Posted on 01/04/2012 7:39:40 AM PST by Kaslin
“That will hurt you later when you apply for new credit (mortgage, car loan, etc.)”
Not really. The only thing that hurts you is being late or not paying. A zero score is just as good as an 800 score. It means you have stayed out of debt. But your credit score will still reflect power bills and such so a 0 score is unlikely. People with 0 scores are usually housewives with rich husbands.
Try using a debit card account. For security reasons, open an additional debit card account (checking account) at the same bank you normally bank so that you can transfer money to that account as you need. Debit cards also have protections credit cards have, and this also helps limit any liability of someone, for a short time, getting all the money in the account.
Most of the yesterday’s issues companies had with debit cards are nearly gone.
Sorry, but having just gone through this with a young adult daughter -- no credit history (or minimal credit history) is hugely different than a established credit history.
You might get a loan, but it will be considered sub-prime and your interest rate will be as much as 6X what you will get with an established credit history.
The only difference between men and boys are the price of their toys. Cutting back or eliminating the toys helps in meeting the budget.
To slow your use of a credit card:
Take a baggie, fill with water, insert card, place in freezer...
Boy, that’s a lot of words to say “Don’t spend money that you don’t have”.
If you are in over your head, ask to speak to the loss mitigation department. They have the authority to write off losses, without the borrower having to declare bankruptcy. The creditors have already factored in the bad loans, do not feel embarrassed to ask for a write down as part of a commitment to pay off some final balance due.
Yes, this will cause your credit rating to take a hit. But if you are in over your head, it has already sufferred.
“not having any credit cards severely limits your purchase power,”
False. Cash is king for purchase power.
” as well as possibly your credit score.”
Who cares. A credit score is nothing but “an I love debt” score and if you have no debt you have very little risk in life.
“Have you ever made reservations at a hotel? Ever bought airline tickets? Ever bought anything online?”
Yes. Constantly. A debit card can be run as a visa/mastercard and carries all of the same securty and protection.
All budgets are not created equally. Some do not necessitate toy liquidation.
“You might get a loan, but it will be considered sub-prime and your interest rate will be as much as 6X what you will get with an established credit history.”
Only when you use those “good credit yes, bad credit no” companies that could hire monkeys to press computer boards. If you use an underwriter, then you will deal with thinking people. Of course, they are old school and want to make sure the borrower enters with 20% equity and has the means to pay the actual monthly bill...
;-)
“Boy, that’s a lot of words to say “Don’t spend money that you don’t have”.
And that is a lot of words to say, “act your wage.”
;-)
This thread needs some Dave Ramsey expertise...Sorry, it has been awhile since I pinged everyone. I can not figure out how to do anything but post from my smartphone and have not been at a computer for a very long time...
Happy New Year fellow DR fans.
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Missed ya!
I bought myself a DR Daily Desk Calendar and it is pretty cool. If I get permission to post the daily advice, you will hear more from me. ;-)
I didn’t want to get FR in trouble for any copywrite infringement, so I sent a request to his team for approval to post them here...I hope to hear soon.
I don’t want to get into specifics, but my wife and I finally got out of debt by paying the credit card off with a large balance. You don’t know how many dang years a high credit card balance adds to your life. I think we may USE CASH and buy a bottle of champagne (cheap) to celebrate this milestone!
Personally, I wouldn’t recommend that. If you borrow against your 401K and change or lose your job the balance of the loan becomes due immediately. Dicey thing to do.
“no credit history”
But the person in question here already has a credit history.
Ah, but you previously wrote:
I was responding to that comment, and corrected you. But, if you want to talk about this particular person, let's go back to what I originally wrote:
If you close all your credit accounts, you will still have some credit history, but not recent history. And after 7 years, it will disappear altogether. This isn't an option for this particular person, since she still owes $20,000. But, it's still good advice: once you have established credit, you want to maintain it.
Closing accounts prematurely will also hurt you in another way: it will reduce your available credit, and increase your credit utilization. An example: you have two credit cards, each with a $10,000 credit limit. You have a $9,000 balance on one of them, but the other is paid off. If you close the account with a zero balance, your credit utilization will jump from 45% to 90%. That's an exaggerated case, but 90% utilization of revolving credit is considered "maxed out", and will significantly lower your credit score.
Your credit score has a number of components: credit utilization, length of credit history, timeliness, etc. Late payments in the past 24 months have a big (and perhaps the biggest) effect, but your credit score can vary quite a bit even if your credit is "perfect". And while you may be able to get a loan with little or no history, it will substantially increase your finance rate.
I showed my daughter how much her monthly payments would be with a ideal credit score (i.e. 750+) versus little or no credit. She now understands how important it is.
BTW, I haven't financed a car in nearly 30 years. Since then, I've paid cash each time. And when I applied for credit recently, my credit score was lowered because I had no recent car loans (despite credit cards that are 35 years old, and a mortgage recently paid in full)!!!
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