Friday, March 28, 2008

Credit cards - a necessary evil?

When I was young and just considered a legal adult I made many financial mistakes. First I spent everything. Second I ran up credit cards to the point that I couldn't pay them and basically said "screw this" and walked away. Well of course that trashed my credit completely. Oh well water under the bridge.

I grew older and wiser and I said "no credit!" and dealt on a cash only basis. I still haven't been able to save money worth a damn but I'm mostly debt free. I have three current debts: my house, student loan, and a king size bed that I had to buy because my then pregnant wife wouldn't sleep in a small bed with me anymore and preferred the couch.

The house I can't do much with, but I'll post about that later. The student loan I'm paying ever so slowly down. The bed is being paid down off this hugely insane interest rate but soon as it gets below $1000 balance (maybe 3 more months) I'm paying it off in one payment. I have no other short term debts.

In the time between trashing my credit and now I have incurred no new credit except those listed above. None of them are revolving (get to this later).

So I go to refi my house and besides other problems (which I'll get into in another post) I pulled my credit score. 562. OUCH. Well that's actually good for me given that it used to be sub-400, but bad overall. Problem now isn't really past credit, problem now seems to be lack of current credit.

I've gone through my credit file and removed a few things that I have no idea where they came from. I've corrected a few other errors. I've been on time on my payments for the house, student loan and bed for one year and seven months (oldest is the house so going by when I bought it). Should note that in the seven to ten years between my credit fiasco and my buying a house I have had no credit at all, so nothing to pay on and nothing to be late on.

Using a credit simulator if I continue paying on time for another two years my credit score will go up a whopping 30 points to 592. Two years of the same for 30 points which still doesn't get me to 620+ which is what I need to refi my house.

I have no credit cards so I can't simulate paying off or paying down credit card balances. All of my previous credit card experiences have dropped off my report so can't do anything there either.

Using the same credit simulator I find that if I get a credit card of ANY amount my credit score instantly goes up by 10 points (probably because of a new account).

My theory is that if I get a card and make the payments on it for 24 months then my credit score should be right about 602, probably more for the new credit showing paid on time and all.

Dangerous but seems like right now it has to be done unfortunately. The other unfortunate thing is that with a credit score of 562 that limits me to those lamer secured credit or high up front fee cards. Ug.

I hate credit but thanks to credit availability cars and houses cost more then they should, and without credit apparently you aren't getting a house refinanced.

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