Sep 08 2010

Should we try to keep our credit scores high?

I came across this article linked on CNN Money called, “20 rules to live by for cheapskates,” and one of the points caught my interest.

Point #4: “Do everything in your power to achieve or maintain a great credit rating for a huge financial payoff.” The paragraph goes on to explain that if you have great credit vs. poor credit, you’ll get better interest rates for car loans, mortgages, and even some insurances. Even more, the article mentions that your prospective employer can pull your credit report and make hiring decisions based on its contents. Yikes.

So yes, it’s good to make sure you have a good credit report. Make sure you don’t have any errors. Make sure you pay all your bills on time. Make sure you don’t have a high debt-to-credit ratio. Etc.

But “everything in your power”? I think that could be interpreted broadly.

I don’t think you should take on debt or pay it down less quickly simply to maintain your credit score.

I just pulled my score from Credit Karma (a free site that lets you do so without any credit dings).

It’s 710. Down from a high of 773 back when I still had a car loan. Ugh.

Shane and I have one credit card account open, down from 3-4 or so from our debt heydays. Not too long ago, I closed my oldest credit card because they were going to start charging an annual fee for the privilege of having a hard. No thanks!

I use the card for online purchases, simply to keep our credit somewhat active. But we don’t carry a balance (cuz hi, I don’t want to pay 14% interest EVER AGAIN).

The report at Credit Karma says that part of where I’m being dinged is because I only have 1 credit account open. I don’t really want to open more, though.

So why do I care about my credit score?

I hope that we can buy a house in the near future. Buy a house as in, get a mortgage. I want us to get the best possible interest rate we can on that booger.

Cuz if lenders tell us, “Sorry, based on your credit score, you only qualify for a high-interest mortgage,” I’m going to be pretty mad. We have no debt. We’ll put a respectable amount of money as a down payment. And we’ll borrow well within our means. So I think those factors should qualify us for a lovely mortgage.

Dave Ramsey tells us that we can get a mortgage with no credit score if we can find a lender that does manual underwriting. You’ve gotta meet a few requirements, though — 20 percent down on a 15-year fixed, and a few other things. I think we can do it, maybe.

I don’t know how our credit scores are going to impact us until we actually do set out to obtain a mortgage. I just hope it works out in our favor. We’ve been working too hard and too long at this to be penalized for such a dumb reason.

6 Responses to “Should we try to keep our credit scores high?”

  1. First off, a score is the 700’s is still good, so you guys don’t have anything to worry about.

    We’re in the middle of refinancing our house, and the guy we’re working with said, as long as we don’t have BAD credit scores (sub-prime), there’s no bonus for an especially good credit score. When they pulled our credit scores just this week, I was surprised to see that my score is like yours- in the low 700’s – despite having a mortgage with me as the primary borrower. The primary issue for me was a lack of credit history- the one credit card I’ve ever had is now closed, and I’ve never had another loan. Our bills are all in Josh’s name. Josh’s score was higher because he’s had student loans & car loans in the past, and is the primary name on our credit card- although the loans are paid off & we don’t carry a balance on the card.

    All that to say- you’ll be able to get a good mortgage even with the minimal credit history you have. I wouldn’t worry about it.
    joanna´s last post ..Questions for Baby and God

  2. Joanna’s right. A score in the 700s is nothing to sniff at, and there’s no way you’ll only qualify for a high interest mortgage with that score!

    But unfortunately, even a slight difference in credit score can make a significant difference in your interest rate and mortgage payments. The way I understand it, they set arbitrary threshholds for the different credit score tiers. It varies by lender, but for example: 700-749 is in the “Good” tier and 750+ is in the “Excellent” tier. Even if your score is 749, your credit is considered “Good,” and you get the interest rate associated with a “Good” score, which could be a few points higher than an “Excellent” interest rate. And when you’re talking about borrowing thousands of dollars for a mortgage, it adds up.

    It stinks. But maybe since you know you’re planning on applying for mortgages in the somewhat near future you could ramp up your credit use and see how that affects things? Don’t carry a balance, of course, but try to use your cards more and pay them off every month?

    One of the ways that we keep our credit active without carrying consumer debt is by using a gas card. We have a credit card that we use exclusively for gas. When we fill the tank, we charge it, but we pay the balance in full every month. We don’t pay interest, but we earn cash back on the purchases, so it’s win-win. And since we’d be buying gas anyway, I don’t feel any temptation to spend more than I normally would just because I’m charging it. It’s just another bill that we pay every month.
    Karen´s last post ..Blogger’s block

  3. I think my main concern is how much it has dropped in such a short amount of time. A few more points and I’m in the 600s! THAT part would stink.

  4. As we are currently in this process of getting a mortgage, I will tell you, as disheartening as it may be to hear, SOOOOO many things have to be considered besides your stinkin credit score.

    We both have good credit scores, but, for instance, our original plan was to purchase a condo at Eagle Point on Lake Monroe and purchase land in the country. We could afford a condo payment and land payment reasonably for a few years, and build later. Most condos don’t qualify for FHA loans, and we knew that going in. We were prepared with over 5% to put down. Which, I guess sounds minimal, but we’re both relatively new to this “family” thing and hadn’t necessarily been thinking that far ahead for long enough to have much more than 5% prepared.

    So…long story short, the day before we were set to close the “mortgage man” found one tiny clause in the Home Owners Assoc docs that eliminated the option of the 5% loan and was on the phone at 7pm asking us if we’d be able to come up with an additional 15% overnight. Ummmm….NO! Bobbie got pretty pissed when he suggested that we “acquire a gift” as in, all up Mom/Dad and ask them for the money. Not only do our parents not have thousands of dollars to toss at us, but, as small as our 5% may be, we’d worked dang hard for it!

    Regardless, we ended up having to change our entire plan. We’re now set to close on a lovely 3bedroom 2 bath ranch in a quiet neighborhood on the 24th of this month. BUT, that completely derails our plan of paying on land and building in a few years…if ever.

    Long and ranting post, I suppose, but I just wanted you to know that there are SOOOOO many other stupid things to consider. For one, try finding a “mortgage man” who doesn’t wait til the last minute to review the necessary paperwork ;) We’re working with someone else on the house!

  5. Thanks for recommending CreditKarma. I knew my credit was good but had never seen my actual score. Now I know what it is!

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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