No Credit. Need Information

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
uwgbluedevil
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No Credit. Need Information

Postby uwgbluedevil » Tue Nov 09, 2010 12:47 am

Currently I have no credit score as I have never had anything in my name nor have I ever signed up for a credit card, etc. Anything I have bought, i have had the money to pay for. Is this going to affect my ability to qualify for loans for school?

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let/them/eat/cake
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Re: No Credit. Need Information

Postby let/them/eat/cake » Tue Nov 09, 2010 1:04 am

you'll be fine with federal grad plus loans i think. the bar is prettty low for them.

uwgbluedevil
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Re: No Credit. Need Information

Postby uwgbluedevil » Tue Nov 09, 2010 1:08 am

would getting a credit card from the bank i have a checking account with and using it sparingly for things like gas, etc. help me at all by the time its time to apply?

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vanwinkle
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Re: No Credit. Need Information

Postby vanwinkle » Tue Nov 09, 2010 1:22 am

uwgbluedevil wrote:would getting a credit card from the bank i have a checking account with and using it sparingly for things like gas, etc. help me at all by the time its time to apply?

It would have no bearing on your loan eligibility, but I'd recommend getting a credit card and keeping it open (but not using it!) just so you have some established credit history. 3 years from now it'll matter a lot in your life, even if it doesn't matter how in your loan hunt.

uwgbluedevil
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Re: No Credit. Need Information

Postby uwgbluedevil » Tue Nov 09, 2010 1:24 am

thanks. I think I will do that soon. I'm the only person my age that I know that never even got a single piece of mail from a credit card company soliciting. Apparently its really strange. I just never had the need for a credit card or anything.

GettingReady2010
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Re: No Credit. Need Information

Postby GettingReady2010 » Tue Nov 09, 2010 1:28 am

vanwinkle wrote:
uwgbluedevil wrote:would getting a credit card from the bank i have a checking account with and using it sparingly for things like gas, etc. help me at all by the time its time to apply?

It would have no bearing on your loan eligibility, but I'd recommend getting a credit card and keeping it open (but not using it!) just so you have some established credit history. 3 years from now it'll matter a lot in your life, even if it doesn't matter how in your loan hunt.


I've never had a credit card, but I always assumed that you needed to use it to develop credit history. If you actually have the means to pay off your credit card bills, would it be better to use it? Would that develop your credit more?

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vanwinkle
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Re: No Credit. Need Information

Postby vanwinkle » Tue Nov 09, 2010 1:36 am

GettingReady2010 wrote:I've never had a credit card, but I always assumed that you needed to use it to develop credit history. If you actually have the means to pay off your credit card bills, would it be better to use it? Would that develop your credit more?

The key in developing credit history is the length of time you've had a line of credit opened. The longer your credit card is open the more it improves your credit rating. Showing that you've had the card for 3 years with 0 missed payments makes you more likely to be financially responsible than someone who hasn't had a card yet.

If you want to use the card and know you can pay it off, then that's fine, but the catch there is that eventually you'll reach a point that you can't pay it off right away, and you tell yourself you'll just get it paid off soon, and then you start letting it build up, and they're earning 17% on it... I'm saying this as someone who went from "I'm just gonna pay it off every month anyway" to having over $10K in credit card debt in the span of a few years. Actually using the card is dangerous because it can be habit-forming unless you're extremely careful. It's important to have the card, but also important that you only sparingly use the card, to avoid from getting yourself into trouble.

GettingReady2010
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Re: No Credit. Need Information

Postby GettingReady2010 » Tue Nov 09, 2010 1:40 am

vanwinkle wrote:
GettingReady2010 wrote:I've never had a credit card, but I always assumed that you needed to use it to develop credit history. If you actually have the means to pay off your credit card bills, would it be better to use it? Would that develop your credit more?

The key in developing credit history is the length of time you've had a line of credit opened. The longer your credit card is open the more it improves your credit rating. Showing that you've had the card for 3 years with 0 missed payments makes you more likely to be financially responsible than someone who hasn't had a card yet.

