Best Credit Card for new graduate? (1 Viewer)

[Mr.Pack]

Daughter just graduated from college. Has some student loan debt but is looking to establish credit.

What is the best card to be looking at?

TIA

 

[eoMMan]

Most banks/federal credit unions should be willing to offer her a small $500 card. Start there. She shouldn't be so focused on rewards or anything right now. Just have her make sure she's never late and to pay it off.

 

[Osaurus]

Something like Target should suffice

 

[Juxtatarot]

Most banks/federal credit unions should be willing to offer her a small $500 card. Start there. She shouldn't be so focused on rewards or anything right now. Just have her make sure she's never late and to pay it off.

Why in the world would you make a distinction between state and federally chartered credit unions in this regard?

 

[eoMMan]

Most banks/federal credit unions should be willing to offer her a small $500 card. Start there. She shouldn't be so focused on rewards or anything right now. Just have her make sure she's never late and to pay it off.

Why in the world would you make a distinction between state and federally chartered credit unions in this regard?

Huh?

I said banks or federal credit union. What are you talking about?

 

[Arizona Ron]

Most banks/federal credit unions should be willing to offer her a small $500 card. Start there. She shouldn't be so focused on rewards or anything right now. Just have her make sure she's never late and to pay it off.

Why in the world would you make a distinction between state and federally chartered credit unions in this regard?

 

[flapgreen]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

 

[Doctor Detroit]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

This

 

[Mile High]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

 

[Arizona Ron]

I agree about paying off student loans but I wouldn't discount how helpful having a credit card with a credible credit card company will help in the long run.

Having a line of credit for several years with the same company will prove to be valuable 5+ years from now.

 

[Arizona Ron]

Also, I would suggest getting a credit card with the same company you bank with.

 

[mquinnjr]

PM Em, he's got this on lockdown.

 

[Doctor Detroit]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

Then why get a credit card? Seems like getting a debit/credit connected to a checking account is the only way to go. Why we are encouraging young people to pile onto consumer credit when they have tens of thousands in school loans, is not a great way to teach financial responsibility. Credit score doesn't do you any good if all you're paying is debt down.

 

[Arizona Ron]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

Then why get a credit card? Seems like getting a debit/credit connected to a checking account is the only way to go. Why we are encouraging young people to pile onto consumer credit when they have tens of thousands in school loans, is not a great way to teach financial responsibility. Credit score doesn't do you any good if all you're paying is debt down.

DD, I think you're overlooking "good debt", e.g. a Home Loan. It's hard to convince a bank to foot 800k for a decent home when all you have to show for it is paying off your student debt. They want to see credit history, credit cards and small loans to develop a pattern of credibility.

 

[Slapdash]

Most banks/federal credit unions should be willing to offer her a small $500 card. Start there. She shouldn't be so focused on rewards or anything right now. Just have her make sure she's never late and to pay it off.

Why in the world would you make a distinction between state and federally chartered credit unions in this regard?

Huh?

I said banks or federal credit union. What are you talking about?

Not all credit unions are federal. HTH

 

[Doctor Detroit]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

Then why get a credit card? Seems like getting a debit/credit connected to a checking account is the only way to go. Why we are encouraging young people to pile onto consumer credit when they have tens of thousands in school loans, is not a great way to teach financial responsibility. Credit score doesn't do you any good if all you're paying is debt down.

DD, I think you're overlooking "good debt", e.g. a Home Loan. It's hard to convince a bank to foot 800k for a decent home when all you have to show for it is paying off your student debt. They want to see credit history, credit cards and small loans to develop a pattern of credibility.

No credit card debt is good debt. Paying off a school loan is fine, she doesn't need to establish a credit pattern at 22 so she can get "good debt." You are confusing no credit record with a bad credit record. Plenty of banks will give people with a limited credit history a home loan, especially if they have a good job and a good deal of cash.

 

[Juxtatarot]

Most banks/federal credit unions should be willing to offer her a small $500 card. Start there. She shouldn't be so focused on rewards or anything right now. Just have her make sure she's never late and to pay it off.

