Beater car loan as a credit boost?

You can apply the old phrase "two birds with one shotgun shell" or something like that to this question.

The wife and I are wanting to purchase a house here in about 12 to 18 months, and I need to build my credit up.

I also want a truck, something old, something to tinker on.

Why not get a small loan, say $1000 ish, pay it off within a year, boost my credit and get an old clapped out truck to play with?

Enter this.

$850, bout 45 miles away. Slant six, automatic, 2wd. Full of patina'd awesomeness.

Currently I have no credit cards, no loans, and not much bills.

So I ask the peanut gallery.... buy?

Here is the other option: Get a small loan for $1000, pay it off, buy nothing with it for the credit boost, loose less money on the loan (my grandfathers advice).

Otherwise, go for it!

No. If you can't afford a toy in cash, you don't need it. If you are planning on buying a house, a financial sinkhole like an old truck is a bad move.

If you want credit, get a few credit cards for your bills, use them for your daily expenses, and pay them off in full every month. Then you are spending no more than than you did prior and still building credit. Just dont fall into the trap of "Well, I paid most of it off this month", or " But its 0% interest for 6 months"

His purpose is to help build credit so he can buy a house, not because he can't afford to buy the toy with cash.

It will take 6-8 months and at least 3 pieces of credit to get your credit scores up where a lender wants to see them so begin there and then get a couple of credit cards and then keep the balances below 50% of the credit limits and you will build your credit quickly.

Credit is a necessity in today's economy, just remember to use it wisely.

1K loan will be extremely hard to get with someone who actually reports to the three biggies.

6-8 months would get something there but not really a huge bump. If you have credit cards your better off keeping them in use and paying off to 0.

I would think it better to just charge things on your credit card rather than using cash and pay it off each month. I've never had a car loan, but my credit is great.

wearymicrobe wrote: 1K loan will be extremely hard to get with someone who actually reports to the three biggies. 6-8 months would get something there but not really a huge bump. If you have credit cards your better off keeping them in use and paying off to 0.

No it won't. But to get it from someone who reports to the bureaus it probably won't be an actual auto loan, it'll be more of a personal loan. But at least on the truck he showed you couldn't get an auto loan anyway.

You don't have to pay them down to $0 to get good credit, you need to have what I call consistent "activity units". The credit bureau wants to see that you are making payments regularly, long term and on time. They don't know, nor do they care if you make the minimum payment, pay it totally off or double your payments. The creditor does care how you pay it. That affects how much more credit they'll extend you.

An activity unit of a $5 a month payment gives you almost the same credit bump as a $500 a month payment. The credit bureau cares about activity and % balance to credit limit (available credit), not really the dollar amount.

Watching with interest:

carguy123 wrote: Credit is a necessity in today's economy

No it isn't.

It's a convenience for people who don't want to wait, or a tool for those who know how to use it to their advantage. A necessity it's not.

Zomby woof wrote:

carguy123 wrote: Credit is a necessity in today's economy

No it isn't. It's a convenience for people who don't want to wait, or a tool for those who know how to use it to their advantage. A necessity it's not.

Agreed. But it sure does make life easier (and often cheaper as well, if you play your cards right)

BoostedBrandon, with no credit, no credit cards, no obligations, how are you going to buy a house if you're a non-person. I'm not being a wiseass, seriously; a house is a big nut and you can pull it off with no credit history?

Keep me posted.

Dan

i built up my credit from 1994 to 2001 by taking out lots of small loans just like that from the local banks. i'd borrow $1000 to buy whatever crappy car i just had to have at that time, and pay it off a couple of months ahead of time.. then i'd find something else that i just had to have and borrow another $1000 to get it. i always had a $100 payment to a bank every month.. without ever having a credit card, i had a credit score in the low 700's when i decided that i was sick of renting- and this was without having a savings account and using my 401k plan to make the down payment on the house.

Zomby woof wrote:

carguy123 wrote: Credit is a necessity in today's economy

No it isn't. It's a convenience for people who don't want to wait, or a tool for those who know how to use it to their advantage. A necessity it's not.

How's the air up there?

mtn wrote:

Zomby woof wrote:

carguy123 wrote: Credit is a necessity in today's economy

No it isn't. It's a convenience for people who don't want to wait, or a tool for those who know how to use it to their advantage. A necessity it's not.

Agreed. But it sure does make life easier (and often cheaper as well, if you play your cards right)

Isn't that what I just said?

z31maniac wrote: How's the air up there?

It's good, thank you.

You can do fine without credit, but it takes a change in your philosophy.

I think the big thing, would be like the OPs eventual goal, is to buy a house.

That's a really tough proposition to save up for a house, even when you live in a CHEAP part of the country like I do.

It sucks paying the interest to the bank, but I (along with most) would rather pay the interest than live in a crappy apt for decades while we save money.

Zomby woof wrote:

z31maniac wrote: How's the air up there?

It's good, thank you. You can do fine without credit, but it takes a change in your philosophy.

I was gonna say something here, but then I realized that the more people don't realize that renting is really just buying someone else a house, the better off I am.

Zomby woof wrote:

carguy123 wrote: Credit is a necessity in today's economy

No it isn't. It's a convenience for people who don't want to wait, or a tool for those who know how to use it to their advantage. A necessity it's not.

No it is a necessity if you want anything or want to cash a check or need to go to the hospital or need a sudden loan due to an unforseen emergency. Once upon a time I needed a new transmission and couldn't get it fixed because I didn't have the money and couldn't get a loan. I walked to work for weeks.

While it's true there are ways to work around anything you need a modicum of credit to function - I walked, but it wasn't fun. Just getting out of the grocery store line in a hurry when you are paying by a check pretty well requires a credit card for ID.

