Question Details

Martin, Home Buyer in 28214

How do you get a high FICO score?

Asked by Martin, 28214 Thu May 8, 2008

Is it that necessary to get a good mortgage, even if you've lived with a cash-only policy for almost a decade? I'm wondering about that because I remained debt-free for years, put myself through grad school (paid for), and have been saving for a down payment.

I've established a credit line with my current company since I had to sign up for a company card, although I have a $0 balance.

Any thoughts? Thanks.

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Martin,
I think what Samantha was trying to say was that the credit reporting agencies want to see that you can pay on time for a loan or purchase. So even if you went to the bank and say borrowed a small sum and had it draft from an account you put the money in it would costs you the interest but, what they want to see is that track record of paying on time. In no way would I want you to change your habits. Besides with an IRA and other money in the bank if you just get your FICO up a little a lender will take that into account. The only thing is you may have to shop around for rates.
1 vote Thank Flag Link Thu May 8, 2008
BEST ANSWER
First and most important in my opinion, is to pay all your bills on time, Including your utility bills. Time on job is a big factor. The more loans you have and pay on time seems to raise your FICA score. I have found the the smart people who pay cash, seem to get lower FICA scores. Having a home is a big one. If your renting and moving a lot may lower your score. Just remember you can get much better rates of interest when you pay your bills on time than if you don't. from a 5.6% to a 6% could mean thousands of dollars in savings
1 vote Thank Flag Link Thu May 8, 2008
Martin, You're getting some great suggestions. I want to add to my previous answer that my wife and I have 1 Master card and 1 Discover card. We by everything we NEED with these cards. Neither has any fees and we ask if we can use a card for every little or large purchase. And yes it gives you a great record of your expenses if you need that. If I go to The Dollar Store I use a card and I also bank our money all month and write (electronic) 2 checks at the end of each month to pay them off. I pay my Geico bill and my auto tags with them...If you think about it you almost never need cash with you. We currently have 5 airline tickets waiting for us to use (more savings $$) Our score is over 800 but we started off years ago with some of the same advise your getting. Rome wasn't built in a day, but when it fell it crashed. Responsibility seems to be your lifestyle. Building a strong credit history should take 1-2 years, which will pass before your realize it. Then your good to go . You on the right track. Marty S.
0 votes Thank Flag Link Thu May 8, 2008
Martin-
There are a lot of good answers on here. I would recommend you establish 3 tradelines. The company card would count as 1 and most likely two other low interest credit cards. Did you have student loans? If you had student loans and they have been paid off, that is great for your credit rating. What you can do is what my husband and I do these days. We have a US Air credit card with a low interest rate and we buy our gas, groceries...all of our monthly expenses on the card to accrue miles. Meanwhile, all of our income every month sits in an interest bearing savings account. At the end of the month, we pay off all of our credit cards AND we made interest all along (granted it's not a lot, but it's better than nothing). We have near 800 credit scores and no debt, plus it's really easy to track our spending on Quicken/Quickbooks. We are establishing credit, tracking our spending, making interest and getting frequent flyer miles! It's just a thought. Don't carry a balance and obstain from opening gas cards, Home Depot cards etc. Those establish credit, but it's not always the "best" credit. Best of luck and keep saving!
Valorie Ford
Real Estate III/Keller WIlliams First Coast Realty
Bright Vision Mortgage
0 votes Thank Flag Link Thu May 8, 2008
By the way Don the Best Answer is determined by the person posting the question not by you putting it in your answer.
0 votes Thank Flag Link Thu May 8, 2008
By no means am I recommending you purchase something you do not want. Eventually you will need a new car, a new computer or carpet for your place. Using one of these expenses to build your credit is the simplest and quickest way to raise your score.

