Community Chat

[151949]

Sometimes debt free is not the best way to go. in 2013 we decided to take some of the earnings from our savings and buy a new camper - we bought the camper and then when DH asked our financial adviser to send us the money to pay for it he advised us that with interest rates so low on loans we would be wiser to leave our money invested and take a home equity line of credit to pay for the camper. He was correct - we have earned way more with that money invested than we have paid in interest on that loan, despite that we make the payments with a payout every month from the savings. You have to be really smart on how you use your money these days. Making sure you make choices that allow it to work for you. It makes a huge difference to have a really good financial adviser.

[glb613]

On 1/3/2015 SnowPink said:

Anyone have a resolution this year to become debt-free? I won't be able to pay off my house this year, but definitely my credit card which I stupidly got after I paid off my student loans.

I've been debt free since 2002. If you make it a priority, you can make it happen.

[Qwackertoo]

On 1/3/2015 lacey1 said:

Be aware, that being debt-free will not give you a good credit score. Managing your debt and not missing payments will give you a high score.

People that pay cash for everything will be surprised when they check their credit scores. I tried to explain this to a co-worker. She had saved enough money to pay her daughter's first year, college tuition. I told her she should get a no annual fee, credit card that offers points/rewards and use that to pay the tuition bill. She said, 'Oh, no. I don't want to owe on a credit card'. I explained to her that if she had the money, already-she could pay off the credit card amount with the first payment, and enjoy the rewards. She just didn't understand how credit works.

That is sort of what we do with our daughter. Got her an AA Citi Card in her name and I use that to pay her student e-bill each semester in addition to her using it for her monthly expenses such as food, incidentals & gas each month . . . it gets paid in full each month, it will help her build a nice credit score for when she decides to buy her first home after graduation . . . and earn some AA miles along the way & fly free and check bags for free.

My sister is the Queen of Airline miles . . . this February will be her and her husbands 3rd or 4th trip to Hawaii for the grand sum of airfare of 5.00 each. Numerous other trips too.

Or like my Costco AmEX . . . average 500.00 rebate per year . . . plus the Costco Rebate another 100.00 or so . . . *free* money . . . ten years that is almost 6K. ShopDiscover for online and my Disney Visa . . . more *free* money. Why use cash? That is unless one can't control themselves otherwise and over spend.

[glb613]

On 1/3/2015 lacey1 said:

Be aware, that being debt-free will not give you a good credit score. Managing your debt and not missing payments will give you a high score.

People that pay cash for everything will be surprised when they check their credit scores. I tried to explain this to a co-worker. She had saved enough money to pay her daughter's first year, college tuition. I told her she should get a no annual fee, credit card that offers points/rewards and use that to pay the tuition bill. She said, 'Oh, no. I don't want to owe on a credit card'. I explained to her that if she had the money, already-she could pay off the credit card amount with the first payment, and enjoy the rewards. She just didn't understand how credit works.

I've been debit free since 2002 and my credit score is 792.

[NoelSeven]

I don't think it's always a good idea to make payments just for a credit rating, and I'll tell you why.

I'd always heard that, and last year when I bought a new car for myself, they did a credit check. I told the guy we probably didn't have great credit rating since we've been debt-free for a long time. Our house was paid off before we sent our daughter to college.

Anyway, he came back and said we were in the credit top tier, a very high rating. So I paid in cash for the car.

[NoelSeven]

On 1/3/2015 lacey1 said:

Be aware, that being debt-free will not give you a good credit score. Managing your debt and not missing payments will give you a high score.

People that pay cash for everything will be surprised when they check their credit scores. I tried to explain this to a co-worker. She had saved enough money to pay her daughter's first year, college tuition. I told her she should get a no annual fee, credit card that offers points/rewards and use that to pay the tuition bill. She said, 'Oh, no. I don't want to owe on a credit card'. I explained to her that if she had the money, already-she could pay off the credit card amount with the first payment, and enjoy the rewards. She just didn't understand how credit works.

Not true. We haven't had any debt for a long time and we have a very high score.

