Credit and Credit Scores: A short lesson

[PokerFox]

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Fox, I thought the agencies reported data but every credit institution uses its own variant of a FICO score using a credit agency's data to decide creditworthiness. Is this an accurate representation?

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Absolutely correct; each financial institution pulls from a different one of the 3 credit agencies, and has their own criteria for developing their 'credit score' but the FICO one is for all intents and purposes, close enough to what you can expect.

[BradleyT]

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Million-

First, I'm really not an expert on this, so someone else should really verify my statements.

You're not wrong, but I'm not either. The advice you're quoting is based on the idea that having a 1:1 ratio is also bad. That's an indicator that you're maxed out, and you're having trouble managing the debt you have. On the other side of the coin, having a 20:1 ratio isn't favorable either, for the reasons I already mentioned in the other post.

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You both are correct, but you need to get a little more extreme with your numbers - such as having $300,000 in avail credit and applying for a $400,000 house. This becomes especially more suspicous if the $300K was very recently acquired.

[emon87]

Cubs,

could you explain or point me to a site explaining why it would be better to rent than buy? I always thought that renting was worse because, when you're paying off a mortgage, you're keeping the value because you keep the house.

thanks

[jackblack73]

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Million-

First, I'm really not an expert on this, so someone else should really verify my statements.

You're not wrong, but I'm not either. The advice you're quoting is based on the idea that having a 1:1 ratio is also bad. That's an indicator that you're maxed out, and you're having trouble managing the debt you have. On the other side of the coin, having a 20:1 ratio isn't favorable either, for the reasons I already mentioned in the other post.

[/ QUOTE ]Having a 20:1 ratio is much, much, much more favorable because of your utilization ratio. Most recommend to have a utilization ratio of less than 25%.

Now, it is possible to have a low utilization ratio but then to have too much credit, like you mention. But I think that only becomes a consideration when you have relatively high credit limits. I don't know at what point it becomes a consideration, but I've had credit card limits totaling over $80K before and still had a FICO score of 795.

As far as I've seen, a low utilization ratio is weighted much more heavily than having too much available credit. So be careful about automatically closing older cards.

[kvp]

Great thread, I have a few questions;

i) any free credit reports for Canadians?

ii) I have ONE late CC payment that I did not notice until recently. I have a TD Green ($3k limit) and TD Gold ($10kish). I had a balance on both one month and made one payment towards each. I did this at the bank and the teller made a mistake, she put TWO payments towards one Visa when it should have gone to each one. It's also my mistake for not checking, but how bad is this? Can this be disputed and what is the latest I can dispute this? What should I say?

iii) I had an issue with my Gold Visa where they blocked it, someone stole my number and tried to make a purchase in England or something. Visa let me know, blocked my card, and sent me a new one. But I forgot to move my cell phone payments to a different Visa so had late cell phone payments, does this hurt me?

iv) If I do something like take out a line of credit at a bank, take out cash then put it back in a few weeks and pay little interest, does this help build my credit?

Thanks to anyone that can help answer these.

[ChipWrecked]

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what about credit consolidation programs? Are they worth it and how do they affect your score?

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bump 'cause I need an answer

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Worse than bankruptcy.

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Is this the same thing as the counseling/repair services?

I am paying off debt through CCCS right now. I got with them when I hit two 30-day lates.

My FICO score is 714.

[Cubswin]

I currently rent a 4 BR house in Northern VA and pay $2200 a month. The house is valued at $700,000. Now, lets just say that I happen to have a 20% downpayment and want to buy this house instead of renting. So I pony up my 140k downpayment and find a sweet interest rate of 5.65%. My monthly payments would be just over $3200. I might qualify for a tax deduction on the interest I pay but this will be offset by my property tax, insurance, and cost of ownership.

If I continue to rent I have an extra $1000 a month in addition to the 140k I have from not buying the house. Earn 8% on this money and in 30 years i have just over 3 million dollars!

I know i simplified things quite a bit so i hope it makes sense...

[The Dude]

I seem to remember a couple years back somebody linking to a forum on credit. It was in one of those "what is the 2+2 of ______" threads, I think. I only browsed it, but it seemed quite comprehensive and extremely helpful. Does anybody remember this, by chance?

[belgianbeerlover]

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You are entitled to 1 free credit report per year from each agency (obtainable at annualcreditreport.com), therefore, the smart consumer pulls his credit once every 4 months, each time from a different agency.

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Nice. It never occurred to me to do it this way. I was ordering all 3 at the time 1/year. Your way is much better.

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Not really. Each bureau could have different info. Some of which may not be accurate and actually hurting you. Not all credit issuers report to all 3 agencies. So, if someone happens to open an account in your name you may not know by just pulling one report. Same goes for collection accounts. You may be in collections for something you know nothing about.

Granted, these scenarios are unlikely but certainly not out of the question.

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Good point. But I like the idea of checking every 4 months rather than once a year. (for free) I gotta believe that if someone opened an account in my name and became deliquent on it, all 3 would be notified eventually. No?

[BradleyT]

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I seem to remember a couple years back somebody linking to a forum on credit. It was in one of those "what is the 2+2 of ______" threads, I think. I only browsed it, but it seemed quite comprehensive and extremely helpful. Does anybody remember this, by chance?

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I have in previous posts. http://consumers.creditnet.com/Discu...t-talk-3.html/ (they've changed their forum software it used to be slow and ugly) It's where I learned about all the letters and proper dispute methods for getting negative items off your credit report.

I also joined - http://www.creditboards.com/forums/ for the business credit section recently and it has good info. The personal credit section has over 1 million thread replies so I assume it's good also.