credit game

springbaby03

Im trying to better understand credit any help or advice would be great. Dh and I are trying to buy a house, (also we have no debt.)

Will a loan from our 401 help our credit score?

If we were to buy a used car and pay on it monthly would that help or hurt our credit? (we have the cash to buy but thought this may help us towards better credit sooner)

Thanks!

saisongbird

You really don't want to touch your 401k.  There are provisions that you can touch it to buy your first home but if you can't afford a down payment without it then you can't afford a house.  A car loan would help your credit score so long as you are making the payments every month.  However, if you have any CC debt that you aren't paying in full each month then it's a non-issue.

Grovecenter

What helped raise my credit score was getting a store credit card and making my norm in store purchases on it, and then pay it off w cash the same day. That's a simpler way without having to take out loans or make huge purchases . Victoria secret or kohls are fun places to use their in store credit card!

talitha712

Don't touch your 401k. Yes, having something where you make regular monthly payments helps your credit - a car loan, a credit card, etc. Not too many things, but having one or two things like that will help.

TradeMama

Pull your credit report-- dispute old debt. Ask for validation. Don't close any accounts. Pay debt on time-- regular payments over time are better than lump sums all at once. Don't open more credit cards (unless you don't have any at all-- even then, only ask for what you need and always pay off a balance). The only legitimate way to fix credit is good habits over time since your score reflects your borrowing history and uses patterns to determine your credit worthiness. There is no one thing you can do to improve it right away but lots of things you can do over time.

troublejessy

I just went through the exteremely frustrating process of repairing my credit two years ago before we bought our first home. You have perfect timing - I actually just put together a what I learned for a friend last week:

Repairing my credit was one of the most painful and frustrating things I’ve ever done in my entire life. This is what I’ve found worked for me, so hopefully it helps you too! To give you an idea of how long it took , I increased my score from 550 to 722 in about 10 months. I’m not sure how much you’ve researched this stuff, so I’ve included everything just in case.

1. Pull your credit reports to determine which areas you need to focus on.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. It does not include scores, but will tell you what’s on there. If you have not requested your free copy yet, visit www.annualcreditreport.com. Creditkarma.com also offers free credit reports.

2. If you can fit it in your budget, sign up for credit monitoring. 

I use www.myfico.com with promo code FICO25 (if that one has expired, you can always find them online). It only monitors Equifax, but I’ve found that almost everyone reports to and pulls their score, so it gives you a good idea of what is going on. I pay $11.21 per month and they text/email me anytime something changes. 

3. Pay down your credit cards. DO NOT close any. This will improve your debit to credit ratio.

Determine which card has the highest interest rate and start with that one. For all other cards, pay your minimum balance until, one by one, they are paid off. Easier said than done, but this was the only way I was able to make any progress, otherwise the interest cancelled out any payments I made (especially on store cards, because they're often about 20%). Once my credit score improved, I also requested credit limit increases on my store cards to improve this ratio since I still couldn’t get approved for a major credit 

card. https://credit.about.com/od/creditreportscoring/a/creditutilization.htm

4. If you don’t have a major credit card, get a prepaid card that reports to the credit bureaus monthly.

I didn’t do this for a number of reasons, but I heard that it can really give your score a boost. Just make sure to do your research and choose one that reports monthly. https://www.doughroller.net/credit-cards/prepaid-cards-build-credit/

5. Send “Goodwill” Letters to original creditors.

A "Goodwill Letter" is a request sent to a creditor to remove a late payment because you've been a good customer. Sometimes if you can plead your case that you were a good and loyal customer prior to an unfortunate circumstance (car accident, job loss, etc.). The creditor may remove late payments out of the kindness of their hearts. Surprisingly, I had a lot of success with this! If you have a lot of late payments, focus on those that are most recent – the others will fall off your report after 2 years and don’t impact your score as much as more recent late payments. If they don’t remove them, or don’t respond at all, keep sending the letters - you never know who is going to open 

them. https://www.creditinfocenter.com/forms/sampleletter8.shtml

6. Dispute EVERYTHING with the credit bureaus. 

It doesn’t matter if the debt is legit – the burden of proof is on them. Don’t dispute online and never admit the debt is yours, just keep disputing every 30 – 60 days. Research what the statute of limitations is for that type of debt and how long it should remain on your report (usually 7 years). Demand removal of anything longer than that. Under the Federal Debt Collection Practices Act, you are allowed to challenge the validity of a debt that a collection agency states you owe to them. Keep a copy for your files, a record of the date you sent it, and send the letter certified mail, return receipt requested. They will try to say they never received anything from you – this is your proof. Think about buying a file cabinet. Seriously. It gets ridiculous.

7. Dispute EVERYTHING with the original creditor or the collection agency. 

It doesn’t matter if the debt is legit – the burden of proof is on them. Don’t dispute online and never admit the debt is yours, and NEVER speak with a collection agent on the phone. They are very tricky and try to put words in your mouth. You want everything in writing for your records in case you need to file an official complaint or go to court. https://www.creditinfocenter.com/forms/sampleletter9.shtml

If they are able to provide proof that you owe the debit, you can try sending them a “pay for delete” letter. You would usually offer the outstanding balance plus some, and ask that in return they remove the listing from your report within xxx number of days.  If you’re being harassed by a collection agency, sent them a “cease and desist” letter, telling them they are only to contact you by mail or, that it is your policy to only deal with the original creditor (depending on the situation). 

8. Request the removal of inquiries from your credit report. 

Anytime you apply for credit your credit score goes down a little. If you apply for too much credit at once, it makes you look desperate and can really impact your score. Focus on a few at a time (again, doesn’t matter if they’re legit – make them prove it) and dispute them with the credit bureaus and the company that pulled your credit.

I found these websites to be very helpful:

https://www.creditinfocenter.com/repair/

https://www.debtconsolidationcare.com/letters/sample7.html

Hope that helps!  Good luck!!!

kaking78

Something else that matters is the available credit: credit utilized ratio.  Your credit score will be best if you are using no more than 20% of your available credit at any time.  @Grovecenter 's recommendation is great - buy something with a credit card (store or regular) but pay the balance off in full every month.

Also, if you're a first time home buyer in the US, you might want to look into the FHA's first time home buyer program.  It requires a smaller down payment and usually comes with a good interest rate since the government is guaranteeing some of the risk that the bank is taking in giving a person without a long credit history a home loan.

ewallace00

@troublejessy. Looks like your hard work paid off!! I agree on the prepaid card .. This is what Suze Orman pushes now to improve scores.

springbaby03

Awesome thank you for the help. I'm looking into the websites. I think we will enroll.in the credit.monitoring program sounds great!

maganonymous

I just briefly read over the responses, so I'm not sure if your questions regarding a 401k loan helping your credit score were answered or not.

I worked in 401k customer service previously, and no, a loan from your 401k will not help your credit score. Essentially, a 401k loan is a loan from yourself. You don't get any penalties from the bank if you don't pay it back and nothing about the loan gets reported for your credit score. You will, however, have tax penalties if you don't pay it back...and they suck. I took a 401k loan BEFORE I started working in 401k's, and will never make that mistake again. Hopefully that helps to answer that part of your question