If you want to use the card and know you can pay it off, then that's fine, but the catch there is that eventually you'll reach a point that you can't pay it off right away, and you tell yourself you'll just get it paid off soon, and then you start letting it build up, and they're earning 17% on it... I'm saying this as someone who went from "I'm just gonna pay it off every month anyway" to having over $10K in credit card debt in the span of a few years. Actually using the card is dangerous because it can be habit-forming unless you're extremely careful. It's important to have the card, but also important that you only sparingly use the card, to avoid from getting yourself into trouble.


Gotcha. Would someone who has a card for three years and never uses it have the same credit rating as someone who uses it all the time (and make payments on time)? I ask is because I'm probably going to want to buy a house or something after graduation, and I only use a debit card - My preferred way to pay bills.

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vanwinkle
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Re: No Credit. Need Information

Postby vanwinkle » Tue Nov 09, 2010 1:44 am

GettingReady2010 wrote:Gotcha. Would someone who has a card for three years and never uses it have the same credit rating as someone who uses it all the time (and make payments on time)? I ask is because I'm probably going to want to buy a house or something after graduation, and I only use a debit card - My preferred way to pay bills.

What's reported on your credit report is your credit limit, how many months it's been open, how many times you've been late or delinquent, and if I'm remembering right, the highest balance you've ever carried. If you never charge anything it'll show up as $0 as the highest balance ever carried, but if you just buy something big once that you know you can pay off on time, it'll always report you carried that much balance on the card.

So just pick one big-budget thing and do it, and that'll take care of that.

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kalvano
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Re: No Credit. Need Information

Postby kalvano » Sat Nov 13, 2010 11:35 pm

It also helps to carry a balance for a little bit (a few months) and then pay it off.

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danidancer
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Re: No Credit. Need Information

Postby danidancer » Sat Nov 13, 2010 11:39 pm

kalvano wrote:It also helps to carry a balance for a little bit (a few months) and then pay it off.


This. Credit card companies have been known to cancel cards without activity on them for a long time, so it's important to use the card every once in awhile. I have one that I just use for gas, and another that I just use for my Netflix account. Small enough charges that I'm always able to pay them off, but still keeping them "active" so the credit card company isn't tempted to cancel them on me.

sarahh
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Re: No Credit. Need Information

Postby sarahh » Tue Nov 16, 2010 9:49 pm

vanwinkle wrote:
GettingReady2010 wrote:I've never had a credit card, but I always assumed that you needed to use it to develop credit history. If you actually have the means to pay off your credit card bills, would it be better to use it? Would that develop your credit more?

The key in developing credit history is the length of time you've had a line of credit opened. The longer your credit card is open the more it improves your credit rating. Showing that you've had the card for 3 years with 0 missed payments makes you more likely to be financially responsible than someone who hasn't had a card yet.

If you want to use the card and know you can pay it off, then that's fine, but the catch there is that eventually you'll reach a point that you can't pay it off right away, and you tell yourself you'll just get it paid off soon, and then you start letting it build up, and they're earning 17% on it... I'm saying this as someone who went from "I'm just gonna pay it off every month anyway" to having over $10K in credit card debt in the span of a few years. Actually using the card is dangerous because it can be habit-forming unless you're extremely careful. It's important to have the card, but also important that you only sparingly use the card, to avoid from getting yourself into trouble.


This information is a bit misleading. Length of credit history matters, but it is only 15% of your FICO score. 35% of your FICO score is your payment history. It is not enough to have a lack of negative information - you also need to have positive information. That means making payments. You don't need to carry a balance and then pay it down over few months. You can make a small purchase and then pay off your balance in full the next month. If you only use the cards once in a blue moon and don't have any late payments, you may not have a terrible score, but it may take you a very long time to get a score that will nab you the best interest rate.

A lot of good information is available at http://www.myfico.com.

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vanwinkle
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Re: No Credit. Need Information

Postby vanwinkle » Tue Nov 16, 2010 10:00 pm

sarahh wrote:This information is a bit misleading. Length of credit history matters, but it is only 15% of your FICO score. 35% of your FICO score is your payment history. It is not enough to have a lack of negative information - you also need to have positive information. That means making payments. You don't need to carry a balance and then pay it down over few months. You can make a small purchase and then pay off your balance in full the next month. If you only use the cards once in a blue moon and don't have any late payments, you may not have a terrible score, but it may take you a very long time to get a score that will nab you the best interest rate.

