Do I really need a credit score?

[Naughtius]

Not really a dumb concept when you look at it. They need proof that you have the ability to pay for something at a later date when you said you would. Also, pick a good card that can give you rewards.

Not to be "that guy," but credit reports show a person's willingness to repay.

Underwriters are responsible for answering 3 basic questions on a credit application:
- Do they have the willingness to repay this loan (generally answered by their FICO score)?
- Do they have the ability to repay (done by comparing income to debt, including the new payment)?
- What happens if they don't pay? (In a mortgage, this is comparing the value of the house to the debt. The more equity, the greater the odds the bank gets their money back in a foreclosure).

If the underwriter doesn't like the answer to any of those 3 (or first 2 for unsecured debt), your odds of getting the loan go down.

 

[cycloneworld]

With "no" credit (technically, you will have some...like a cell phone) and no continuous employment, I'd say there is about a 1% chance you would get approved for a mortgage right now. The exception may be a small bank where you've/your family have done business for awhile. Banks will like to see your credit history and 12-24 months at the same job.

As people said, get a credit card or 2 (just pay it off each month). But something on store credit (with 0% interest of course) and pay it off right away. Wait a year, and then go talk to a bank.

 

[leroycyclone]

I'm sure there are lots of good responses above, but might as well throw in my 2c.

If you're going to get a card, I love my discover card. The cash back is great, if you pay for everything on it and pay it off every month, you can use the money for stuff you hate paying for. (I buy work clothes with it).[/QUOTE

Regarding the cash back feature, I ditched the Discover Card after many years when they increased the Cash Back Minimum required to claim the money from $20 up to $50. Discover also keeps the cash back increments in an even $50, leaving dollars and cents on the table.

Similar rewards cards from Chase and B of A return the cash, in the form of a check or an account credit, to the exact penny and without the $50 minimum.

I receive account credits every month.

 

[leroycyclone]

I am graduating in the spring and looking to buy a home to move into immediately after graduation. I haven't ever had a credit card and don't have a credit score. It is my understanding that a credit score is absolutely necessary to buy a house and get a mortgage, is this true?

I will have 20% for a down payment and on a 15 year fixed rate mortgage my payments will be below 25% of my monthly income. (for the price range that I am looking at).

I guess I feel that if a college grad has no debt, the down payment in hand, and a stable income that easily supports the house payment, they should realize that I am a good money manager and they shouldn't need a credit score.

TIA for your comments!

I have a question. Did you use a credit card during time spent in college, an account that was actually in your parents' name or names but the card you carried was embossed with your name?

If so, you have a credit score.

 

[CyCy]

I'll throw in a few Dave Ramsey things - even though I don't agree with everything he says.

I wouldn't buy a house right out of college unless you are familiar with the city and planning to stay there at least 5 years.

No matter what you put down on a house, keep at least 3-6 months cash in an emergency fund.

As for credit cards. Studies have shown (at least according to Dave Ramsey) that people using credit cards will spend more money than people paying with cash. It's just easier to hand over the platic to someone than it is to hand over cash.

Anyway, you are already on the right track if you are graduating with a chunk of money in the bank.

 

[Cycl1]

No you dont need a credit score.

The Truth About Your Credit Score - daveramsey.com

link talks about getting a mortgage.

 

[IcSyU]

As for credit cards. Studies have shown (at least according to Dave Ramsey) that people using credit cards will spend more money than people paying with cash. It's just easier to hand over the platic to someone than it is to hand over cash.

I agree to an extent with him but people who are intelligent with their spending don't have any problems at all. I look at my credit card as an extension of my checking account as opposed to how much of my credit limit I have to spend. People who spend money and say "Well, I'll just make the minimum payments and afford it no problem!" are the people who have problems. People who understand that "if I can't pay cash right now I shouldn't be buying it" are probably ok.

And wouldn't Ramsey say if you can't buy the house in cash you shouldn't be buying it? Mr. All Debt is Bad Debt.

 

[dmclone]

Can I ask why you want to buy a house at such a young age? If it was me, I'd save like crazy right now and worry about buying a house 5+ years down the road.

I can think of about 5 negatives for every positive when buying a house that young. For some people/positions it may make sense but there are so many down falls.

 

[oldman]

Without reading through all the posts--have you gotten a student loan? Ever bought a car? Do you have a checking account? I think those are all things that show up on your credit score also.

 

[CtownCyclone]

No you dont need a credit score.

The Truth About Your Credit Score - daveramsey.com

link talks about getting a mortgage.

From the link:

Specifically, you must:

•Put at least 20% down on your home.
•Choose a 15-year, fixed-rate conventional mortgage.
•Have a strong employment history and personal income to support the loan.
•Demonstrate 4–6 trade lines that span 18–24 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.

Not sure that specifically applies to OP...

 

[agrabes]

People actually get rejected on their first credit card? No f'n way! I mean, yeah on the first one the interest rate will be garbage and the credit limit will be non-existent but rejected? I'm shocked.

