Myth: You should get a credit card to build your credit.

[DieMonkeys]

"The best myth is the "build your credit" myth. Bankers, car dealers, and unknowledgeable mortgage lenders have told America for years to "build your credit." This myth means we have to get debt so we can get more debt because debt is how we get stuff. Those of us who have had a Total Money Makeover have found that cash buys stuff better than debt."The best myth is the "build your credit" myth. Bankers, car dealers, and unknowledgeable mortgage lenders have told America for years to "build your credit." This myth means we have to get debt so we can get more debt because debt is how we get stuff. Those of us who have had a Total Money Makeover have found that cash buys stuff better than debt.
But if I were selling debt, as the banker is, I also would tell you to get debt to get more debt. This is, however, a myth.

Yes, you will need to "build your credit" by borrowing and repaying debt in a timely fashion if you want to live a life of credit cards, student loans, and car payments. Not me. The one question we must is, "How do I get a home mortgage?" Later, I will introduce you to the 100 percent down plan, or if you must, how to settle for a fifteen-year fixed-rate mortgage. But if you want that fifteen-year fixed rate with a payment that is no more than 25 percent of your take-home pay so I won't yell about it, don't you need credit? No.

You will need to find a mortgage company that does actual underwriting. That means they are professional enough to process the details of your life instead of using only a Beacon score (lending for dummies). You can get a mortgage if you have lived right. Let me define "lived right."

You can qualify for a Conventional fifteen-year fixed-rate loan if:

* You have paid your landlord early or on time for two years.

* You have been in the same career field for two years.

* You have a good down payment, which is more than "nothing down."

* You have no other credit, good or bad.

* You are not trying to take too big a loan. A payment that totals 25 percent of take-home is conservative and will help you qualify.

Don't let anyone tell you to go into debt to make way for a mortgage; that is a lie. A quality mortgage professional can get you into a home if he or she knows how to do underwriting. As for building credit for the other stuff, leave that to the losers. With your Total Money Makeover, you won't be taking on that kind of debt anyway."

You can read more in Dave Ramsey's book The Total Money Makeover, available at fine book retailers or through his website www.totalmoneymakeover.com.

I highly suggest reading it, especially those of you who are all about taking out loans to purchase things.

[storysunfolding]

Can't I better leverage my situation with debt to be paying less money over time? Maybe I'm just hold to the tenents of financial economics but there are definately certain things I can do to increase my situation without owing more money. The smallest of which is that any balance below $1,000 on my credit card doesn't earn interest, gives me 6% off gas purchases, gives me 3% of total spending back at the end of the year and I get gift certificates for some of my favorite stores as I hit predetermined milestones. How would paying for things with cash effect any of this differently? Yes my credit card company sells my spending information but that only allows services to be more tailored to people like me.

[CNF2002]

Can't I better leverage my situation with debt to be paying less money over time? Maybe I'm just hold to the tenents of financial economics but there are definately certain things I can do to increase my situation without owing more money. The smallest of which is that any balance below $1,000 on my credit card doesn't earn interest, gives me 6% off gas purchases, gives me 3% of total spending back at the end of the year and I get gift certificates for some of my favorite stores as I hit predetermined milestones. How would paying for things with cash effect any of this differently? Yes my credit card company sells my spending information but that only allows services to be more tailored to people like me.

What CC is that?

[storysunfolding]

My credit card is through USAA but I admit that I have a pretty high "Beacon score (lending for dummies)".

Debt is by no way an evil. True when you borrow money the lender charges interest. It's their cost of doing business. Yes some people go too far and get in horrible kinds of trouble. However, managed responsibly you can better leverage your situation and get things more immediately.

Though at the same time I'm a frugal person and while I own alot of things, I don't have much debt.

[Nalian]

Credit is a tool, just like anything else you have to deal with as a growed up. Tools can be very useful things - but every tool is a weapon if you hold it right.

[storysunfolding]

lol-

Someone needs to make a flash video showing how to use a credit card as a weapon.

In this case do you mean against yourself?

[storysunfolding]

Nalian what kind of bike do you ride? I love the lines of it in your picture

[Nalian]

Absolutely. Many people aren't responsible enough to handle credit, so then books like the one the OP mentioned are written.

Credit has been around for a lot longer than banks and its very useful and has its place. People just need to learn to use it appropriately and not get in over their heads with it.

[storysunfolding]

True and then there are the more advanced uses to it. I can't tell you how much money I've made trading in the margin... but I could easily have lost just as much.

[CNF2002]

Well there is good debt and there is bad debt.

Credit cards are bad debt. All too often they are spend on consumables, vacations, groceries, gas, etc...you pay interest on items that you don't even have.

Car loans, bike loans, they can vary between good and bad debt depending on the terms of the loan. Managing your payments and covering initial depreciation can help tone down the impact of this debt. So long as your principle doesnt exceed your value, this isn't bad debt...you will own the car within 4-5 years of opening the loan, so the interest you pay is for the privilege of buying the car 3-4 years earlier than if you had just saved up and paid cash. Thats not bad, but its certainly a luxury. Since most cars depreciate constantly, cars are just a huge 'expense' rather than an investment, such as a home.

Mortgages is generally a good debt. However ammoritization schedules pay bulk of interest up front, and over 30 years you will typically pay up to twice the list price of the house you bought. Things like 13th payments (using tax refunds, self-inflated escrow payments throughout the year, etc) can help drop your total loan to around 22 years, saving alot of money. Houses I would consider good debt because you have a property that (usually) appreciates...although its unlikely to appreciate much higher than the total cost of the principle+interest you pay over 30 years.

This is all my opinion.