Building up credit score vs debt

**jzkitten** · 02-16-2006, 06:19 PM

What is everyone's opinion on this?

We have very bad credit scores. Mine worse than DH. His is 416.
We really needed another vehicle before the only one we have now decides to need another major repair. So DH bought another vehicle on credit. He had them finance it on the least amount of payments they could get which is 18.

Now if were to pay it off by December like we had planned it wouldn't help our score very much but if we pay it off in 12 months it's suppose to help more and it's only 2 more months.

What would you do......Pay off at end of this year? or...... pay off in 12 months?

We need to get our scores up as we want to buy either a house or property next year if possible.

**SSGWilkesWife** · 02-16-2006, 06:23 PM

What would be the reason to build up your credit scores? If you want to be out of debt, it shouldnt matter. No debt vs. debt and scores, lenders look at your income coming in and what is going out. These days anyone can get credit regardless of score, you just may have to pay higher rates.

**SSGWilkesWife** · 02-16-2006, 06:25 PM

Sorry didnt really see the want to buy home or property......... It takes longer than one year to build your score up. Get out of debt, build a little savings, then go to a bank. They will work with you. Good luck.

**pammy** · 02-16-2006, 06:35 PM

I think I have a problem with this issue, too. Maybe I've just been listening to Dave Ramsey too much, lol. Everyone is so divided on this and opinions are strong, so I'll try to not step on anyone's toes.

A FICO scores is basically an 'I love debt score'. The better you are at debt the better the score. It's based on how much debt you have, how well you pay it back, and how often you are in debt. What is so great about having a high score if the only thing you get to show for it is more debt?

My future goal is to have a really lousy score!

Horrid score. Why? Because once we get out of debt we plan on staying that way. No debt=lousy score. Yes, some mortgage companies go off your score. But there are lenders out there that do manual underwriting for mortgages, they don't go off your score.

And what if you paid 100%, would you care what your score was?

Okay, okay... the argument will go 'well you'd get better insurance rates!'. Yeah, well so what. I paid over 8 grand last year in interest alone on debt. If I had no debt and a lousy score I could easily afford a higher insurance rate, and have a ton left over compared to the interest I'm paying for the 'priveledge' of my better FICO score. That ends the argument for me right there.

Save up your money and pay cash. When you flash cold hard cash the seller doesn't care a whit what your score is.

*okay, climbing off soapbox*

**FrugalMomof3** · 02-16-2006, 08:00 PM

I agree with pammyboat and SSGWilkesWife to some extent.... here's why...

Back in 2001 I had a very lousy score probably around the same as your hubbys and I paid off all my collections, credit card debt, old student loans that defaulted within a year was able to get a loan on a house with a 7% interest rate... funny thing they didn't even check my credit score, they went by my income, my ability to pay and they took into consideration that all my debts were paid, granted it was a VA loan on a forclosed property I still got a loan with probably a credit score around 600, which in fico terms is OK but enough. And this was on my credit alone, I bought this house in just my name (hubby has a home forclosed on from a previous marraige).

It doesn't matter how long it takes you pay it as long as you make payments on it in the terms and amounts specified on the loan documents... it will show you can make payments on time and are worthy.

while credit scores are the higher the better it doesn't mean you can't get a loan... you can just with a higher interest (unless you dont have any income), dont fret when it comes to paying it off at the end of the year or in 12 months, just pay it.

Just a quick note, credit scores = the interest rate you will pay.

I've been there and back, dont worry yourself silly.

**juliek** · 02-16-2006, 08:24 PM

I'm on that soapbox w/pammyboat.

But really, I wouldn't worry about it too much. Basic answer is that I would ALWAYS pay off the debt. And then don't get any more.

**jzkitten** · 02-17-2006, 02:02 PM

Thanks everyone. I feel better now about paying it off early like we wanted to.

**SHOPGIRL** · 02-17-2006, 11:49 PM

Well, I'm going to disagree with the rest.

I would pay off your debt as soon as possible since your probably paying a very high interest rate.

It's great to be able to pay everything with cash, but sometimes that isn't possible.

I'm a proponent on working for a high fico score. Just because, the fico score is what just about everyone uses.

Some employers run a credit check on you, if you want to rent an apartment, get a traditional mortgage, insurance, etc...

I've worked really hard at improving my fico score and this year I've been very successful. I have still have credit card debt, but it's at a 0% interest rate till April 2007. By then, I should have it all paid off.

I have friends without credit card debt, yet they still maintain a high fico score. They do use credit cards, but they pay them off at the end of the month.

Having a good fico score allowed me to buy new furniture for my living room at 0% interest. I could have paid for it in cash, but paying $65 a month is so much easier.

You can build up a good FICO score, but it doesn't happen overnight.

**pammy** · 02-19-2006, 11:32 AM

I was listening to the archives on Dave Ramsey's site and he touched on this subject, thought it was funny. It was the show on 2/16/06, about 2/3rds of the way through the first hour of the show. I just LOVE it when he goes on one of his rants.

If you haven't heard his take on it, listen to just that part, it's hilarious!!
http://www.daveramsey.com/radio/home...spShowArchives

**Telephus44** · 02-19-2006, 03:18 PM

I'm going to agree with SHOPGIRL (like I usually do, when it comes to financial matters). I think paying the car off in 12 months instead of 18 months won't hurt your score, but as long as you make the payments on time you should be able to increase your score. My guess is that you have other oustanding debt, and if you pay off the car 6 months early, you can put the money that you were making on car payments towards paying down other debt, which would also likely increase your score.

**chatterweb** · 02-19-2006, 05:07 PM

We just transferred a balance of $1000.00 from one credit card to another to raise credit scores. The max on the card wis 6K and the balance was 4K.
It is best to not have cards at over 1/2 their
total limit, it brings down credit scores.

**pammy** · 02-19-2006, 05:52 PM

A FICO score is really important if you need to keep borrowing money for the rest of your life. When you are debt-free, you have money to pay cash. Period. You are no longer paying debt, so you can save money, earning interest, to PAY for things you need. In cash. No financing. No interest rates. No worry about score. (see.. I knew I'd step on toes. Sorry you worked so hard on a score so that you can stay in debt with better interest rates)