Why in the world would you make a distinction between state and federally chartered credit unions in this regard?

Huh?

I said banks or federal credit union. What are you talking about?

Not all credit unions are federal. HTH

Yes. There is no reason to exclude a credit union chartered by a state.

 

[Arizona Ron]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

Then why get a credit card? Seems like getting a debit/credit connected to a checking account is the only way to go. Why we are encouraging young people to pile onto consumer credit when they have tens of thousands in school loans, is not a great way to teach financial responsibility. Credit score doesn't do you any good if all you're paying is debt down.

DD, I think you're overlooking "good debt", e.g. a Home Loan. It's hard to convince a bank to foot 800k for a decent home when all you have to show for it is paying off your student debt. They want to see credit history, credit cards and small loans to develop a pattern of credibility.

No credit card debt is good debt. Paying off a school loan is fine, she doesn't need to establish a credit pattern at 22 so she can get "good debt." You are confusing no credit record with a bad credit record. Plenty of banks will give people with a limited credit history a home loan, especially if they have a good job and a good deal of cash.

It better be about 25% of the value of the house if you're trying to get a home loan with limited credit history post-housing bubble.

 

[StrikeS2k]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

Then why get a credit card? Seems like getting a debit/credit connected to a checking account is the only way to go. Why we are encouraging young people to pile onto consumer credit when they have tens of thousands in school loans, is not a great way to teach financial responsibility. Credit score doesn't do you any good if all you're paying is debt down.

DD, I think you're overlooking "good debt", e.g. a Home Loan. It's hard to convince a bank to foot 800k for a decent home when all you have to show for it is paying off your student debt. They want to see credit history, credit cards and small loans to develop a pattern of credibility.

No credit card debt is good debt. Paying off a school loan is fine, she doesn't need to establish a credit pattern at 22 so she can get "good debt." You are confusing no credit record with a bad credit record. Plenty of banks will give people with a limited credit history a home loan, especially if they have a good job and a good deal of cash.

Having a credit card <> credit card debt. I think it's fine to get a credit card as long as you're basically paying it off each month. If the individual is disciplined it is a good way to build credit. My first credit card had a $300 limit. Hard to get in to too much trouble with something like that. Then work your way up to more credit. Given that the person in question is already out of college she should probably start building up credit before she does want to make a major purchase.

 

[Doctor Detroit]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

Then why get a credit card? Seems like getting a debit/credit connected to a checking account is the only way to go. Why we are encouraging young people to pile onto consumer credit when they have tens of thousands in school loans, is not a great way to teach financial responsibility. Credit score doesn't do you any good if all you're paying is debt down.

DD, I think you're overlooking "good debt", e.g. a Home Loan. It's hard to convince a bank to foot 800k for a decent home when all you have to show for it is paying off your student debt. They want to see credit history, credit cards and small loans to develop a pattern of credibility.

No credit card debt is good debt. Paying off a school loan is fine, she doesn't need to establish a credit pattern at 22 so she can get "good debt." You are confusing no credit record with a bad credit record. Plenty of banks will give people with a limited credit history a home loan, especially if they have a good job and a good deal of cash.

Having a credit card <> credit card debt. I think it's fine to get a credit card as long as you're basically paying it off each month. If the individual is disciplined it is a good way to build credit. My first credit card had a $300 limit. Hard to get in to too much trouble with something like that. Then work your way up to more credit. Given that the person in question is already out of college she should probably start building up credit before she does want to make a major purchase.

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

 

[Arizona Ron]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

You might be right but kind of unrealistic for most new grads to pay off school loans quickly.

Then why get a credit card? Seems like getting a debit/credit connected to a checking account is the only way to go. Why we are encouraging young people to pile onto consumer credit when they have tens of thousands in school loans, is not a great way to teach financial responsibility. Credit score doesn't do you any good if all you're paying is debt down.

DD, I think you're overlooking "good debt", e.g. a Home Loan. It's hard to convince a bank to foot 800k for a decent home when all you have to show for it is paying off your student debt. They want to see credit history, credit cards and small loans to develop a pattern of credibility.

