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Old 02-05-2013, 04:55 PM   #1
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The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

Since generally all of our existing Credit-based threads have been started by users asking a specific questions (such as which credit card they should apply for or which payback method they should use for their student loans), Ants could use a place for helping users with Credit questions.

This can serve as a soundboard for users to ask and answer questions relating to credit scores, credit cards, or applying for loans. And it can serve as a guide for users in similar situations.

All I know is that I never learned much of anything in school about loans or how credit scores work, and it's something you almost always have to pick up on the fly from either asking your parents or your friends as you traverse college and beyond.

What are some questions about credit scores and applying for loans that you've always wanted to know?
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  • Old 02-05-2013, 04:56 PM   #2
    Tiduwho
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    A user recently asked me some credit card questions in relation to maximizing your credit score. Specifically, if you have money available to start paying down CC debt, which cards should you pay down first and why? Since I created a walk-through with some scenarios, I wanted to extend this to any Ants trying to decide the best way to tackle their credit card debt.


    Quote:
    Question #1:

    Should I pay more on a credit card with a smaller limit and get really close to paying off the balance, or should I spread the even payment across three of my cards?
    First and foremost:

    You should always pay down cards to get them below 30% of the total balance, or at least 50% of the total balance (below 10% is optimal). So to answer the question "Which card do I pay down?", it all depends on where you are on each card. Definitely do not just spread across evenly. But spread appropriately. For the future, when we refer to a card with a higher balance, we do not mean in total $$$, but in % of the max balance. (See below)


    Example 1:

    You have 3 cards all with $1,000 max limits. 2 of them have high % of their total balances. The dollar amounts themselves do not come into play, just how much you have available in cash to pay them down. In our example, we are going to say you have $1,000 at your disposal to pick and choose what you pay down.


    Card 1 - $800 drawn out of $1000
    Card 2 - $700 drawn out of $1000
    Card 3 - $200 drawn out of $1000

    In this example, I would first get all 3 cards under 30% i.e. under $300. So the simplest way to attack this scenario would be to pay $500 on Card 1, and $500 on Card 2. Results:

    Card 1: $300 drawn out of $1000
    Card 2: $200 drawn out of $1000
    Card 3: $200 drawn out of $1000



    Example 2:

    This example may be more realistic. This time we will have $2,000 to divvy up.

    Card 1: $1600 drawn out of $2000
    Card 2: $1100 drawn out of $1500
    Card 3: $950 drawn out of $1000

    The first thing to do figure out the % drawn.

    Card 1: 80%
    Card 2: 73%
    Card 3: 95%


    This tells us that first and foremost, we MUST get that 95% card down. Since we have $3,650 in CC debt and can only pay down $2000, let's use 50% as our barrier we want to get below on all 3 cards.

    So let's pay down like so:

    Card 1: -$800
    Card 2: -$600
    Card 3: -$600

    Final balance:

    Card 1: $800 drawn out of $2000 (40%)
    Card 1: $500 drawn out of $1500 (33%)
    Card 1: $350 drawn out of $1000 (35%)

    We've maximized our $2,000 to get us a much better credit score.


    If we had instead chosen to pay the entire $1600 off in card 1, and $400 of card 2? The 95% on card 3 would still be killing your score, despite paying down the same amount of $'s.



    *As a caveat, this advice is for credit score effect only so it doesn't consider interest rate APR. If you have $10,000 that is currently interest free, or $2,000 that is 30% interest, then for your own personal cash flow considerations, you should pay down the $2,000 first. However, if you are looking strictly at CB score improvement, use the above scenarios as a guide.
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    Old 02-05-2013, 04:57 PM   #3
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Question #2

    Two of my cards have higher balances. Is it better to have two cards with high balances or three with medium balances?
    Three with medium. Your balance % affects your score at an increasing rate. So the 10% difference between 30% and 40% is not nearly as bad as the 10% difference between 50% and 60%.

    Randomly made up numbers:

    30% drops your score by 4 points.
    40% drops your score by 9 points.
    50% drops your score by 16 points.
    60% drops your score by 30 points.
    70% drops your score by 52 points.

    etc etc




    K, I'm all done with my preliminary walls of text!
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    Old 02-05-2013, 05:07 PM   #4
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    Is 720 a good score? Hasn't gone up or down in years even though my one citi card has 2/3k on it.

