Noob questions about Credit Score

[tomtom123]

so i'm 19. The car my bro gave me just broke down so i'm trying to buy a used car and i went to inquire for a used car loan from the bank. They asked me about my credit score and stuff and i honestly have no idea about it lol.

So from what i've read, my credit score are automatically created somehow by credit instuition? When i applied for a credit card they somehow made a account for me and kept my credit score?

Also the bank consultant tells me that if he checks my credit score for me, it'll lower my credit score? why is that lol?
EVerytime i make payments on my credit card on time, i'll get a better credit score?

Yea i know i can just read google about this topic and i will, but i just want to see what 2cents the endlesssphere community has to say on this subject .
Any adults here can comment and help this kid better understand this subject

 

[Dauntless]

I used to make videos about this:

When you apply for credit they want to make sure you're not 'Shopping,' some people will decide to just go ahead and go nuts building up debt then just declaring bankruptcy, etc. You get a little ding, depending on the type of credit you've applied for. Also, any ding has a duration, a flat out 'Derog' can last more than ten years.

Failure to pay medical debt might still be the worst.

What you have to remember about your FICO score:

Fair Issac designs different models for different companies, so your credit score often is not the same at the same moment if you're applying at two different places. Credit modeling can also vary for what part of the country you're in. In the midwest they used to be real concerned about what a stranger thought about them keeping up on credit card payments and fearing getting rejected at the store by a cashier they knew, while they didn't believe they'd REALLY see their property foreclosed on. I believe that's changed. Meanwhile in most of the country they really feel concerned more about how they can come take the car away, but there's nothing for them to take for the credit card. But in California most people feel like if they get up and their car is gone, they can walk to the nearest used car lot and get another in time to get to work.

You'll probably never fully understand your credit. If you're under 600 you're a disaster, over 700 you're readily credit worthy, 850 you're impossibly perfect. If you close an account you take a hit, if you move you're less stable so you take a hit.

And when you want them to give you more credit than your score deserves, keep in mind that if you have a charge off that you go on paying that looks good, this will defy your low credit score. If you keep making payments after a bankruptcy you're almost golden.

 

[Ch00paKabrA]

The question you need to answer is how much credit do you now have and have you made payments on time.

every time your credit is run it dies lower your score but only by a point or 2 unless there are many many applications for credit in a short period of time it really shouldn't affect you that bad unless you have poor credit or no credit.

To get a fico score in the 800s your ideal credit report would be 7 credit items. 3 paid off 4 active. The active should be no more than 2 revolving credit cards and a mortgage and a car note. All current and all over a few years old except the car loan. if you have a load of credit items, even if they are paid off, it won't necessarily hurt you but it can prevent you from having a fico score above the 700s.

My fico score is now shit because I pay cash for everything I buy so now I have no credit. Just be careful with the credit you apply for.

My experience in this area is that I was a Vice President of Collections and Finance for one of the largest financial institutions in the world for 20 years (in another life).

Basically seeing how credit works and seeing what it does to some people is exactly why I have none.

Be careful. A good mantra is that if you don't have the cash, then you can't afford it.

 

[tomtom123]

The question you need to answer is how much credit do you now have and have you made payments on time.

every time your credit is run it dies lower your score but only by a point or 2 unless there are many many applications for credit in a short period of time it really shouldn't affect you that bad unless you have poor credit or no credit.

To get a fico score in the 800s your ideal credit report would be 7 credit items. 3 paid off 4 active. The active should be no more than 2 revolving credit cards and a mortgage and a car note. All current and all over a few years old except the car loan. if you have a load of credit items, even if they are paid off, it won't necessarily hurt you but it can prevent you from having a fico score above the 700s.

My fico score is now shit because I pay cash for everything I buy so now I have no credit. Just be careful with the credit you apply for.

My experience in this area is that I was a Vice President of Collections and Finance for one of the largest financial institutions in the world for 20 years (in another life).

Basically seeing how credit works and seeing what it does to some people is exactly why I have none.

Be careful. A good mantra is that if you don't have the cash, then you can't afford it.

I heard if i check the my own credit score, then it is not lowered because it's a "soft" pull not a "hard" pull? i heard i could only do it once a year?

 

[teslanv]

Yes, you can check your own credit score and I would advise you to do so.

It will not affect your score.

If you know your credit score (and it is good or at least average) then you have some negotiating room when it comes time to shop for a loan. If your score is not good, better start with a small credit line at a store and use it and make damn sure you pay it every month. Good credit takes time to build up, but can be trashed quite quickly if you abuse it and miss payments.

 

[teslanv]

Those who understand interest, earn it. Those who don't, pay it.

 

[e-beach]

I don't have any credit cards because I know I might abuse them.....
I usually pay cash for the things I buy so I don't get into trouble financially.

