Credit question

ambrvan

I am an occasional lurker here. I try not to lurk too much because I get over excited about thinking of trying to buy a house too soon. We have our timeline set, and I doubt anything will be ready before then.

Anyway, I have been working on getting our credit in line, and I am curious. I have heard that TransUnion's credit score is usually much more generous than Equifax or Experian. I hate that because the lender we will probably try to go through uses the Equifax score, which I have hard is generally very strict. Did these trends seem to hold true for you, ladies?

I know all three of my scores at the moment, but I always see my TransUnion drastically improve far ahead of Equifax or Experian. While looking at my TransUnion score keeps me motivated, looking at the other two makes me feel like I'm fighting a losing battle sometimes.

MommyLiberty5013

Transunion might just be faster at updating their records.

But, the lender has to go the most conservative route. If the Tu score is 750 and the Ex and Eq scores are 643 and 625, respectively, the latter two are probably better indictors for the lenders to base a risk decision on. Lenders are in the business of two things: Making the bank money (interest) and covering their behinds from defaults on mortgages.

The numbers are only a small portion of an application, though. What will hold more weight are the actual contents of the credit reports...the details.

 

ambrvan

Thank you. We are almost where we need to be with our credit reports as far as content and history goes. I am just nervous that they won't even consider a loan if the score doesn't meet their expectations, even if the actual content is good. Sometimes paying off debt is just not enough to improve your score.

short+sassy

The policy varies by the bank.  The bank I used for my home loan used my middle score, regardless of "who" the middle was.

mckenziewilliamswedding

different loan types have different credit requirements as well.

Sisugal

Debt to income will also be a large factor -

pay off your credit cards and pay in full each month you use them.  Keep you usage of them to no more than 15% of the allowable limit.

 

Janessadawn

Another thing to keep in mind--when you pay off a credit card, it may not be beneficial to close it. There are many factors to consider but in many cases having available credit with low or no balances can actually help your credit. Reasons to close may be if it has an annual fee or if you already have a lot of other open, available credit lines (too much open credit can be bad, just as too little open credit can also be bad). If you do choose to keep it open, and want to avoid being able to use it in the future, simply cut up your cards.
As a PP mentioned, if you do use it pay it off every month. (I used to be a loan officer and still working in banking, and even I know that this is easier said than done. But one day when H and I have ours paid off this is what we will do.)

ambrvan

Thanks for the words, ladies. Here is kind of an overview of what out reports look like without giving too many specifics.

We have no open credit cards. I am currently almost done paying off one small credit card from years ago when we hit hard times and had to live off of it, but it will be done in minimum two months if not next month. The account is already closed and has been for a long time. I have just been paying it off. Otherwise, we have only my few student loans, a car loan of only about $2000 left (will be paid off a year early this coming March at the latest if we stay on track), and we have a few collections marked as PAID on both of our reports that we have taken care of. The couple on mine were from where we cancelled luxury services (such as cable and internet) when we hit hard times, and the ones on his are from his previous marriage (some accounts were opened well after his divorce but he had never even checked his credit report until I started talking about last year; we tried disputing and got no where so just closed and paid them). I am not sure what his scores are exactly, but I know that both of us are over 600 now (as opposed to his starting point in the 300s and my 475 two years ago).

What hit my credit so hard was that I honestly just had no credit history other than the one maxed out credit card and three collections until my student loans. And I had a year of good payment history only using about 20% of my limit each month and then paying off in full on that credit card before we ended up in a bind and had to use it to live off of. There just wasn't much choice. But we have made some major improvements. And we both agree that I am responsible enough to handle a credit card, but we also both acknowledge that mH is not. While I would only use it for a tank of gas a month and then pay it off each month, he says he would be too tempted to try to use it if he had access to it.

Rather than have a potential money financial argument starter in our home, I'd rather just not have a credit card. I don't like the idea of having to have debt to have good credit anyway. Shouldn't it make more sense to have no debt and have good credit? I know it doesn't work that way, but it should.
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hoffse

No, OP it shouldn't work that way - if a stranger walks up to you and asks for $250,000 for a home loan, would you say yes?  Of course not, yet that's what we are asking banks to do when we get loans from them.  Banks are in the business of lending, and so they need some way to get to know you financially before taking the plunge.

There as to be some indication of whether you are a low or high risk customer.  Having no credit tells a bank nothing.  The only way a bank can see how you behave with credit is for you to actually engage in debt, credit, etc.  Then they can see if you are a person who is tempted by having $25,000 of credit available to you each month.  If you are tempted by this, the banks know you have less cash on hand to pay them.  If you're not, your credit score goes up and banks can see that you don't get sucked in by low-hanging fruit.  If you are a person who pays your credit cards off in full each month, the banks see that you are a person who dislikes being in debt, and that indicates to them that you will take your debt to them seriously.  If you get sucked in by the $25/month minimum payments, then banks will understand that you're less likely to take debt seriously because you live beyond your means.

If your husband can't handle a credit card, that's a big problem.  Credit cards do not offer cash, they offer a short-term loan that you are expected to pay off once a month.  A bank who sees that your only history with credit cards involves getting in over your heads and then cancelling them is going to offer you a higher interest rate to hedge against that risk, if they are willing to make you the loan at all (they may not be).

If you are responsible with credit cards, could you open one in your name only and not make your husband an authorized user?  Would he be inclined to search your purse for it to still spend?  If so, that's another problem entirely.  If not, this would at least partially help since your credit score would be improving.

Could you slowly reintroduce credit back into your financial relationship?  Make a point to look at your bank accounts every two days (yes really) and then subtract the amount of money due on your credit cards to see what is left?  Making that a habit helps reinforce the idea that you don't actually have $25,000/month to spend.  You really have $2,500/month to spend.  H and I have about 12 credit cards between us, and we still manage to pay them off in full each month and continue to save money on top of that by looking at our bank accounts and subtracting the balances due on our credit cards every couple of days or so.  Alternatively, could you pay off your credit card every evening?  Or once a week?  And then watch how it drains your bank account - it's a strong message. 

Point is, your credit will only improve so much without a positive experience with a credit card.  They are simply the #1 way most people engage with credit on a daily basis, and that's why they are such good indicators on a credit report.  I'm certainly not suggesting you sink yourself into a hole, but you might want to address the underlying issues that have prevented you both from using credit cards successfully before apply for a home loan.  If you don't, it WILL cost you one way or another, either by being denied or being offered a much higher interest rate than market.

Alissajane

closing credit cards is not good, having open accounts that are paid off and have been around for years is the best. The more open unused credit is the best. You need more history and a good debt to income and more positive paid on time accounts to forshadow the late ones.

chicagobride_07

In my over 20 years of credit history, Transunion has always been the slowest to update for me and months behind the others.

I really don't want to be rude, but I just don't understand the concept of your husband not being able to handle a credit card.  It isn't free money, it has to be paid back.  Given his history of mis-using it (a credit score of 300??) and now having issues to the point where you can't even buy a home- you'd think that that would be enough of a lesson to scare someone into being responsible.