Dave Says

Thursday, January 3, 2008 at 2:31am

Dear Dave,

I’m single and 30, and I want to know how I can build a credit history in order to get a home loan. I’ve never had any kind of payments or debt, but a mortgage broker said that in order to get a loan or be pre-qualified I’d have to pay extra since they’d have to do my credit report manually.

— Nancy

Dear Nancy,

You need to get a new mortgage broker, because this guy’s just plain lazy.

Most underwriters just pull it off a FICO score, and that’s based on whether or not you have debt and a long credit history. If you don’t have a big credit history they actually have to look at the paper with their eyes and study it for a few minutes. That’s what “manually” means. It’s not like they have to dig a ditch or something.

Even if all you’ve ever done is pay your rent on time or early, you have a credit history — and a GOOD one. You don’t have to run up a bunch of debt to have a credit history. I’ve even heard these people say that you need to have a car payment and several credit cards just to have a credit history and have a shot at a home loan.

Here’s something to think about, Nancy. If you have several credit cards — even if they’re all zero balance and you’ve paid everything on time or early — it counts against you when you try to get a mortgage. And any decent underwriter would realize that a person in that situation was an accident looking for a place to happen.

— Dave

Dear Dave,

My wife and I are both 22, and we’ve been thinking about going back to school. We work at the same company, and our employer is willing to pay for nine credit hours per semester for each of us, but if we take more than nine hours they won’t pay anything. Our parents think we should get student loans, so that we can take more hours and get our degrees faster, but they’ve never been great with money. What do you think?

— Jack

Dear Jack,

I’m sure both of your parents are good people. And I know they don’t mean any real harm. They’re just being normal, but in today’s culture normal is broke. They’ve probably been around student loans, car payments and credit cards all their lives, and that’s sad.

You and your wife have great opportunities staring at you. I mean, how many times does someone offer to pay for your degree with no financial strings attached? You couldn’t take much more than nine hours per semester and still work a full-time job anyway — not and keep your relationship with your wife and your sanity intact.

Go for it, Jack! Go back to school, let your boss pick up the check and NEVER take financial advice from broke people.

— Dave

Dear Dave,

I’m single and earning only $20,000 a year, but I expect to make $30,000 next year. Do I really need $1,000 emergency fund in the bank, or can I get by with $500? I have about $38,000 in debt right now, including student loans. I’m just wondering how to keep up with bills while saving money for my starter emergency fund.

— Jane

Dear Jane,

In your situation you REALLY need a $1,000 emergency fund in place. I know it will be tough, but that should be your first big goal. If you’re not already doing a budget, and spending every dollar on paper before the month begins, start doing it now. It will help you control your money instead of it controlling you, and THAT’S how you can keep up with the bills while you save that first $1,000.

Here’s an example. If you know you’ll get two paychecks during the month that are $750 each, then you go ahead and plan out how you’ll spend that $750 before you ever get it. Take care of necessities first — food, clothing, shelter, transportation and utilities. After that, make sure you’re current on your debts. Once those things are out of the way, pump every spare dollar you can from your paycheck into your emergency fund. Keep your spending confined to necessities only.

This is very important, Jane. Do it fast, like in a couple of months. Remember the old saying about Murphy’s Law, and how anything that CAN go wrong WILL go wrong? If you keep hanging out with no plan and no emergency fund, Murphy will hunt you down and move into your spare bedroom.

But when you’ve got your emergency fund in place it can turn life’s disasters into nothing but minor inconveniences.

— Dave

For more financial advice plus special offers to our readers, please visit www.davesays.org or call 1-888-22-PEACE.

Filed under: City Business
By: noname on 12/31/69 at 6:00

Dear Dave,I ripped off several local banks of millions of dollars like yourself, do you think I can get a radio show?

By: Blanketnazi2 on 12/31/69 at 6:00


By: Noah_Bodie on 12/31/69 at 6:00

Dave, your advice to Nancy is quite inaccurate. Talk to any mortgage broker and ask them.One will almost NEVER see on-time rent payments, utility payments, library books returned on time, or traffic fines paid on a credit report. However, defaulting on any of these can give one a collection that will appear on a credit report.Be sure to ask the broker about credit cards as well. Generally speaking, most mortgage lenders are looking to see credit card utilization below 30%. In order words, if the credit card has a $1,000 limit, then they don't want you letting more than $300 ride on the card. If the card is paid in full, the lender will be quite happy.Lenders are almost always going to pull a FICO credit score, not some sort of goodwill score because one is a good person who pays their rent on time.I have many criticisms of the FICO scoring system that I sometimes voice with venom on the MyFico.com discussion forums. However, I also understand the FICO scoring game enough that I now have a home whereas a year ago I did not and could not see the chance of me getting one.I strive to be a credit "deadbeat"--one who doesn't pay finance charges other than on my home.

By: WickedTribe on 12/31/69 at 6:00

Yeah none of those things are on my credit report. The only things on my credit reports are credit cards, mortgage payments, and car loan payments.And mortgages and car loans increase your credit rating exponentially more than credit cards, going by my experience.

By: mccullochd on 12/31/69 at 6:00

Dave's "letter writers" (i.e. college interns) need to diversify the names every once in a while...it sounds mighty 'white' from week to week.