My only other advice is that closing credit cards that have not been opened for long enough can work against you. So try and stay away from opening accounts just to close them 4-8 months later.
0 votes Thank Flag Link Thu May 8, 2008
Thanks Sammie, but I can't see frivolously buying something on credit that I don't need (or want at this time) just to build my credit score. Although I'm middle-aged (young 30s), I still want to max out my ROTH & contribute 10% to my 401K while paying a mortgage note which is MORE than possible because of my lifestyle, income, and saving savviness.
0 votes Thank Flag Link Thu May 8, 2008
Paying off your balance every month and using a cc for necessities will assist in raising your FICO score but the BEST way to get a fast raise is to purchase something you want on credit and pay it off in a certain amount of time before interest accrues. For instance, if you purchase a laptop on a 6 month interest free line of credit and then pay it off in 6 months =)

What creditors are really looking for is someone who can keep up with timely and dependable payments. That doesn't mean you can't put things on credit and pay them off right away...it just won't raise your score very quickly doing it that way.

Congratulations to you for being debt free though Martin! Not too many people can tout that anymore =)
0 votes Thank Flag Link Thu May 8, 2008
Thanks everyone. It makes sense to use CCs to pay "necessities" with the goal of paying off the balance monthly to avoid paying interest and establish a line of credit without "racking up debt" as millions do.

Would it "help" if I allocate expenses to 2 cards, such as one for fuel and another for food/utilities? Thanks everyone.
0 votes Thank Flag Link Thu May 8, 2008
Martin,
While it is a great policy to be debt free (something I aspire to) it is not a general consensus. So while you are debt free I would suggest opening some kind of credit account. Whether it is a store account or a credit card. Then just to help your score you use it maybe once a month and then immediately payoff the balance. You seem to already have the discpline in place to understand and not treat it as "free money" like so many other first time users do. You must be able to show some sort of "track record" for the credit reporting agencies to be able to measure your performance on. With nothing to measure you againest they cannot rank you high because they do not know. So just have something and use it sparingly but, payoff the balance religiously. This will establish credit for you. After a few months you will start to notice a difference in your score.
Don't be discouraged you are on the right path you just need to establish yourself credit wise and prove that you can pay ontime.
0 votes Thank Flag Link Thu May 8, 2008
Martin, Years ago I worked for Carmax. I had to become educated in the ways for my "cash only" customers to build a credit score. When you go to make a large purchase and need to borrow money the banks look at your credit history. If you have none then you usually are denied a loan. I recommend you use 2 major credit cards to buy those items you must buy to live on. Food, gas, clothes, etc. Pay of the balances each month. If you buy a car finance some of the price and pay it off over a period of 2-3 years. Banks want to see a history of "revolving" credit with all payments made on time. They also want to see a low dept to income percentage (ratio). I had a 18 year old girl come in and by a car with a credit score around 800. I questioned the father as to how that could be possible. He and his wife added her name to their 3 credit card accounts when she was 15 and never told her. Their great credit became her history over the next 3 years. Some banks will allow a "strong" co-signer. In this country credit (good credit) is very important. Check out the cards with NO fees that give air miles and rewards. You have to eat and buy gas and clothes... Hope this helps. Marty S.
0 votes Thank Flag Link Thu May 8, 2008
I'm a full-time mortgage broker. I have visited with many customers who, like you, prefer to live on a cash-only basis. Typically their credit scores are not too bad (somewhere in the mid 600's).

With that said, the best lenders now have implemented "risk based pricing" on all conforming mortgages. What this means is that if your middle credit score (Transunion, Experian, EquiFax) is below 720, there will be an additional price to be paid for the best rates. The lower your middle score, the higher the price. This pricing can add up to a full 2%.

I know this doesn't address your primary question of how to improve your credit score, but it does help you understand the current importance of having a score of at least 720.

Good Luck!
0 votes Thank Flag Link Thu May 8, 2008
Don, not sure where you're coming from by overstating my need to "pay all my bills on time" when that's not a problem at all.
0 votes Thank Flag Link Thu May 8, 2008
" the cash only buyer is the same as a high credit score buyer"

Do you mean in reference to a FICO score, or as a cash-only purchase? I don't have near enough to do a cash-only purchase at this time. :)
0 votes Thank Flag Link Thu May 8, 2008
I have talked to a few lenders who say that the cash only buyer is the same as a high credit score buyer. You should be fine.
0 votes Thank Flag Link Thu May 8, 2008
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