    Also I'll probably not pay it down before my 0% runs out, what are my options regarding balance transfers? Any suggestions?
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    Old 02-05-2013, 05:09 PM   #5
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    Also is credit karma legit I usually ping my score bi monthly? Will that hurt anything?

    Good thread.
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    Old 02-05-2013, 05:13 PM   #6
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    Checking your credit score will not lower it, it's what is known as a soft pull and doesn't affect your credit score.
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    Old 02-05-2013, 05:14 PM   #7
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    Quote:
    Originally Posted by Beefsteak1138 View Post
    Checking your credit score will not lower it, it's what is known as a soft pull and doesn't affect your credit score.
    Also, use credit sparingly and responsibly. Cash is king.
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    Old 02-05-2013, 05:20 PM   #8
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by DIDriveOut2SPAC View Post
    Is 720 a good score? Hasn't gone up or down in years even though my one citi card has 2/3k on it.
    720 is pretty good, yeah. About a B+. In general, the benchmark that banks look at is 700. Below it, and eyebrows are raised a bit more. Anything below 650 is almost instant grounds for denial. All depends on the rest of the picture of course (your income and value of house etc), but you should always shoot for above 700 credit score. Here's a quick guide:

    500 and below = Are people with bad credit, bad people? Yes.

    600 is pretty bad...most banks won't take a second look.
    650 is eh...you need some strength elsewhere for a loan approval.
    675 is average.
    700 is hey not bad, this is where you want to be or higher.
    720 is good.
    750 is great.
    800+ is gold plated.



    Quote:
    Also I'll probably not pay it down before my 0% runs out, what are my options regarding balance transfers? Any suggestions?
    Balance transfers generally always have a % hit right up front. So even when you transfer to another 0% card, you first have to pay say 19% on the balance first. Instead of transferring, apply for a new card with 0%, and continue to use that card for all your main purchases. In the meantime, with any spare $'s in your checking account, start paying down the first credit card that now will have an interest rate accruing.

    This may mean using your new 0% card on items you usually pay cash for too, just get that balance down on the old card ASAP and you should end up paying just about $0 in interest or transfer fees.
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    Last edited by Tiduwho; 02-05-2013 at 05:22 PM.
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    Old 02-05-2013, 05:21 PM   #9
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Solid timing for this thread. Me and the wife have to fill out a bunch of paper work tonight to get pre-approved for a home loan. Starting the search very soon.

    I actually have a question.

    If one of our parents is going to help us out with a little cash for the down-payment, should we rush to put it in our account before we go down the pre-approval road?
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    Old 02-05-2013, 05:26 PM   #10
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by DIDriveOut2SPAC View Post
    Also is credit karma legit I usually ping my score bi monthly? Will that hurt anything?

    Good thread.
    Credit Karma is not your official credit score, but it is pretty close. They technically can't use the specific FICO formula because it is patented/trademarked. But yes, it is legit on a "close enough" basis. And nope, I hit that update button all the time on there. It won't hurt anything.

    Whenever you check your FICO score (there are lots of free credit score sites that don't make you sign up for other products), as Beefy mentioned, it does a Soft Pull of your credit report and thus will not affect your credit score at all.

    Fun Fact: When credit card companies send you CC offers in the mail (the legit ones anyway), it is based off of soft pulls on your credit report. Those will never show up as inquiries and will not affect your score.
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    Last edited by Tiduwho; 02-05-2013 at 05:28 PM.
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    Old 02-05-2013, 05:29 PM   #11
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by Tiduwho View Post
    Fun Fact: When credit card companies send you CC offers in the mail (the legit ones anyway), it is based off of soft pulls on your credit report. Those will never show up as inquiries and will not affect your score.
    I started getting a ton of these, does this mean I have a good score?

    I've never checked.
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    Old 02-05-2013, 05:32 PM   #12
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    I use credit sparingly, but had to use it in an emergency situation regarding my car. I basically only use my cc for gas and emergencies.


    Ever since I turned 25 the amou of cc offers and insurance companies calling me has sky rocketed.
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    Old 02-05-2013, 05:38 PM   #13
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by ~Crashintome89~ View Post
    I started getting a ton of these, does this mean I have a good score?