No credit card debt is good debt. Paying off a school loan is fine, she doesn't need to establish a credit pattern at 22 so she can get "good debt." You are confusing no credit record with a bad credit record. Plenty of banks will give people with a limited credit history a home loan, especially if they have a good job and a good deal of cash.

Having a credit card <> credit card debt. I think it's fine to get a credit card as long as you're basically paying it off each month. If the individual is disciplined it is a good way to build credit. My first credit card had a $300 limit. Hard to get in to too much trouble with something like that. Then work your way up to more credit. Given that the person in question is already out of college she should probably start building up credit before she does want to make a major purchase.

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

It's the American way

 

[Doctor Detroit]

I'm just playing devil's advocate. I never had any debt until my late 20s and I wish I would have kept it that way. I don't have a ton now, but it's enough for me to completely change my perspective on consumer debt. Will all be paid off by spring except my mortgage, then me and consumer debt will part ways forever.

 

[The Big Guy]

I see what DD is saying, but he is totally discounting that AZ Ron's kid might just be one of the people who will use their card judiciously and pay it off in full monthly. Plus, if she is going to make major purchases, then she is going to miss out on the potential credit card rewards that can be had for purchasing items on a card and paying it in full monthly. I get paid about $50/month to use my credit cards. Highly recommend it if you can do it.

The reality is that to get a mortgage in the world today, the underwriters want to and need to see a more complete credit file. This means that you will need 2 credit cards with some time under their belts. Does not mean carrying a balance on either card, so you can have credit and not use it/pay in full monthly.

Now for a decent starter card, there are a couple of decent offerings from Capital One and as a recent grad, she should be getting a fair amount of junk mail offers from the banks at this point. My daughter is in a similar boat and there was a pretty strong offer from TD Bank in her mail.

 

[StrikeS2k]

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

I don't disagree with any of this. However, it's unrealistic to expect someone not to take out a mortgage when they buy a house. What percentage of people do that? I see from your posts that you have a mortgage. Personally, I also don't have a problem with someone financing a new car depending on how much the loan is for and the interest rate. Sometimes taking on debt isn't a bad thing. It all depends on the individual and their financial situation. Building up a credit record gives a person flexibility in how they go about their finances. That's not a bad thing, and I wouldn't discourage someone from trying to build a good credit record.

 

[AAABatteries]

AZ Ron and Mr Pack have a kid together?

Not sure if I could have come up with a bigger odd couple if I tried.

 

[Doctor Detroit]

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

I don't disagree with any of this. However, it's unrealistic to expect someone not to take out a mortgage when they buy a house. What percentage of people do that? I see from your posts that you have a mortgage. Personally, I also don't have a problem with someone financing a new car depending on how much the loan is for and the interest rate. Sometimes taking on debt isn't a bad thing. It all depends on the individual and their financial situation. Building up a credit record gives a person flexibility in how they go about their finances. That's not a bad thing, and I wouldn't discourage someone from trying to build a good credit record.

Where did I say that?

Buying a new car is a terrible purchase also, and I've bought five of them. Never did I leave that lot saying, "damn I just made a great financial decision."

Student loans and mortgages are good debt, pretty much everything is bad.

 

[Doctor Detroit]

AZ Ron and Mr Pack have a kid together?

Not sure if I could have come up with a bigger odd couple if I tried.

Opposites attract!!!!!

 

[The Big Guy]

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

I don't disagree with any of this. However, it's unrealistic to expect someone not to take out a mortgage when they buy a house. What percentage of people do that? I see from your posts that you have a mortgage. Personally, I also don't have a problem with someone financing a new car depending on how much the loan is for and the interest rate. Sometimes taking on debt isn't a bad thing. It all depends on the individual and their financial situation. Building up a credit record gives a person flexibility in how they go about their finances. That's not a bad thing, and I wouldn't discourage someone from trying to build a good credit record.

Where did I say that?

Buying a new car is a terrible purchase also, and I've bought five of them. Never did I leave that lot saying, "damn I just made a great financial decision."