But, if you are young and know how to be prudent, go you your local Sears, or other institution that will give you a credit card and purchase $100 worth of items. Don't purchase anything else and pay for what you bought in 3 or 4 months. Once it is payed off, then do it again, and again, and again..... The interest you pay will make your purchase more expensive, but you will be building the kind of credit the banks want, something with interest. The banks will reward your "indebtedness to them" by giving you "good credit". The banks don't want you to pay your card off in-full at the end of the month, they want to make interest money off of you. (Sick isn't it... ) So, if you want to start to build your "credit" buy some stuff and pay it off over a few months. Just don't go so crazy that you get into trouble and can't pay for your purchases, otherwise you too will have to go through bankruptcy like a big corporation.....And some of them didn't make it. :wink:

http://www.thestreet.com/gallery/tsc-bankruptcy2-decade/20/photo-lehman-bankrutcy.html

 

[cal3thousand]

Capital One will give nearly anyone with a pulse their first card. And although they won't give you a high limit until you show you have strong income, their rates are fairly good. Buy something on the card and pay it off immediately. Keep the card open forever and remember to report to them if you have a change in income. I forgot to update my income for 5 years and they kept me at the same limit. I updated my pay information and a couple months later, my credit limit with them is now 5 times higher.

Now, that credit limit is reported as my available credit. And since the ratio of used to available credit, is a factor of your score, they just increased my score for nothing. All I did was earn more money and not spend anything on it.

After you have a card on file for some time with no late payments and a nice large available credit line, when you apply at other institutions, they will see this and be more willing to give you credit. Even if you don't instantly qualify for credit, with a review, they will see that you are working to build credit and that you aren't "shopping" cards.

Another place I started with credit was the bike shop. They had a card that offered 0% interest if paid off in 6 months. I bought my wife a $400 bike and paid it off in 4 months. They initially gave me a $600 credit line, but it's in the thousands now that I haven't bought anything with them and the account is just sitting open.

 

[footloose]

Be careful. A good mantra is that if you don't have the cash, then you can't afford it.

Wiser words were seldom spoken!

If you don't have the cash today, then for the most part… don't buy today.

If you want something, and can reach deep into your pockets and find the necessary green for cash purchase, well then more power to you, buy it and enjoy your new ___ ! If you can't find the folding money in your pockets to make it yours, then stay the heck away from it.

Re the logic trap of "well, I don't have the cash today but I will soon, for sure, you bet". Uh huh. It will only be a couple days until ship comes in, right? Then just wait that couple days until you have the folding!

Some disclaimers from above.

First, it does make sense to establish a credit history by taking on some reasonable loans then paying them off according to the schedule.
But remember: MAKE THE PAYMENTS ON SCHEDULE!!! However chaotic your life may be, just make the damn monthly payments on that Shop Vac, TV, kitchen ware, whatever. Your "real life" may be a shambles, but as long as you make those damn payments… the power structure has no reason to look closer for most part.

Second, if you need wheels to get back/forth to your job, taking out a car loan makes sense: but *only* if you purchase wheels primarily for transport, not for ego.
Buy the Toyota, not the BMW. Don't borrow a nickel more than you truly *need*.

Finally, for some huge purchases (like a house, for example) a loan scenario is the only thing that works for most of us. Like car, watch out for 'over buying' for ego reasons. I'm guessing that for next couple decades… I'll be renting, not buying, real estate. Your situation may vary.

 

[tomtom123]

Second, if you need wheels to get back/forth to your job, taking out a car loan makes sense: but *only* if you purchase wheels primarily for transport, not for ego.
Buy the Toyota, not the BMW. Don't borrow a nickel more than you truly *need*.

lol definitely. used Toyota CAmry or Honda accord is what i'm thinking.

i'm all about functionality > looks. i've sat seen some nice cars and sat in them, once you get inside it's really all the same if you're just trying to get from point a to point b. They're all just metal boxes lol.

 

[Ch00paKabrA]

The question you need to answer is how much credit do you now have and have you made payments on time.

every time your credit is run it dies lower your score but only by a point or 2 unless there are many many applications for credit in a short period of time it really shouldn't affect you that bad unless you have poor credit or no credit.

To get a fico score in the 800s your ideal credit report would be 7 credit items. 3 paid off 4 active. The active should be no more than 2 revolving credit cards and a mortgage and a car note. All current and all over a few years old except the car loan. if you have a load of credit items, even if they are paid off, it won't necessarily hurt you but it can prevent you from having a fico score above the 700s.

My fico score is now shit because I pay cash for everything I buy so now I have no credit. Just be careful with the credit you apply for.

My experience in this area is that I was a Vice President of Collections and Finance for one of the largest financial institutions in the world for 20 years (in another life).

Basically seeing how credit works and seeing what it does to some people is exactly why I have none.

Be careful. A good mantra is that if you don't have the cash, then you can't afford it.

I heard if i check the my own credit score, then it is not lowered because it's a "soft" pull not a "hard" pull? i heard i could only do it once a year?

Yes, that is true