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Help optimizing credit score before home purchase

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Smoth
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Help optimizing credit score before home purchase  Reply with quote  

I am a graduate student who is looking to purchase a home in the next 1-2 years, so I am trying to strengthen my credit score as much as possible in that time (current FICO of 750). I have never missed a payment nor have I paid any interest, so I thought I was using my credit cards wisely until I started looking into the factors that affect my score. I do not have any other loans or debt and have never missed a rent or utilities payment.

I have 2 situations I am unsure about:

1) I signed up for a 0% financing for 48 month store card to furnish my apartment even though I had the cash on hand since I was told that I needed to build my credit. While I could pay the remaining $2000 balance off at anytime, I am paying about $60/month which is the minimum to meet the 0% offer. Is it wise to increase my credit utilization in exchange for making a payment history of this type? My utilization is currently at 36%.

2) Returning to credit utilization, I was placed on a joint account with my parents while I was in college since I couldnt get a credit card with a sufficiently high limit without an income. Now, I never use the card, but have been keeping it in case I ever found myself in a situation where I needed to charge $10,000+ in an emergency. However, my parents use that card very heavily, and while they never carry a balance, typically utilize at least 50% of that credit line. For them, this still hardly affects their overall credit utilization since they have 20+ credit cards, but for me, since I only have 2 others with much lower limits, keeps my overall utilization relatively high. On the flip side, my oldest account is just 2 years old, but this card has 16 years of history, so I am worried that if I remove myself from the card that it will do more harm than good.

Any insight into these two situations would be greatly appreciated! Thanks
Post Tue Sep 09, 2014 2:21 pm
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littleroc02us
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First off, do you hear yourself when you write? So your trying to increase your FICO score from a 750? Most any bank is going to give you a top interest rate for a home if you have a good debt to income ratio, meaning you have a good income and very little debt. They will also easily loan you at a good rate if you have a 20% DP. Any score above 750 is pointless, Creditors don't care if you have an 800 vs a 760.
I think getting a store cc just for the purpose of building your credit score is ridiculous. My wife and I carry two credit cards. We only use the Discover card for gas purchases and the other card never gets used. Our scores are both in the 800's, because we pay our mortgages in full, we pay off our cc and our debt to income ratio is very large because we don't have all of our money going to payments.
As for question #2, I would remove myself from my parents cc. First if not for independence, second because you don't need the cc for anything. If you save up 6 months of an EF, that's all you need. Anytime, I have an emergency, I can just give them my debit card and not have to worry about paying a bill. It's the greatest thing using real money.

Good luck on the house purchase. Remember to save a 20% dp.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Sep 09, 2014 4:17 pm
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oldguy
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quote:
I signed up for a 0% financing for 48 month store card to furnish my apartment even though I had the cash on hand since I was told that I needed to build my credit.


I agree with littleroc, do your business with your goals in mind, don't pay any attn to gaming the credit scoring. You are doing the right thing w/ your 0% loan - but for the wrong reason. It is good business to borrow at low rates and retain the use of your own money - ie, borrow at 0% and put that money to work at a higher rate. We don't pay attn to our scores - but they are always in the 800's. We've never borrowed with a cc (except at 0%), never paid interest to a cc company.

As for 20 cc's - I'll criticize your parents a bit for that - 2 is plenty - I can walk around w/ only a Visa card and never touch cash for weeks at a time, this isn't the 1950's where you needed a card for every store - a shell card, a mobil card, a sears cars, yada. I would cut the apron strings and just keep the 2 cards that are in your own name.
Post Tue Sep 09, 2014 11:00 pm
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Wino
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quote:
Originally posted by littleroc02us
Most any bank is going to give you a top interest rate for a home if you have a good debt to income ratio, meaning you have a good income and very little debt. They will also easily loan you at a good rate if you have a 20% DP. Any score above 750 is pointless, Creditors don't care if you have an 800 vs a 760.
I think getting a store cc just for the purpose of building your credit score is ridiculous.
(snip)
Good luck on the house purchase. Remember to save a 20% dp.

I have to second what littleroc said. Your credit score is fine. I suggest you pay off the $2K for two reasons: 1) if you don't and if it goes 1 minute beyond the limit, the rate is going to be 22 to 29% for the entire time, at only $60 per month coming off; 2) you don't need a balance to improve your score.

Using cards for gas purchases, etc., and paying them off every month in full will keep your credit score at a good level. The only thing I can see that you're not doing is that you don't have a variety of loans, but to get different loans, you'd have to have a carry-over balance, because they are not revolving loans. In other words, you could get a car loan, but once you pay it off, you would no longer have the loan. If you didn't pay it off, you'd be paying interest. Neither case helps you in the long run.

You don't need to improve your score. Just keep saving for the down payment and don't close any credit cards, especially if they still have a balance owed.
Post Tue Sep 09, 2014 11:05 pm
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oldguy
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quote:
The only thing I can see that you're not doing is that you don't have a variety of loans, but to get different loans, you'd have to have a carry-over balance, because they are not revolving loans. In other words, you could get a car loan, but once you pay it off, you would no longer have the loan. If you didn't pay it off, you'd be paying interest. Neither case helps you in the long run.


Actually, that HAS helped me in the long run. I'm age 75, I haven't paid cash for a new car since 1985 (when rates were about 15%). We have a taxable fund at a no-load company, a SP500 Index Fund. I could sell off $34k, pay about $4k in capital gains taxes, and use the other $30k to buy a new car. Or, instead, I could 100% finance a $30k car and pay about $33,300 for the car over 60 months, and leave our $34,000 invested. Additionally, I sell our old cars privately, maybe $4000, and add that to the fund. So that gives me $38k still in the fund (where it historically doubles every 7 years - ie, $76k in 7 yrs. And I do the same thing that you did with furniture, carpet, appliances, AC units, etc - near-0%, 4 or 5 year terms. My recipe - for a purchase, always save up the money first but then DON'T use it, borrow it elsewhere. If you do this over a lifetime, you are looking at an extra million when you hit my age - and it's no longer much of a hassle, auto bill pay. Very Happy
Post Tue Sep 09, 2014 11:31 pm
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