Student loans and mortgages are good debt, pretty much everything is bad.

Again, you keep calling his kid getting a cc Debt, like it is preordained and a done deal already. AZ already said that his kid is paying down her SL debt, so it is safe to assume that she is working at this point, so having a CC does not mean that she is going to be incurring debt.

 

[Doctor Detroit]

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

I don't disagree with any of this. However, it's unrealistic to expect someone not to take out a mortgage when they buy a house. What percentage of people do that? I see from your posts that you have a mortgage. Personally, I also don't have a problem with someone financing a new car depending on how much the loan is for and the interest rate. Sometimes taking on debt isn't a bad thing. It all depends on the individual and their financial situation. Building up a credit record gives a person flexibility in how they go about their finances. That's not a bad thing, and I wouldn't discourage someone from trying to build a good credit record.

Where did I say that?

Buying a new car is a terrible purchase also, and I've bought five of them. Never did I leave that lot saying, "damn I just made a great financial decision."

Student loans and mortgages are good debt, pretty much everything is bad.

Again, you keep calling his kid getting a cc Debt, like it is preordained and a done deal already. AZ already said that his kid is paying down her SL debt, so it is safe to assume that she is working at this point, so having a CC does not mean that she is going to be incurring debt.

I'm not following any of this.

 

[Tiger Fan]

Pack - why does she need a cc? Does she have a job?

 

[StrikeS2k]

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

I don't disagree with any of this. However, it's unrealistic to expect someone not to take out a mortgage when they buy a house. What percentage of people do that? I see from your posts that you have a mortgage. Personally, I also don't have a problem with someone financing a new car depending on how much the loan is for and the interest rate. Sometimes taking on debt isn't a bad thing. It all depends on the individual and their financial situation. Building up a credit record gives a person flexibility in how they go about their finances. That's not a bad thing, and I wouldn't discourage someone from trying to build a good credit record.

Where did I say that?

Buying a new car is a terrible purchase also, and I've bought five of them. Never did I leave that lot saying, "damn I just made a great financial decision."

Student loans and mortgages are good debt, pretty much everything is bad.

Again, you keep calling his kid getting a cc Debt, like it is preordained and a done deal already. AZ already said that his kid is paying down her SL debt, so it is safe to assume that she is working at this point, so having a CC does not mean that she is going to be incurring debt.

I'm not following any of this.

Okay, say she gets a credit card and does one of the following:

- Doesn't ever charge anything on it.

- Charges a few household expenses on it instead of paying cash, but sets aside the cash as she goes along and pays off the bill in full every month.

Is that still bad? You're acting like she's gonna suddenly have a massive additional debt, which may not be the case. Some of us are suggesting to you that not everyone fits the profile you posted above. Some people are disciplined and responsible and are just looking to establish themselves in the adult world, which typically includes having some credit.

 

[Doctor Detroit]

Or maybe she should just save for a major purchase.

Again, this mindset is the problem in a country where consumer debt is just expected. Most people don't get credit cards and then pay them off the same month.

U.S. household consumer debt profile:Current as of August 2014

• Average credit card debt: $15,480
• Average mortgage debt: $156,474
• Average student loan debt: $33,424

In total, American consumers owe:

• $11.74 trillion in debtAn increase of 5.% from last year

[*]$872.2 billion in credit card debt
[*]$8.24 trillion in mortgages
[*]$1,131.7 billion in student loans
[*]An increase of 14.2% from last year

I don't disagree with any of this. However, it's unrealistic to expect someone not to take out a mortgage when they buy a house. What percentage of people do that? I see from your posts that you have a mortgage. Personally, I also don't have a problem with someone financing a new car depending on how much the loan is for and the interest rate. Sometimes taking on debt isn't a bad thing. It all depends on the individual and their financial situation. Building up a credit record gives a person flexibility in how they go about their finances. That's not a bad thing, and I wouldn't discourage someone from trying to build a good credit record.

Where did I say that?