    I've never checked.
    To get your official FICO score, go here: http://www.myfico.com/Guest_Home.aspx

    It's a legit site from the actual FICO makers, and thus will give you the correct score you are looking for along with your annual report.


    TransUnion used to give out your FICO score with their free credit reports, but now give out something terrible and rarely used called Vantage Score. Do not be duped.

    FICO Score: 300 to 850
    Vantage Score: 501 to 990

    FICO Score: Legit, what 95% of lenders actually use.

    Vantage Score: A joint effort launched by the 3 major credit tracking companies intending to create a new industry standard. The real reason: They did not want to pay the company that created FICO (Fair Issac) royalties. Basically, Vantage Score was invented simply to cut costs, and is only used by the largest banks that are in bed with TransUnion, Experian, and Equifax through agreements to use it.


    For a website that you can check your credit as often as you want, and is also very user friendly, I recommend Credit Karma.

    https://beta.creditkarma.com/

    Seriously, use that site once a month and plot the changes in your credit score. It will not mirror your FICO 100%, but it is darn close. And as your credit increases each month, it gives you that feeling of accomplishment we all like to have.
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    Last edited by Tiduwho; 02-05-2013 at 05:40 PM.
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    Old 02-05-2013, 05:40 PM   #14
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    my score was about 720 when I bought my house in June

    I have about $118k on my mortgage, $54k in student loans, and $2k left on a car

    I have a Best Buy card with a $1500 limit (nothing is on it) and a PSECU card with a $2500 limit (nothing on it)

    other than making all my loan/mortgage payments on time, is there any way to increase my score? Ive never missed payments for stuff, so I think my score is what it is because of my debt:income ratio
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    Old 02-05-2013, 05:41 PM   #15
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    I'm a boss with credit knowledge too, if anyone has any questions.
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    Old 02-05-2013, 05:47 PM   #16
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    also Tid, what would you do about this scenario:

    the loans have a 5.875 int rate. I'm on the 25 yr plan. My payment is $400, which is about $50 above the minimum (I cant afford the 10 yr plan)....I plan on putting at least an extra $1000-1500 in per year after tax time as well. With my extra $50 payment each month, plus the $1000 each year I can shave a decade off my repayment

    but

    I'm currently paying PMI as well on my mortgage, which is about $111/month, and will take about 9 years to get rid of if I pay the minimum. My mortgage rate is 3.875


    would you pay down the student loans, or pay down the mortgage to get rid of the PMI? keep in mind there are rumors of the student loan deduction going away after 60 months of repayment
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    Old 02-05-2013, 05:47 PM   #17
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Question one, just outta curiosity. I applied for a credit card a year or so ago and only got approved for a slightly lower level one, no big deal. I don't remember the exact wording on their explanation but one point was something about having outstanding balances on credit accounts.

    I'd only had one other credit card at the time and it had a balance on it, but it wasn't due or late or anything. Did that really affect my application for that credit card? That I should've paid that card to 0 before applying?
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    Old 02-05-2013, 05:48 PM   #18
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by smokew11 View Post
    my score was about 720 when I bought my house in June

    I have about $118k on my mortgage, $54k in student loans, and $2k left on a car

    I have a Best Buy card with a $1500 limit (nothing is on it) and a PSECU card with a $2500 limit (nothing on it)

    other than making all my loan/mortgage payments on time, is there any way to increase my score? Ive never missed payments for stuff, so I think my score is what it is because of my debt:income ratio
    Your score actually doesn't take into account income at all. While lenders look at your DTI (debt to income), your credit score looks at credit payment history and outstanding credit amounts. Credit Karma does a great breakdown of each component in their "Credit Report Card" section.

    As far as increasing your credit score, your current debt outstanding as you stated won't really increase or decrease that much as long as you pay on time. On a personal recommendation, I would pay off your car loan first before sending any additional dollars towards your student loans or mortgage as the latter two are tax deductible, while the interest on a car loan is just lost money.
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    Old 02-05-2013, 05:49 PM   #19
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    I'm contemplating refinancing my auto loan to a longer term to free up some money each month. The amount of debt I took on over the last year + because of this fucking house has crippled me.

