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Old 03-06-2011, 10:11 AM
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??

Originally Posted by DavidBibby View Post
That being said.. I have to make the concession that you're going to need to have good credit in order to obtain a mortgage. I'm not going to fault anyone for wanting a house and putting down 30% to 50% (at least 20% is preferred so that you avoid the PMI payment)

While my point of view of "no credit cards" may seem extreme. I still stand by it for three reasons.

1) Studies have shown that people who use credit-cards (even the ones who pay them off every month) spend 12-18% more than people who use debit cards or cash exclusively.

2) Rather than focusing on the FICO score... I choose to focus on a different NET WORTH. Young people especially SHOULD be stuffing money into their 401(k) or a ROTH IRA right now. I'm catching up on a whole decade of not saving for retirement.

3) Only a small percentage of people actually pay off their credit cards each and every month. The rest get caught in the trap of using credit to buy something on impulse. Then they get stuck in a life-draining and financial-draining system that will keep them in bondage for a good long time.

So for the credit card company... it's a small price for them to pay a reward to one person who doesn't make them any order to catch about 95 people who owe them interest. The credit card company still wins. I personally avoid doing business with these companies.

If you take a look at all the self made millionaires (those who started with nothing and ended up with a net worth of over 1-million) you'll find that at some point in their life they decided that borrowing money was a bad idea.

It's a rare person who win's playing the credit card game. Even if you do it right... there's still a better game to play. Play the Millionaire by age 45 game.

Do what ever you need to do to get into the house you want. Once you have it... then seriously look at the role the FICO score has in your life.

I wish you the best of luck.

Yes, I agree with you on a few of those points. I have also heard that the use of plastic like a debit or credit increases a person's chance of spending more money than they needed to. This is why it's important to keep a budget in perspective when using cards. Keep all receipts, and add things up at the end of the week. I add up everything on my slips that I deemed "unnecessary" and boy, yes, I am at times a "victim" of the use of plastic. However, I have never been a victim to the extent that I couldn't pay the bill in full each month. That's where self-control comes in. Even a person with a wad of cash in their wallets can burn up unnecessary money if they lack self control. Avoiding credit because of a fear that you will fail to use it properly is irrational. People need to try - and start small - to master the use of credit.

Use of credit properly can be extremely beneficial. Avoiding it can be extremely detrimental.

So in terms of advice to a 22 year old with no credit history, I don't think we should be advising him to avoid credit cards (for reasons of qualifying for a good mortgage down the road). We should be advising him to get ONE credit card with a low credit limit and test the waters. When he feels comfortable with it, increase the limit or get another card and continue on the path of mastering your credit - not fearing the use of credit because thousands of people have abused it - because thousands have also NOT abused it and used it to benefit themselves and the age of 22 is a good time to start using it for his benefit.

You said self-made millionaires at some point found themselves not needing to use credit. Great. Good for them. I understand this... because they may have used it in their earlier years to get ahead. If we were advising a 40 year old with a house already, or other assets, then cutting up credit cards for life makes sense.

Once again, for a 22 year old who sounds like he doesn't have a lot of financial assets, I don't think this is good advice.
I personally will use credit for life. My grandfather was a self-made millionaire through proper use of credit and investing properly, and I know another that is in his seventies STILL using credit and has net worth of 3+ million that they earned through proper credit use and investing wisely. The reasoning for him to still use credit is VERY simple and VERY smart - and obviously has worked very well for him! But that's a topic for a different thread.

All in all, yes... a FICO score is essentially worthless after obtaining a house and paying if off. It's the process of getting TO that point that a FICO score has a huge influence over a person. Therefore, since I'm 22 (23 tomorrow) I'm going to baby that three digit score as much as possible so 5-10 years down the road I get the most favorable mortgage terms available. Also... FICO scores can have an effect at obtaining jobs... so I wouldn't write it all off as a credit thing. Employers have used FICO scores as a base to determine eligibility for employment or who of two candidates to hire therefore credit is an important component to a person's life.

I agree with the net worth thing. Right now I'm primarily concentrating on "net worth" because I have been dividing my paycheck (after expenses) to a Roth IRA and my student loans. It's exciting to see my net worth change every month as I climb myself out of student loan debt and start building my nest egg. However, I am focused on net worth AND FICO score. To me, both are very important. I refuse to be afraid of using credit because others have failed to use it in the past. And I think advising a 22-year-old to not use credit is not good advice.

There have been many people on financial forums that have found themselves unable to qualify for a car loan, or RENT AN APARTMENT because they have NO credit history! Basically we're setting this guy up to not only not qualify for a good mortgage due to little to no credit history, but potentially setting him up to get turned down from renting an apartment as well. I'm not really aware of what options exist when you can't buy a home or rent an apartment. And yes, I know not all apartments need a credit history - but SOME do and I care to not limit my choice of an apartment to the roach-infested place in ghettotown because I was afraid to use credit cards.

Last edited by DavidBibby; 03-06-2011 at 10:16 AM.
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