And then we get to original issue which was trying to improve his credit so he can buy a home. Paying cash is not a viable option for the majority of people. He who's got the gold makes the rules and the gold holders have said I want to have some sort of assurances that you will pay me back before I loan you this money. They have chosen to look at past performance to try to get a feel for how you will perform in the future. That's not a bad system if you think about it. How do you place your bets?

As someone else pointed out, Renting is buying someone else a home.

Renters don't invest themselves into the community as much as owners do. Here's a quote from a recent article I found on the economy recovering - "Renting would not stimulate the economy as much as an uptick in the housing market world, as renters do not typically spend as much on home improvements, lawn equipment, appliances, or other areas, which would lead to job growth."

According to NAR, renter's kids don't do as well in school and renters aren't vested enough in the neighborhood to get involved in the community or even vote. Renter numbers being down is an indication of a stronger economy.

‎74% OF RENTERS THINK OWNING IS SUPERIOR TO RENTING, said a recent survey by the mortgage giant Fannie Mae.

Here's a couple of comparisons of places with a good economy to places with economic issues: 40.8% of the people in Fort Worth rent whereas 55.5% of the people living in Tempe, Arizona rent.

Only 20.6% of the people living in Allen, Texas and a Dallas suburb (population 89,000) rent wheras 59% of the people living in Homestead (population 69,000) Florida rent.

The Burbs always fare better in the rental percentages than do the big cities as people move out of the big cities to better their lifestyles.

If you want to live in your own home and not have to go all Grizzly Adams then you are going to need credit.

Today's credit scoring system isn't a credit rating system. It's a system that was designed by the Credit Bureaus for the benefit of the Credit Bureaus and helps them sell names of people likely to want credit soon and is a way for the Credit Bureaus to make money. No matter how imperfect it is the system that determines whether you get a home or not.

The better you know the rules to a game the better you can play that game. To work the Credit Bureau system you make yourself look like a good credit risk with minimal actual credit and not being a slave to THE MAN or being underwater.

BTW having a mortgage raises your credit score. Just as was stated in the article, they've found owners are more responsible than renters.

< friendly threadjack >

I'm in a similar situation. My wife and I have excellent scores, but no credit. The only loan we've ever had was her student loans and they have been paid off for 10 years.

Our scores are both in the high 700s but we were denied for a Target Visa and our own bank declined us for a $300 secured prepaid visa.

... needless to say we went to a different bank.

We're in the market for a house and I need a vehicle. The house isn't immediate. Car first. So I have $2000 cash to spend on a vehicle, but not finding many vehicles that fit my needs, so I thought about $2000 down on a $5000 vehicle. I can pay off $3000 in a year.

My biggest concern isn't getting approved for a car loan, but if I'm getting denied for credit cards, I'm afraid of the interest rate they'll want to soak me for.

^Credit union. Interest won't be that bad.

Thanks for all the reponses guys, this is why I come here.

In reply to Josh:

I wish I was just buying someone else a house instead of buying one for myself that lost $100K in value in a blink of an eye. And I live in area where property wasn't hit that hard.

curtis73 wrote: < friendly threadjack > I'm in a similar situation. My wife and I have excellent scores, but no credit.

Have you checked your scores lately? The reason that I ask is that since credit scores are an indication of whether you are a good candidate for securing new credit and not really a credit rating.

Being turned down even for a secured card says your scores must be in the 400s.

And credit unions while they may be good for car loans and personal loans aren't the best source for mortgages. All mortgages are made to be sold today. They may or may not be sold soon or ever, but they are packaged, underwritten and priced that way.

Quicken is one of the major sources of CU loans. Quicken doesn't have one of the best reputations in the industry nor at your local Attorney General's office.

curtis73 wrote: My biggest concern isn't getting approved for a car loan, but if I'm getting denied for credit cards, I'm afraid of the interest rate they'll want to soak me for.

Don't worry about the interest rate. Yes, I said that. The reason is that your goal is to build credit worthiness, and the best way to do that is to use the credit card for regular purchases and pay the balance in full on time every month**. Therefore it is irrelevant what interest they are charging you. Find a no-annual-fee card that offers 1% or 2% cash back and use it for everything you can, making sure it is paid off and never carries a balance.

After a year or two of that you will find the offers keep coming in with lower and lower interest rates. Switch once or twice to lower rates for your own peace of mind. By doing this I ended up with a card that gives 1% cash on all purchases and has a 5.5% interest rate.

Have you checked your scores lately? The reason that I ask is that since credit scores are an indication of whether you are a good candidate for securing new credit and not really a credit rating. Being turned down even for a secured card says your scores must be in the 400s.

At the time of being denied the secured visa, they sent me a copy of my credit report because I didn't think they should have denied it. I wanted to check up on it and make sure it was correct.

Of all the scores (all bureaus, two people) the lowest score was 698, the highest was 782. That was two weeks ago. I average mid 7's, my wife high 7's... mostly because a few of the household bills are in her name only.

They cited something like "insufficient history" as the reason for denial.

curtis73 wrote:

Have you checked your scores lately? The reason that I ask is that since credit scores are an indication of whether you are a good candidate for securing new credit and not really a credit rating. Being turned down even for a secured card says your scores must be in the 400s.

At the time of being denied the secured visa, they sent me a copy of my credit report because I didn't think they should have denied it. I wanted to check up on it and make sure it was correct. Of all the scores (all bureaus, two people) the lowest score was 698, the highest was 782. That was two weeks ago. I average mid 7's, my wife high 7's... mostly because a few of the household bills are in her name only. They cited something like "insufficient history" as the reason for denial.

Insufficient history has been rearing it's ugly head lately as the banks get more and more paranoid.