    Edit: current payment is 415/mo.
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    Old 02-05-2013, 05:50 PM   #20
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    yup I'm actually paying off the car tomorrow...I pay $250/month on my car payment, so my thought is after I get our tax refund I want to open Roth IRA's for my wife and I...$1000 in each to start, and $125/month each....I'm used to that 250 coming out, so I may as well have it keep coming out but into something good
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    Old 02-05-2013, 05:54 PM   #21
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by smokew11 View Post
    other than making all my loan/mortgage payments on time, is there any way to increase my score?
    To increase your credit score, there's two ways. Neither are quick though.

    Option A: Just keep sitting tight. Your "age of credit lines" will continue to get older, and thus your score will increase. Credit scores are inherently biased against young people, as they take into account how long you've had credit. When I was 23, even though I had never missed a payment in my life, my credit score was only 680 because I hadn't had credit for a long enough time. As long as you make your payments, older people will generally always have better credit scores.

    Option B: Apply for revolving credit (credit cards or a HELOC). You don't have to use it, but just the fact of having a whole bunch of credit card availability or a nice $50,000 Home Equity line of credit available to you will improve your credit score.

    The key word is eventually though. At first, your score will be lowered for two reasons: 1.) You get your credit pulled. 2.) More importantly, you will drag down the "Average age of credit lines" component. As I mentioned in the Option A, your score will get better the longer you have a credit line out there. When you first take it out, it will be new, and therefore drag everything down. After a year or two, you will be good to go though credit wise!


    If you are young, and not looking to get a house in the next 6 months, go with Option B. Either ask to have your credit card limit increased on your existing card, or apply for a new card. Just get the amount available to you up. This will set you up on a great credit path for the future.
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    Old 02-05-2013, 05:56 PM   #22
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by Tiduwho View Post
    To increase your credit score, there's two ways. Neither are quick though.

    Option A: Just keep sitting tight. Your "age of credit lines" will continue to get older, and thus your score will increase. Credit scores are inherently biased against young people, as they take into account how long you've had credit. When I was 23, even though I had never missed a payment in my life, my credit score was only 680 because I hadn't had credit for a long enough time. As long as you make your payments, older people will generally always have better credit scores.

    Option B: Apply for revolving credit (credit cards or a HELOC). You don't have to use it, but just the fact of having a whole bunch of credit card availability or a nice $50,000 Home Equity line of credit available to you will improve your credit score.

    The key word is eventually though. At first, your score will be lowered for two reasons: 1.) You get your credit pulled. 2.) More importantly, you will drag down the "Average age of credit lines" component. As I mentioned in the Option A, your score will get better the longer you have a credit line out there. When you first take it out, it will be new, and therefore drag everything down. After a year or two, you will be good to go though credit wise!


    If you are young, and not looking to get a house in the next 6 months, go with Option B. Either ask to have your credit card limit increased on your existing card, or apply for a new card. Just get the amount available to you up. This will set you up on a great credit path for the future.
    this is what I'm going to do for both cards
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    Old 02-05-2013, 05:56 PM   #23
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    sorry for all the questions, keep the answers coming lol
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    Old 02-05-2013, 05:57 PM   #24
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quick question for you credit gurus - my parents (specifically the pops) have spotless credit. He also happens to work for a car manufacturer. Bc of this, he gets a pretty solid employee pricing deal and a great interest rate on car loans, but the loan has to be in his name. If I were to cosign on this loan (both our names would appear on the documents/account, I would be able to set up the monthly payments from my bank account and would sign all of the loan documents as well) would this negatively impact my credit score in any way?

    EDIT: I plan on doing this regardless, bc the deal is too good to pass up. It makes too much sense for me to not pull the trigger. Just curious. The deal is good enough that I wouldn't be immediately upside down in the loan when I drive the vehicle off the lot.
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    Last edited by Proudest_Raider; 02-05-2013 at 05:59 PM.
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    Old 02-05-2013, 06:01 PM   #25
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by GSUdawg521 View Post
    Question one, just outta curiosity. I applied for a credit card a year or so ago and only got approved for a slightly lower level one, no big deal. I don't remember the exact wording on their explanation but one point was something about having outstanding balances on credit accounts.

