different

 

Prime(fannie mae, freddie mac) is about 45% max debt ratio and as high as 55-60% if you are putting 1/2 down and have VERY STRONG credit other wise 45% or so.

Wants at least a 620 but the rate WILL be higher. Typically they are looking for 660+.

 

FHA, VA(federal housing authority and the US Department of Veterans Affairs) 41% max becasue the lend to risky borrowers more so than PRIME.

NO CREDIT SCORE REQUIREMENTS. They look to see if you have been on time with NO adverse credit in the last 12 months with steady job history. This is a more expensive loan for that reason. There is more to a loan than rate.

 

NON PRIME (everything else)50% as high as 55% with a 10% or more down payment.

As low as 500 credit scores all the way up into the 700's. Offers self emplyeed stated income. Loans that require NO DOCUMENTATION of your income or even your job, or the money you plan to use as a down payment or to pay the loan back. This is SO many different things such as sub prime loans, loans for people who should be given loans where the bank is planning on you not making the payments. On the flip side of the coin there are also cool loans such as payment option arms available to better credit borrowers where you can make extreemly small payments on an other wise expensive home.

 

There are so many little rules and loop holes and quirky things in NON PRIME there is no way I could type them all here.

 

When it comes to car loans the too underwrite very similar to us. They just document less because it is easier to repo a car than foreclose on a home legally. They look at debt ratio and Loan to value(HOW MUCH YOU PUT DOWN) and credit score.

 

I hope I answered the questions folks were looking for. If there are more I would be happy to answer them or explain as much as I can.

[wnaplay1647545503]

People just need to be taught good money managment skills at an early age. I've known people that getting out of debt took many years. I have seen people who should be thinking of retirement, struggling to buy their first home. Kids who get out of high school and max out a credit card or 2 are in for a big let down when they actually get their head on straight. My wife hasn't worked in years and I have my loan in my name only. I was approaved for a loan of up to $260,000, yet I bought a $150,000 house. And that wasnt for a stick home from one of these "super builders" like MI. I paid nothing down. I was smart about my finances and have never lived beyond my means. Its funny when you see someone desperate for money with a ciggarette in their mouth. I know of a kid who lives elsewhere going to my school district because his mom doesnt want to stop smoking or give up a new car and fancy rims to move out of the ghetto. It doesnt even cross her mind that the pack of smokes is taking away from her having a better house. And has the nerve to say she cant afford it here. Sorry, getting of topic. They should make it mandatory for kids to take some sort of money management course in high school.

[caseyctsv]

Greg - pretty good summary of our industry (I have been in the mortgage industry 10 yrs). Something you also need to keep in mind is on a "prime" loan the rate may be good but you will probably have PMI (private mortgage insurance). This is an insurance policy that a lender takes out to help cover any losses that may occur if they have to foreclose on a house. PMI kicks in at loan to values > 80%. So if you are putting < 20% down you will likely have to pay PMI. The amount of the PMI depends on your credit and how much you put down - it can be VERY significant 100-200 / month. Obviously the less you put down the more risk of loss to the lender - so the cost of the PMI goes up. This is why many people with perfect credit may go to a sub-prime lender - they can offer higher loan to values (loan amount / value of home) with no PMI. They get their profits in the rate rather than PMI. Remember that home interest is tax deductible while PMI is not. You can have the PMI removed after you have built enough equity in the home but it is a pain in the butt.

 

Moral of the story - avoid PMI if you can!

[Guest powers]

Greg - pretty good summary of our industry (I have been in the mortgage industry 10 yrs). Something you also need to keep in mind is on a "prime" loan the rate may be good but you will probably have PMI (private mortgage insurance). This is an insurance policy that a lender takes out to help cover any losses that may occur if they have to foreclose on a house. PMI kicks in at loan to values > 80%. So if you are putting < 20% down you will likely have to pay PMI. The amount of the PMI depends on your credit and how much you put down - it can be VERY significant 100-200 / month. Obviously the less you put down the more risk of loss to the lender - so the cost of the PMI goes up. This is why many people with perfect credit may go to a sub-prime lender - they can offer higher loan to values (loan amount / value of home) with no PMI. They get their profits in the rate rather than PMI. Remember that home interest is tax deductible while PMI is not. You can have the PMI removed after you have built enough equity in the home but it is a pain in the butt.

 

Moral of the story - avoid PMI if you can!

 

Now lenders offer LPMI Lender Paid Mortgage Insurance. The lender will provide the mortgage insurance for you at a higher rate depending on your loan to value. This does up the interest rate but lowers the payment and allows you a larger write off at the end of the year.

 

I would never advise any good credit borrower go sub prime to avoid PMI there are too many options for them conforming.

 

Also I wanted to toss this in there PMI is not always the more expensive route. So you don't want to avoid PMI you want to fully understand your options and choose the one best for YOUR situation. This is the biggest mistake borrowers and Loan Officers make. Borrowers don't understand their options so they take one of 2 things, what someone esle said to get becasue they have it even though THEY don't even understand it OR the other thing they choose is the same loan that laon officer offers to everyone to make his/her job easier.

 

People, see a professional and ask every question you can. If you don't get long answers your not getting the full answer. Be confident in the person you have working on this and last of all NEVER EVER EVER do business with someone who offers you one things and changes it on you. I like to call these people liars. Unfortunatly most of the time you don't find out that they are liars untill a day before closing or AT CLOSING. Remember you don't have to sign anything. Waiting an extra week or two may save you thousands.

[Dr. Pomade]

Christ, this deserves some kind of sticky somewhere or something. It's like I just wandered into an economics textbook of some sort.

 

I heart Greg Powers.

[caseyctsv]

 

I would never advise any good credit borrower go sub prime to avoid PMI there are too many options for them conforming.

 

 

I have - there are times when sub-prime is simply the better option. However there is no need to argue sub prime vs prime. There are tons of options available out there. My point is just that "sub prime" does not mean it is a worse deal or not as good as a prime loan - each type of loan has advantages and disadvantages. You are absolutely right - it is imperative you ask a lot of questions. Make sure you know to ask a "disinterested" third party for advice if you are uncomfortable. You WILL get burned and pay more than necessary if you do not take your time!

[Tulo]

I get credit card offers in the mail everyday. Are you saying that it would be in my best interest to accept these cards, open the accounts, and never use them?

[Guest Scooter]

Only if they are for $5,000 or more!

 

However... I thought having a lot of "revolving" credit was bad in that you could get denied a loan, because the loaner sees it as potential debt, even if the balance is 0?

 

This is the line of crap a bank tried to feed me when I went for a signature line of credit. I got denied because I had a lot of revolving credit. I tried to get a loan with them for like a week, and nothing was happening.

 

Went to another bank, approved in 15 minutes, no problems.