Buying a new car is a terrible purchase also, and I've bought five of them. Never did I leave that lot saying, "damn I just made a great financial decision."

Student loans and mortgages are good debt, pretty much everything is bad.

Again, you keep calling his kid getting a cc Debt, like it is preordained and a done deal already. AZ already said that his kid is paying down her SL debt, so it is safe to assume that she is working at this point, so having a CC does not mean that she is going to be incurring debt.

I'm not following any of this.

Okay, say she gets a credit card and does one of the following:

- Doesn't ever charge anything on it.

- Charges a few household expenses on it instead of paying cash, but sets aside the cash as she goes along and pays off the bill in full every month.

Is that still bad? You're acting like she's gonna suddenly have a massive additional debt, which may not be the case. Some of us are suggesting to you that not everyone fits the profile you posted above. Some people are disciplined and responsible and are just looking to establish themselves in the adult world, which typically includes having some credit.

lol at all of this.

 

[Doctor Detroit]

In the land of unicorns and free lunches 22-year-old women pay their credit cards off every month, Beirut is the hottest tourist spot, and the Cubs win the World Series every year.

 

[Juxtatarot]

In the land of unicorns and free lunches 22-year-old women pay their credit cards off every month, Beirut is the hottest tourist spot, and the Cubs win the World Series every year.

They're not THAT bad. I don't know the percentage but I would agree it's low.

 

[SacramentoBob]

Paying off student loans as quickly as possible will build credit better than getting a credit card.

This is false.

Revolving credit card debt being paid off does much more for your FICO than installment loans.

 

[SacramentoBob]

People paying cash instead of credit are just leaving money on the table. Pay off your revolving balances in full every month and in 2 years you will have unbelievably great credit.

The main thing is: Don't treat credit card limits as additional income. Just put your normal monthly spending on them and pay it off. You buy gas and groceries every month right? Put that on the card and pay it off in full each month. If you're carrying a balance, you're doing it wrong.

 

[Doctor Detroit]

Credit score facts & fallacies

Fallacy: My score determines whether or not I get credit.Fact: Lenders use a number of facts to make credit decisions, including your FICO® score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

 

[Doctor Detroit]

People paying cash instead of credit are just leaving money on the table. Pay off your revolving balances in full every month and in 2 years you will have unbelievably great credit.

The main thing is: Don't treat credit card limits as additional income. Just put your normal monthly spending on them and pay it off. You buy gas and groceries every month right? Put that on the card and pay it off in full each month. If you're carrying a balance, you're doing it wrong.

Exactly. But that's the problem, almost everyone is doing it wrong. Me included.

 

[SacramentoBob]

Credit score facts & fallacies

Fallacy: My score determines whether or not I get credit.Fact: Lenders use a number of facts to make credit decisions, including your FICO® score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

Your FICO pretty much determines whether or not you get credit and how much you get, period. There are some things outside of FICO that underwriters take into consideration, but FICO is going be the biggest deciding factor. $200K salary and nothing on your credit file gets you a $500 secured card at Bank of America, while a $40K salary and a 700 FICO gets you a limit that, at a minimum, matches your highest credit limit from a competitor at any of the prime credit card issuers.

ETA: People who are eligible for some of the really good credit unions based on being a service member (USAA, Navy FCU) can be exempt from this criteria. Anyone who is eligible for those credit unions should be joining them right now if they aren't already a member.

 

[SacramentoBob]

People paying cash instead of credit are just leaving money on the table. Pay off your revolving balances in full every month and in 2 years you will have unbelievably great credit.

The main thing is: Don't treat credit card limits as additional income. Just put your normal monthly spending on them and pay it off. You buy gas and groceries every month right? Put that on the card and pay it off in full each month. If you're carrying a balance, you're doing it wrong.

Exactly. But that's the problem, almost everyone is doing it wrong. Me included.

It's a life lesson we all have to learn. Now is a good time for Mr Pack to sit down with his daughter and give her some words of wisdom. She may follow it or she may learn the hard way. Either way, if she wants to buy a house in 5-10 years she's going to have start proving she's responsible with credit now or pay cash.