[Irshgrl31201]

Here is Dave Ramseys Truth About Your Credit Score

The dreaded FICO score. It’s that number that’s associated with every credit report. We all know about it—most people have one—but what does the credit score really mean?

Like it or not, your credit score is not an indicator of winning financially. All it tells you is whether you are good at borrowing money and paying it back. That’s it.

But let’s take a deeper look. How is your FICO score determined?

• 35% of your score is based on your debt history.
• 30% is based on your debt level.
• 15% is based on the length of time you’ve been in debt.
• 10% is based on new debt.
• 10% is based on type of debt.
• <h2>It’s the I-Love-Debt Score</h2>

  Your FICO score is an I-love-debt score, isn’t it? Does it factor in your income—or, even better, your debt-to-income ratio? Nope. Does it factor in your savings accounts, net worth—anything other than debt? Absolutely not.

  The only way to have a good credit score is to go into debt, stay in debt, and continually pay your accounts perfectly—without adding too much debt or paying too much off. In other words, stay in debt for as long as you can. How ridiculous is that?

  Now, if you are on Dave’s plan—paying off old debt and not opening any new debt—then you’ll eventually reach the point of being debt-free. At first, you’ll pay off credit cards, car and student loans and things like that. Then, one sweet day, you’ll finally knock off that mortgage.

  After killing all that debt, your credit score will become “indeterminable.” This is great news! By this point in your life, you haven’t taken out a loan in years, you’ve saved a ton of money, and you’re paying cash for everything. So you don’t need a credit score, anyway, since you don’t plan on using credit!

• <h2>Getting a Mortgage Without a Credit Score</h2>

  Let’s go back a few years, though—back before you paid off that mortgage. How can you get a mortgage without a credit score in the first place? Isn’t this magic number your key to the world of mortgages and homeownership?

  Actually, no, it isn’t. You can get a mortgage without a credit score. How so? Manual underwriting.

  Not every lender is going to do manual underwriting—which is basically when they use a little common sense and look at factors like your income and not just your credit score. Churchill Mortgage is the lender we recommend for manual underwriting.

  Now, this doesn’t mean that just anyone can walk into a bank or mortgage lender and walk out with a home loan using manual underwriting. Remember, this is the way weird people do it, so there are some requirements you’ve got to live up to. 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.

  Also, your old credit history has to be in good shape. Even if you have a zero score, the old history is still there and impacts the loan decision. If you have an old history of late or missing payments, then you could have some problems.

  <h2>You Can Live Without It!</h2>

  Now don’t go out and trash your credit score and say “Dave Ramsey told me to!” That’s not what we’re saying. But we will tell you not to bow at the altar of the “Great FICO.” In other words, don’t worship your credit score—because you can live without it.

  Dump debt, save money, and pay cash. Do that and you will be well on your way toward building wealth—not your credit score. And what’s more important?

  Get started now dumping debt and building wealth the right way! Dave's best-selling book The Total Money Makeover is a great place to start.

[SnowPink]

I had someone tell me that if you use those credit score sites to see what your credit score is all the time, your score goes down if you keep checking on it. Not sure if that's true...

[151949]

When we moved to Florida we had been debt free for several years - we applied for a mortgage on our new home in case we did not sell the old one immediately and we were surprised that our score - while it was in the excellent range - was not as high as it could possibly be, since we had no debt. The mortgage agent explained that #1 - we were retired so our income was considerable lower and #2 - when you pay off the total on your cards each month the bank doesn't make much from you so they give you a lower rating. As a matter of fact we were turned down on our first app. for a mortgage because we admitted to them that if we sold our house in Pittsburgh we would be paying off the mortgage right away and they were not interested in giving a mortgage they would not be making considerable interest on. We ended up going with the builders mortgage company instead of a bank - lucked out and sold our house and paid it off immediately. Thank Goodness.

[Irshgrl31201]

On 1/3/2015 SnowPink said:

I had someone tell me that if you use those credit score sites to see what your credit score is all the time, your score goes down if you keep checking on it. Not sure if that's true...

No, there is a difference between you monitoring your credit and having inquiries from other institutions. Inquiries can lower your credit score.