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Old 03-06-2011, 01:58 PM
KatherineLee88 KatherineLee88 is offline
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Join Date: Jan 2011
Location: Iowa, USA
Posts: 25
Default Re: First credit card- good for credit rating??

Quote:
Originally Posted by DavidBibby View Post
For example... I assume that most 22 year-olds are irresponsible with money because 1) I was once irresponsible and misused both cash and credit 2) Handling money responsibly is simply not "taught" in schools and 3) Most people reach retirement age will less than a $400 net worth, which means that they misused money their entire life. People don't usually start out responsible then end up swinging the other way to financial immaturity.
I think the fact that this individual has come to this board looking for advise shows that he is more inclined to be a responsible user of credit.
Yes, unfortunately this is NOT taught in schools. That is something that as a general public we should be enraged about and DO something about. But... different topic.
Also, unfortunately, the days of counting on a government run "pension program" aka social security are at their last days. People need to make their own plans to secure their financial security at an old age, so the sooner they start dealing with credit and personal finances the better.

Quote:
Originally Posted by DavidBibby View Post
Would you suggest then..as a test of responsibility..that he first open up a savings account of about $500 - $1000 cash... then get an secured credit card with the same amount?

Following that he would start charging a little bit here and there and paying the balance off in full each month to build his credit.
Sure. Sounds like a good idea... however, technically with a secured card he wouldn't be spending more than was already deposited into the account, therefore he would actually be paying in full already. It's just a glorified debt card - but unlike a bank debit card, secured credit cards report to the credit bureaus, therefore helping credit history.

Quote:
Originally Posted by DavidBibby View Post
If he determines that he can't pay it off every month because he charged too much, or he had an emergency and used the card to pay for it. What should he do then?
Pay it off over time and then start over?
Once again, technically if it's a secured card, this wouldn't an issue. He wouldn't actually be able to spend more than was deposited into the account.
If he had an unsecured card (which most credit cards are), then yes... this could be an issue. However, this is also assuming that just because a person has a credit card they no longer are saving money for a rainy day emergency, which I think is a bad assumption. You think I'm not saving for a rainy day? I am. But I also have $9,000 in credit available to me, too... but at 17%+ APR I would be stupid to resort to credit before using emergency funds. Credit cards, if you want to USE the system, are not MEANT to be "emergency funds" - they are the SUPER emergency funds when your 6-8 month supply of emergency funds are gone.

Quote:
Originally Posted by DavidBibby View Post
So if a person is known to be financially immature? Would you suggest they get ANY type of credit card?

How does one know when they're ready for one?
Yes. Preferably a secured one, but unsecured is okay, too - with a low credit limit. You'll never know if you're ready for one if you never give it a go. How did you know you were "ready" to ride a bike? Drive a car? You know from experiencing it first hand and trying. Obviously when you start riding a bike you don't plan to bike miles - when you're first driving a car you have a parent or friend with you to guide you and you don't plan on driving on an interstate in rush hour traffic. There's smart moves, and their stupidity. The person seeking advice on here is trying to do the smart thing by getting advice. Stupidity is the consumer that opens retail store credit cards to get 15% off a $50 purchase (they can afford) but decides, "Ohhh 15%.... lets look some more" and grabs a couple hundred dollars more of clothing.

Quote:
Originally Posted by DavidBibby View Post
Credit card companies frequently raise credit limits without even being asked as a way of "Rewarding" those customers that make them money.
This doesn't happen as frequently as you're implying it does. This happens to long-time customers that pay in full every month that are NOT using their full balances - the card companies bump the balances up more to encourage the person to spend more. Yes, they're "rewarding" in a somewhat predatory way but the responsible card user will think, "Great... so instead of $1,000, I have $1,500 limit, so I can charge about $50-100 more a month, if necessary and I can pay it back on time.

