Is the interest rate worth the credit history?

[jyoutz]

Having a credit card, and paying it off monthly. Like I said… We have not had a loan balance in 11 years, and our credit score is very high. It’s only that way because we pay our bills on time and use a credit card to do it. You don’t need to pay interest

Is there an advantage to paying bills with a credit card? I set up a special bill paying checking account at my credit union, then have my bills auto paid on specific days of the month from that account. Am I missing something?

 

[Sigarms]

Having a credit card, and paying it off monthly. Like I said… We have not had a loan balance in 11 years, and our credit score is very high. It’s only that way because we pay our bills on time and use a credit card to do it. You don’t need to pay interest

And if I may ask, exactly how did you not manage to take a loan out on your home?

No loan for college?

I don't pay interest on credit cards, but in my life I still had to take out loans and pay the interest on those loans.

 

[jyoutz]

Exactly how does one build credit without taking out a loan of some sort? Never figured out how for people to give me money for free.

I honestly have no clue how I got a high credit score, but early on in my life I owed money to a lot of people. No one got stiffed, but I did take out car loans and went into the hole big time IMO for a house and land loan after I got married.

That said, I didn't get married until later in life and had a somewhat good career in my mid to late 20's.

Take 2- 20 year olds with a baby and a house payment, I honestly can't see how they can really start digging themselves out of debt.

Your high credit score comes from taking out a mortgage and never paying late (my guess). I was told that mortgages with a clean payment history are very favorably weighted in credit scores.

 

[CloverKnollFarms]

And if I may ask, exactly how did you not manage to take a loan out on your home?

No loan for college?

I don't pay interest on credit cards, but in my life I still had to take out loans and pay the interest on those loans.

I never went to college. We had a loan for 5 years on our first home build. This one was cash. We always lived below our means and our neighbor's thought we were poor. They were wrong. They all looked wealthier, and were broke. I'm retiring at 48, and my car is a 2007 Saturn. I look very average, or below average to most people.

We also paid for two kids to get through college, so they too could start debt free in life. I could have had a nice 3/4 ton diesel like my neighbor, but one of the kids wouldn't have had a college fund. Choices.
You'd probably think very little of me if you saw how I dress and what I drive.

 

[CloverKnollFarms]

Is there an advantage to paying bills with a credit card? I set up a special bill paying checking account at my credit union, then have my bills auto paid on specific days of the month from that account. Am I missing something?

The advantage is that it's not used for discretionary spending necessarily. Some folks can't manage spending on a credit card... But when it's gas for the car, and utilities, insurance etc, you can avoid over spending and also get the benefit of continuing credit history

 

[Torvy]

Big pieces of credit score...

Debt repayment history (35%) - do you pay your debts back on time. This can be cc balances, mortgage loans, vehicle loans, etc. But, also may include medical bills, rent and utilities. This depends on if the creditor reports payments to the bureaus. Type of debts doesn't matter on this.

Credit utilization (30%) - what percentage of your available credit (revolving only) are you using? Basically, the more your cards are 'maxxed', the worse your score.

Credit history (15%) - simply how long have you had a credit score? Longer is better.

New credit (10%) - how much of your available credit is new? This includes store branded cards, bank ccs, loans, etc. Less is better. People having financial trouble often escalate credit in the months prior to BK.

Credit mix (10%) - is all of your debt in one type of loan? Better to show you can handle various types.

This is just for FICO. Banks often use their own additional criteria to determine if they will give you a loan and what APR you will be offered. One bank I worked for had a proprietary model that looked at 200+ factors. No one person knew the whole model to avoid it being gamed. One that I know of included...credit utilization trend (are you holding bigger balances now than historically). People in trouble usually have a significant uptick prior to BK.

Other common factors on getting loans...asset type, LTV (loan to value) - higher LTV is a bigger risk. DTI - debt to income - what % of your income is tied up in debts? These are not part of FICO because this info wouldn't be on a bureau.

 

[Torvy]

The advantage is that it's not used for discretionary spending necessarily. Some folks can't manage spending on a credit card... But when it's gas for the car, and utilities, insurance etc, you can avoid over spending and also get the benefit of continuing credit history

Other benefits...

credit cards usually have.some sort of side benefit (miles, points, cash-back).

Use their money interest free for 30-45 days.

Charge backs (card company works with you if seller fails to hold up their end).

Tracking. Better for businesses, but cards often help track spending types.

 

[jyoutz]

Other benefits...

credit cards usually have.some sort of side benefit (miles, points, cash-back).

Use their money interest free for 30-45 days.

Charge backs (card company works with you if seller fails to hold up their end).

Tracking. Better for businesses, but cards often help track spending types.

Other than points/cash-back, is there an advantage to paying monthly bills (mortgage, auto loan, utilities, insurance ) with a credit card rather than a dedicated bill paying checking account? I do the checking account because it keeps things simple. I have a flat amount deducted from my payroll into that account biweekly. I don’t use the account for other spending. I have another account for discretionary spending and another for savings.

 

[Torvy]

Forgot an important additional factor for loans...available credit. Too much available credit can be a risk. Imagine you have 200k in 'credit line' from various cards. You want a loan for a new house, call it 400k. The 200K may help your FICO by reducing utilization, but the risk is that your DTI can balloon if you start using that available credit after you get a mortgage loan (or other collateralized loan).

 

[Torvy]

Other than points/cash-back, is there an advantage to paying monthly bills (mortgage, auto loan, utilities, insurance ) with a credit card rather than a dedicated bill paying checking account? I do the checking account because it keeps things simple. I have a flat amount deducted from my payroll into that account biweekly. I don’t use the account for other spending. I have another account for discretionary spending and another for savings.

Credit score boost. Paying bills with a card and paying the card in full every month boosts credit.

Do you set up autopay, or are you writing checks or debiting this account manually each month?

Charge back protection can be useful, especially if there is an error.

We have a card dedicated to auto-pay stuff and a card dedicated to online purchases. And, a third dedicated to common purchases (gas, food, etc.)

We found it works better in case you run into a skimmer. The card protects you, but it is a PITA to fix your automatic payments with a new card. The autopay card doesn't have those risks. It also helps us figure out where a card might have been compromised.

This system also allows us to keep our cash earning for us a bit longer. Insurance may be due June 1. We pay with the card and it doesn't come out of our cash until as late as July 15. All while paying no interest or fees.

This is why Ramsey irritates me. Rich people use credit to their advantage. His system is good to a point, but leaves money on the table.

FYI, insurance companies similar use credit scores (in part) to determine rates. So by not maximizing your credit score, you may be paying more.