 

[Doctor Detroit]

So Bob, if you have student loans and are paying them off religiously, is that not positively reflected on your FICO report?

 

[Doctor Detroit]

People paying cash instead of credit are just leaving money on the table. Pay off your revolving balances in full every month and in 2 years you will have unbelievably great credit.

The main thing is: Don't treat credit card limits as additional income. Just put your normal monthly spending on them and pay it off. You buy gas and groceries every month right? Put that on the card and pay it off in full each month. If you're carrying a balance, you're doing it wrong.

Exactly. But that's the problem, almost everyone is doing it wrong. Me included.

It's a life lesson we all have to learn. Now is a good time for Mr Pack to sit down with his daughter and give her some words of wisdom. She may follow it or she may learn the hard way. Either way, if she wants to buy a house in 5-10 years she's going to have start proving she's responsible with credit now or pay cash.

That's not true though

Getting a Mortgage Without a Credit ScoreLet’s go back a few years, though—back before you paid off that mortgage. How can you get a mortgage without a credit score in the first place? Isn’t this magic number your key to the world of mortgages and homeownership?

Actually, no, it isn’t. You can get a mortgage without a credit score. How so? Manual underwriting.

Not every lender is going to do manual underwriting—which is basically when they use a little common sense and look at factors like your income and not just your credit score. Churchill Mortgage is the lender we recommend for manual underwriting.

Now, this doesn’t mean that just anyone can walk into a bank or mortgage lender and walk out with a home loan using manual underwriting. Remember, this is the way weird people do it, so there are some requirements you’ve got to live up to. Specifically, you must:

• Put at least 20% down on your home.
• Choose a 15-year, fixed-rate conventional mortgage.
• Have a strong employment history and personal income to support the loan.
• Demonstrate 4–6 trade lines that span 18–24 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.

 

[SacramentoBob]

So Bob, if you have student loans and are paying them off religiously, is that not positively reflected on your FICO report?

It's not negative, but it's actually a smaller component of your score unfortunately. The best thing student loans do for you is establishes your credit file at 18 so by the time you graduate from college, you already have 4-5 years of credit history. Overall age of your file and perfect payment history on revolving debts/mortgages are the two best things you can do for your credit score.

 

[Juxtatarot]

People paying cash instead of credit are just leaving money on the table. Pay off your revolving balances in full every month and in 2 years you will have unbelievably great credit.

The main thing is: Don't treat credit card limits as additional income. Just put your normal monthly spending on them and pay it off. You buy gas and groceries every month right? Put that on the card and pay it off in full each month. If you're carrying a balance, you're doing it wrong.

Exactly. But that's the problem, almost everyone is doing it wrong. Me included.

It's a life lesson we all have to learn. Now is a good time for Mr Pack to sit down with his daughter and give her some words of wisdom. She may follow it or she may learn the hard way. Either way, if she wants to buy a house in 5-10 years she's going to have start proving she's responsible with credit now or pay cash.

That's not true though

Getting a Mortgage Without a Credit ScoreLet’s go back a few years, though—back before you paid off that mortgage. How can you get a mortgage without a credit score in the first place? Isn’t this magic number your key to the world of mortgages and homeownership?

Actually, no, it isn’t. You can get a mortgage without a credit score. How so? Manual underwriting.

Not every lender is going to do manual underwriting—which is basically when they use a little common sense and look at factors like your income and not just your credit score. Churchill Mortgage is the lender we recommend for manual underwriting.

Now, this doesn’t mean that just anyone can walk into a bank or mortgage lender and walk out with a home loan using manual underwriting. Remember, this is the way weird people do it, so there are some requirements you’ve got to live up to. Specifically, you must:

• Put at least 20% down on your home.
• Choose a 15-year, fixed-rate conventional mortgage.
• Have a strong employment history and personal income to support the loan.
• Demonstrate 4–6 trade lines that span 18–24 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.

Getting a small limit credit card and using it responsibly is a hell of a lot easier route to go.