A lot of good information is available at http://www.myfico.com.

This isn't really correct. The "positive information" on payment history is a complete lack of late payments. What factors into that 35% is how frequently you were late, how long you were late when you were late, and how long it's been since your last late payment. It's a delinquency measurement; you don't actually have to owe anything to prove you're not being delinquent.

If you're holding an account open for years and only using it extremely rarely, you're still making all your payments on time and getting credit for an always-on-time payment history, even if that's because they're usually $0 since your balance is $0.

sarahh
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Re: No Credit. Need Information

Postby sarahh » Tue Nov 16, 2010 10:38 pm

vanwinkle wrote:
sarahh wrote:This information is a bit misleading. Length of credit history matters, but it is only 15% of your FICO score. 35% of your FICO score is your payment history. It is not enough to have a lack of negative information - you also need to have positive information. That means making payments. You don't need to carry a balance and then pay it down over few months. You can make a small purchase and then pay off your balance in full the next month. If you only use the cards once in a blue moon and don't have any late payments, you may not have a terrible score, but it may take you a very long time to get a score that will nab you the best interest rate.

A lot of good information is available at http://www.myfico.com.

This isn't really correct. The "positive information" on payment history is a complete lack of late payments. What factors into that 35% is how frequently you were late, how long you were late when you were late, and how long it's been since your last late payment. It's a delinquency measurement; you don't actually have to owe anything to prove you're not being delinquent.

If you're holding an account open for years and only using it extremely rarely, you're still making all your payments on time and getting credit for an always-on-time payment history, even if that's because they're usually $0 since your balance is $0.


Straight from FICO
"Your score considers both positive and negative information in your credit report.
Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score." You don't get credit for an on-time payment if you don't actually make a payment. For reports that list what happened each month, it will show that nothing happened.

Someone who has a long credit history with no negatives will have a little more leeway, but I think someone who just recently got credit will benefit from responsibly using the card each month (meaning only charging a small percentage of the credit limit, paying on time, and paying off the balance in full).

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vanwinkle
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Re: No Credit. Need Information

Postby vanwinkle » Wed Nov 17, 2010 12:24 am

sarahh wrote:Straight from FICO
"Your score considers both positive and negative information in your credit report.
Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score." You don't get credit for an on-time payment if you don't actually make a payment. For reports that list what happened each month, it will show that nothing happened.

This isn't true. I have pulled my credit report several times, and on cards where I have cleared off my balances they keep reporting "on time" every month to the credit bureaus. Yes, it says a good track record of making payments on time, but that means having an open revolving line of credit and not missing payments.

sarahh
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Re: No Credit. Need Information

Postby sarahh » Wed Nov 17, 2010 2:07 pm

vanwinkle wrote:
sarahh wrote:Straight from FICO
"Your score considers both positive and negative information in your credit report.
Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score." You don't get credit for an on-time payment if you don't actually make a payment. For reports that list what happened each month, it will show that nothing happened.

This isn't true. I have pulled my credit report several times, and on cards where I have cleared off my balances they keep reporting "on time" every month to the credit bureaus. Yes, it says a good track record of making payments on time, but that means having an open revolving line of credit and not missing payments.


The status will show that you are on time/never late, but if it breaks it down per month, not necessarily. I should not have said for sure it will show the card was not used because there are different formats for credit reports. I have pulled credit reports that have a dash for months when the card was not used. If you do not use the card, you have demonstrated you have restraint, but you have not demonstrated you can pay back credit responsibly. Not paying late is very important, and it will help your score to not have late payments, but so will paying on time. For people that are worried about their ability to avoid getting into debt, it probably is a good idea to use the card sparingly. If someone has a mortgage or car or student loan they are paying every month, using a credit card is not as important. But for someone who is able to pay the balance off in full each month, is new to credit, and only has credit cards, it is beneficial to use the cards. Also, as danidancer mentioned, the creditor may cancel the card if you don’t use it.




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