    I'd only had one other credit card at the time and it had a balance on it, but it wasn't due or late or anything. Did that really affect my application for that credit card? That I should've paid that card to 0 before applying?
    Does not have to be zero, but optimally it should be under 10%, or at least under 30% when you apply.

    So if it was a $1000 credit card, and you had $400 on it, you are at 40% usage. Anything over 30% usage starts hurting your score, and makes banks not want to give you a lot of available credit (until you have a solid history with credit cards). If you were at $600 out of $1000, it's going to start hammering you.


    I am currently on a self-made plan to have an absurd amount of credit card limits available to me, in order to "cheat" my score. Currently have 4 cards with a total of $18,500 of credit available to me. And because my Chase Freedom (my 0% that I actually use right now) is only at $4000, I am going to request an increase to double that once I hit 6 months with them.


    The reason to do this, even if you are not a user of credit cards, is that if an emergency situation happens and you need to put $3,000 or more on a credit card, it still won't hurt your credit score. Not if you have $30,000 available anyway....
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    Old 02-05-2013, 06:02 PM   #26
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Does anyone reading this personally know of anyone who has gotten a student loan hardship discharge, partial or full? If so, can you describe their circumstances?

    Yes, I'm aware they aren't normally able to be discharged in bankruptcy, absent undue hardship...and the bar appears to be pretty high, according to attorneys I've consulted.
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    Old 02-05-2013, 06:02 PM   #27
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by neumdogg View Post
    Solid timing for this thread. Me and the wife have to fill out a bunch of paper work tonight to get pre-approved for a home loan. Starting the search very soon.

    I actually have a question.

    If one of our parents is going to help us out with a little cash for the down-payment, should we rush to put it in our account before we go down the pre-approval road?
    Yes! Any major additions to your bank account will have to be quantified either way though. May want to consult your real estate agent on this also. You'll end up having to give the bank all account paperwork for like 6-12 months. I took a $5000 401K loan right before closing and it was kind of a headache!
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    Old 02-05-2013, 06:07 PM   #28
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    All you'll need is a letter from your parents saying the money is a gift for a down payment. There may be a limit on the amount of gift money you can put towards your transaction, but your mortgage consultant should be able to iron that out for you.
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    Old 02-05-2013, 06:09 PM   #29
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by Proudest_Raider View Post
    Quick question for you credit gurus - my parents (specifically the pops) have spotless credit. He also happens to work for a car manufacturer. Bc of this, he gets a pretty solid employee pricing deal and a great interest rate on car loans, but the loan has to be in his name. If I were to cosign on this loan (both our names would appear on the documents/account, I would be able to set up the monthly payments from my bank account and would sign all of the loan documents as well) would this negatively impact my credit score in any way?

    EDIT: I plan on doing this regardless, bc the deal is too good to pass up. It makes too much sense for me to not pull the trigger. Just curious. The deal is good enough that I wouldn't be immediately upside down in the loan when I drive the vehicle off the lot.
    Yes. I have done this on my last two vehicles because of my pops's GM card points. You can probably even be the primary buyer of the vehicle. The only bad thing is if you default he gets screwed too.
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    Old 02-05-2013, 06:10 PM   #30
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    Re: The Credit Thread (help with Credit Cards, Credit Scores, & Applying for LoansC)

    Quote:
    Originally Posted by smokew11 View Post
    this is what I'm going to do for both cards
    Just remember, that two inquiries will affect your score more than one.

    So if you wanted a total increase of $3000, it would be better to have one card increased by the full $3000 than ask for each card to be increased by $1500!

    My personal recommendation would be to apply for a new card with 0% interest (most offers are for 15 to 24 months). As you are not a big user of credit, this will:

    1.) Likely result in a card availability of $6000+, probably a larger amount than what you will get on increases from Best Buy and PSECU.

    2.) As your Best Buy card is only for BB, there isn't much versatility or reason to get it increased unless you make a huge purchase, and they ask you there that day anyway. A generic credit card can help with emergencies and all sorts of unknown things that could come up.

    3.) Your credit is also affected by NUMBER of loans and credit lines oustanding. So if you make all your payments on time and have over 10 loans/credit cards, you will have a much better credit score than someone with only 3 loans/credit cards.
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