 

[SacramentoBob]

• Demonstrate 4–6 trade lines that span 18–24 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.

lol

So in other words, take out no credit, but call your utility companies and ask them for a credit reference proving you've been on time for two years.

Or you could just do the same thing automatically with a credit card.

I like Dave Ramsey's practical advice for people who actually have debt problems and how to get out of them, but he really is the credit version of a luddite sometimes and comes across as a complete bonehead a lot of the time. His advice is terrible for people who are responsible.

 

[Doctor Detroit]

So Bob, if you have student loans and are paying them off religiously, is that not positively reflected on your FICO report?

It's not negative, but it's actually a smaller component of your score unfortunately. The best thing student loans do for you is establishes your credit file at 18 so by the time you graduate from college, you already have 4-5 years of credit history. Overall age of your file and perfect payment history on revolving debts/mortgages are the two best things you can do for your credit score.

Ok. So if someone was say 28, paid off $40k in student loans, and had no other credit...what would their score be? I would think that along with a good salary and a good down payment would be plenty to secure a mortgage. No?

 

[SacramentoBob]

Barclays Bank offers 2 reward points for each $1 spent on utilities, so you could pay the exact same bills as Dave suggests and get a small reward at the same time. American Express has 6% cash back on groceries and 3% cash back on gas if you use their Blue Cash Preferred.

 

[SacramentoBob]

So Bob, if you have student loans and are paying them off religiously, is that not positively reflected on your FICO report?

It's not negative, but it's actually a smaller component of your score unfortunately. The best thing student loans do for you is establishes your credit file at 18 so by the time you graduate from college, you already have 4-5 years of credit history. Overall age of your file and perfect payment history on revolving debts/mortgages are the two best things you can do for your credit score.

Ok. So if someone was say 28, paid off $40k in student loans, and had no other credit...what would their score be? I would think that along with a good salary and a good down payment would be plenty to secure a mortgage. No?

They would have a good score. I'm not a mortgage underwriter so I can't say, but they'd have what is called a "thin file" which may make them ineligible for the best programs based on other requirements.

 

[Doctor Detroit]

So Bob, if you have student loans and are paying them off religiously, is that not positively reflected on your FICO report?

It's not negative, but it's actually a smaller component of your score unfortunately. The best thing student loans do for you is establishes your credit file at 18 so by the time you graduate from college, you already have 4-5 years of credit history. Overall age of your file and perfect payment history on revolving debts/mortgages are the two best things you can do for your credit score.

Ok. So if someone was say 28, paid off $40k in student loans, and had no other credit...what would their score be? I would think that along with a good salary and a good down payment would be plenty to secure a mortgage. No?

They would have a good score. I'm not a mortgage underwriter so I can't say, but they'd have what is called a "thin file" which may make them ineligible for the best programs based on other requirements.

Makes sense, thanks for the info.

 

[Juxtatarot]

So Bob, if you have student loans and are paying them off religiously, is that not positively reflected on your FICO report?

It's not negative, but it's actually a smaller component of your score unfortunately. The best thing student loans do for you is establishes your credit file at 18 so by the time you graduate from college, you already have 4-5 years of credit history. Overall age of your file and perfect payment history on revolving debts/mortgages are the two best things you can do for your credit score.

Ok. So if someone was say 28, paid off $40k in student loans, and had no other credit...what would their score be? I would think that along with a good salary and a good down payment would be plenty to secure a mortgage. No?

They would have a good score. I'm not a mortgage underwriter so I can't say, but they'd have what is called a "thin file" which may make them ineligible for the best programs based on other requirements.

Actually, after 6 months of the creditors stopping reporting of the payoff, that individual would have no score.

What are the minimum requirements for a FICO score?There's really not much to it; in order for a FICO® score to be calculated, a credit report must contain these minimum requirements:

• At least one account that has been open for six months or more
• At least one undisputed account that has been reported to the credit bureau with in the past six months
• No indication of deceased on the credit report (Please note: if you share an account with another person this may affect you if the other account holder is reported deceased).

http://www.myfico.com/crediteducation/questions/requirement-for-fico-score.aspx