Yeah it happened to me. I graduated with no credit cards, no student loans, and no car loans. I eventually decided I should get a credit card to try to build a credit history. I was rejected constantly, even by "store brand" credit cards. Even my own bank rejected me despite the fact that I had money deposited there and no history of overdrafts and had been working for probably 6 months at the time. Eventually after an extra review the bank finally approved me for a card but even then it was a $1K limit.

If you have no credit history you are going to have a tough time.

 

[cytech]

All these people saying get credit cards with rewards/cash back are making me want to pull out my hair. Don't you guys know that by using those cards you are making everything you buy more expensive? The credit card companies don't pay for those rewards, the places you use your card at do.

Cost for me to process a $100 debit card payment with no rewards = .25
Cost for me to process a $100 Credit Card payment with rewards = upto $4.00 with american express

Which is why I don't accept american express cards.

 

[ISUAgronomist]

All these people saying get credit cards with rewards/cash back are making me want to pull out my hair. Don't you guys know that by using those cards you are making everything you buy more expensive? The credit card companies don't pay for those rewards, the places you use your card at do.

Offer a cash discount and I'll put the card away. If I'm paying for everyone else's "cash back" in your (any business) price with no incentive for paying cash I'll be using a "cash back" card as well. Unfortunately, very few businesses go the extra step to break the cycle.

(Sorry for the off-topic post)

 

[azepp]

All these people saying get credit cards with rewards/cash back are making me want to pull out my hair. Don't you guys know that by using those cards you are making everything you buy more expensive? The credit card companies don't pay for those rewards, the places you use your card at do.

Cost for me to process a $100 debit card payment with no rewards = .25
Cost for me to process a $100 Credit Card payment with rewards = upto $4.00 with american express

Which is why I don't accept american express cards.

Using your logic, the places you use your card at don't pay for the rewards, you do.

So unless you're going to lower my price if I don't use my rewards card, I'm going to get the rewards that I'm paying for.

 

[IcSyU]

Yeah it happened to me. I graduated with no credit cards, no student loans, and no car loans. I eventually decided I should get a credit card to try to build a credit history. I was rejected constantly, even by "store brand" credit cards. Even my own bank rejected me despite the fact that I had money deposited there and no history of overdrafts and had been working for probably 6 months at the time. Eventually after an extra review the bank finally approved me for a card but even then it was a $1K limit.

If you have no credit history you are going to have a tough time.

I got mine I think two years ago (as a to-be senior at Iowa State) and didn't have any issues at all. Yeah the credit limit to start was only $600 and the interest rate was ludicrous (I think 19.5%) but they gave it to me. Now I'm closer to a $5,000 limit and the interest rate is 10.1% and my credit score is excellent somehow. :biglaugh:

All these people saying get credit cards with rewards/cash back are making me want to pull out my hair. Don't you guys know that by using those cards you are making everything you buy more expensive? The credit card companies don't pay for those rewards, the places you use your card at do.

Cost for me to process a $100 debit card payment with no rewards = .25
Cost for me to process a $100 Credit Card payment with rewards = upto $4.00 with american express

Which is why I don't accept american express cards.

Offer a cash discount and I'll put the card away. If I'm paying for everyone else's "cash back" in your (any business) price with no incentive for paying cash I'll be using a "cash back" card as well. Unfortunately, very few businesses go the extra step to break the cycle.

(Sorry for the off-topic post)

What ISUAgronomist said. I'm getting charged for the credit card fee regardless. What incentive do I have to use cash and pay more than if I use my credit card and get the cash back?

 

[cytech]

Using your logic, the places you use your card at don't pay for the rewards, you do.

So unless you're going to lower my price if I don't use my rewards card, I'm going to get the rewards that I'm paying for.

Some places offer a cash discount like we do, but it is a real pain in the *** to put into place.

And you were right about my logic, I was trying to say that the consumer pays those fees. Just wanted to make sure everyone that uses those actually realize that. Most people I talk to think that their credit card company pays for them.

 

[Cyclone06]

Im curious why people are saying not to buy right now? Rental rates seems quite high in compared to value from everything I have seen.

 

[cytech]

Im curious why people are saying not to buy right now? Rental rates seems quite high in compared to value from everything I have seen.

Depending on the market you are in and the type of property you are looking at i think Real Estate is one of the best places to put your money to get a return on your investment. I would expect a small lowering of prices soon, but nothing like we experienced in 08

 

[thatguy]

Im curious why people are saying not to buy right now? Rental rates seems quite high in compared to value from everything I have seen.

because when you are right out of college you have no idea where you are going to end up and if you buy a house right away you are going to be stuck in that one spot

 

[Cyclonesince78]

This is not necessarily true. Unless you were working full time in the same profession while in school (unusual), most lenders are going to want 1 year of history in the same field.

1 year is kind of a magical timeframe in lending. Credit references are considered new for the first year, and even if handled perfectly can drag your FICO down. Until you've shown employment stability, lenders aren't sure you can handle a job.



I wasn't talking about 1 year of credit, which you do need, I was talking about 1 year of job time. Which you 100% do not need if you are graduating from college and enter a job in the same field as your mortgage. I'm a lender and I just closed a loan last week for someone that didn't have a job and no W2s at all for the last two years but just graduated form college and had a job lined up.