Quick credit\auto loan question...

[GTO_VR4]

If you dont have ANY credit , but have a good history of paying things on time (cell phone bills, car insurance, rent...etc) will banks let you take a $5000 loan for a vehicle and let you start credit on it?

 

[GTO_VR4]

Anybody?

 

[Minnesota01R6]

it depends. banks like to look more at income to debt ratio, but you need a good credit score too. The easiest way to find out is to go to a bank and ask.

 

[Duke]

If you dont have ANY credit , but have a good history of paying things on time (cell phone bills, car insurance, rent...etc) will banks let you take a $5000 loan for a vehicle and let you start credit on it?

That's a very good place to start. With no actual credit history, they will check your regular bill receivers and see how your payment history is. Also, I'm assuming you either have no credit card or have no revolving balance on it.

They will likely approve you if you have a decent job. But they won't approve a $5000 loan for a $5000 car. They're going to want to see at least 10% (and more likely 20%) down out of your own pocket.

If you have no credit card, get one with a smallish limit ($1000-3000) and use it for regular purchases, but pay it off every month. This will get you on the way to learning good habits and definitely establish a good credit rating.

 

[Minnesota01R6]

Duke - I heard it was better to put a small amount (like 100-200 dollars) on a credit card, and make the minimum payments every month. somehow that was supposed to build your credit faster than paying the whole amount (and not getting charged any interest). Is this true or is it better, from a credit building standpoint, to pay the whole sum off every month.

 

[TB]

Duke - I heard it was better to put a small amount (like 100-200 dollars) on a credit card, and make the minimum payments every month. somehow that was supposed to build your credit faster than paying the whole amount (and not getting charged any interest). Is this true or is it better, from a credit building standpoint, to pay the whole sum off every month.

I would much rather have my credit go up "slower" than have my $200 purchase balloon into a $500 oops.

My wife and I put around $1200 a month onto our card, it gets paid in full every month and we have great credit. I agree with Duke. Get a card with a low limit and pay it off every month. Do this for a few months and get a credit report. I believe you can get one free each year. Might be interesting to get one now to have something to compare.

 

[Duke]

Duke - I heard it was better to put a small amount (like 100-200 dollars) on a credit card, and make the minimum payments every month. somehow that was supposed to build your credit faster than paying the whole amount (and not getting charged any interest). Is this true or is it better, from a credit building standpoint, to pay the whole sum off every month.

As far as I know, this is incorrect. It will do nothing good for your credit score that I know of.

Credit card companies make money on surcharges to vendors as well as on interest. In fact, they prefer that rather than interest charges, because they get their money back faster and can recirculate it faster.

If they make 1% surcharge and 10% interest per year on my $1000 balance, and it takes me a year to pay back that $1000, they've made $110 in that year.

But if they make 1% surcharge and 10% interest on that $1000 and I pay it off every month, they can lend me the same $1000 for 12 purchases instead of 1 and make $120, plus they get their money back in their own hands much more quickly to boot.

Profits are not just about absolute percentage numbers, but also about how quickly the money turns around. It's much better to make a little profit but cycle through many fast transactions than it is to make a large profit on a very small number of transactions that take a long time to complete.

In general, your credit score is going to be based on A) timely payment, and B) low debt-to-income ratio.

 

[LoudMusic]

If you dont have ANY credit , but have a good history of paying things on time (cell phone bills, car insurance, rent...etc) will banks let you take a $5000 loan for a vehicle and let you start credit on it?

All of everything that has been said is important about actual "credit cards" and the like, but if you have a recorded history of paying bills it will count toward a credit history. Have you been told you have no recorded credit?

My story:
Back in April I applied for a $135,000 home loan. I litterally had zero credit. I've never had any cards and never paid any bills in my own name (always through the room mate). My rating was a zero. I was asked by several people if I had ever paid any regular bills in my own name. Sounds to me like that matters. I did get the loan, but that's a more personal matter (:

On the note about credit card style crediting - I would tend to think they're happier with customers who pay off their debt as quickly as possible. They'd probably rather not run the risk of people not paying them back at all and being stuck with thousands of dollars lost in useless electronics.

 

[xcsti]

I did get the loan, but that's a more personal matter (:

I don't think I want to know what you had to go throught to get it.

You should be able to get the loan but building a good credit rating would help for later when you want to buy a house. Right now I have a single cardwith about $500 balance. I've had offers for larger amonts but right now I really don't use the card for much other than gas.

 

[LoudMusic]

I don't think I want to know what you had to go throught to get it.

You should be able to get the loan but building a good credit rating would help for later when you want to buy a house. Right now I have a single cardwith about $500 balance. I've had offers for larger amonts but right now I really don't use the card for much other than gas.

Even so you may want to move up the ladder so that someday you'll have one with a very large limit. Even if you wouldn't be using the full extent of the card, you need to make progress toward the future.