Quote:
Originally Posted by DavidBibby View Post
Credit card companies target young people, especially on the college campuses. They give away a lot of free hats and t-shirts for their efforts.
Thanks to the market meltdown and subsequent credit law reforms (Truth in Lending Acts, Credit Card Accountability Responsibility and Disclosure Act of 2009), this doesn't happen anymore. In fact, it's much harder for college students to get cards now and card companies are basically banned from campuses.


Quote:
Originally Posted by DavidBibby View Post
It IS possible to get a mortgage without a credit history. There ARE mortgage companies that will do their own underwriting.

So someone with a decent size emergency fund, good income, and enough to put down will easily be able obtain a mortgage with the right company.

That being said... a MOST mortgage companies can't make a decision without seeing your FICO score... so I honestly can't fault someone for building their score and getting a mortgage.
Yes, if I thought it was wise in my best interest to save $50,000-100,000 for a 100-200,000 house, then it's likely possible. Although, I don't think this is wise use of money. $30,000 is sufficient... waiting to get to 50-100,000 is just wasting time in my opinion.
Revolving credit, such as credit cards, are a BIG part of the calculation of a FICO score. Avoiding revolving credit entirely will severely impact your score. Fact of life.


Quote:
Originally Posted by DavidBibby View Post
You may be right about that. On the other hand, if he's able to live with his parents awhile longer... he could have ample time to build the assets upon which he wouldn't need to use credit for these things. We just don't know enough about this particular 22 year old to say which way is the right way.
Not everyone has the option to continue living with his/her parents until they've built up a 50% down payment on a house. Don't parents deserve to have an empty nest? As soon as a child finishes college, it's time to stop being sheltered and enter into the real world. There is a HUGE growth in maturity, emotionally, and financially that occurs when a child moves out of home.

Quote:
Originally Posted by DavidBibby View Post
Will you still need credit after you have obtained a mortgage and paid your house off? What would you need it for then? Investment Real Estate?
On a brief note, sure. And car loans. This individual believes that low interest loans below 8% on real estate and cars can be maintained for the duration of the loan. Sure you lose money in the meantime on interest, but the money you would be using to pay down the debts earlier could be better used investing in the SP500 index (and other similar indexes) which average 10%+ each year.

Examples explain it very well. I can share some if you're interested. But basically, why prepay a 3.8% loan when the money could be making 8-12%/year instead?

Of course, he's only able to get ridiculously low loan interest rates because of an amazing FICO score. For the record.

Quote:
Originally Posted by DavidBibby View Post
You CAN build your FICO score without credit cards... but I will concede the fact that the best and easiest way to build, raise, and maintain your score is to get a credit card, pay it off in full every month, and don't charge more than 10% of the maximum limit.
True. Hence why I wouldn't advise this person who is seeking advice to avoid revolving credit. It's a big part of a FICO score.

Quote:
Originally Posted by DavidBibby View Post
It's a RARE person who can do that. It's even more RARE for a 22 young person such as yourself to do that.
People reading this have already proven themselves to CARE about their personal finances. They're already making a big step in the right direction. I'm willing to place some trust in the person that is taking steps to educate themselves on credit and use credit correctly.

Quote:
Originally Posted by DavidBibby View Post
As far as using the FICO for employment.. the only time I've ever heard of it being a factor is if you're doing into the FINANCE industry. Even then.. I've never heard of anyone being turned down for a job solely on the FICO score.
Incorrect. I know an example of a lawyer and a doctor that had their scores evaluated.


Quote:
Originally Posted by DavidBibby View Post
There IS life without credit, for both the young person and the guy in his 40's
Yes. I just don't want that life. I think I can, and others can, use credit to his/her advantage.

Quote:
Originally Posted by DavidBibby View Post
Considering the fact that 96% of people DO NOT reach financial independence in their lifetime and that they paid over 1/3 of their lifetime income in finance charges and interest, I choose not to use credit ever again, for ANYTHING.
Where are those statistics from? I'm interested in how that is actually determined.
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