Question by Joseph: Help me understand a “12 month line of credit” and other questions about getting a HOME LONE.?
Im attempting to purchase my first home, something in the ,000 up to ,000 range. The problem is I have very VERY little credit.

I was raised that you save up for the things you want, then buy them when you can afford them. The only thing in your life you should ever finance is your house. My television, my computers, my motorcycle, my giant military truck, and my daily driven truck are all items I have bought with CASH after saving for months. Now, I am told that my credit score is about an 800, but something like I only have 1 credit score and I need to have 3? Basically I was told I need two 12 month lines of credit. I have heard some hearsay and need some help sifting through the Bull Crap and finding the FACTS.

If you take out a 12-18 month loan on something like a used car, computer, or piece of furniture, then pay it off after only 3 months, does it count as 12 months of good credit, or only 3 months of good credit? My boss told me that she bought a bed through Rent a Center, 18 month loan, paid it off in the first month, and it was reported as 18 months of good credit. Fact or Fiction? Does it depend upon who your financed through?

I was told by a friend of mine that I need a loan of over ,000 before it will really count, is this correct? Even if I was going to go by a car I cant imagine paying more than ,000 without feeling I am throwing money away. The only item I want (Now or ever) that is over ,000 is a HOUSE.

In conjunction with the previous question, what amount of money do I need to barrow and pay off for it to be enough?

I have spent the last 5 months saving up enough for a healthy down payment, but even with 10% down I am told that I cant get a loan without acquiring two, twelve month lines of credit. I guess it may sound like a short cut, but I dont want to have to wait 12 more months to buy my home.

Thanks for reading,
Joe

Best answer:

Answer by bdancer222
Have you bothered to check your credit? You can get your free annual credit report for each of the three credit bureaus online thru AnnualCreditReport.com. Reports are free, scores are not.

Frankly, I am amazed that you have an 800 score with one of the credit bureaus. It doesn’t sound like you have ever taken out a loan or credit card. No credit history usually means no score. To have an 800 FICO score, you would need to have about 10 years of credit history with multiple loans and credit cards.

Don’t bother buying the scores from the credit bureaus as they are not FICO scores. The only place consumers can get real FICO scores is MyFico.com. CreditKarma.com offers a score estimator based on your TransUnion report. It’s not FICO, but within 50 points or so. Good enough for your purposes right now.

You may want to stop asking your friends about credit. It sounds like they haven’t a clue. This site will give you some real info on what goes into your FICO score: http://www.myfico.com/CreditEducation/

Installment loans build credit by making the payments over time. You have to pay on an installment loan for at least 12 months (paying interest for the whole time) to do much for your score. Paying off an installment loan early does not help your score at all.

Rent to own places usually do not even report to the credit bureaus. They don’t even bother to do credit checks. People with bad credit tend to resort to rent to own places and pay the exorbitant prices for low quality furniture.

I suggest you get a credit card. Use the card for regular purchases, wait for the statement, and pay the balance in full every month. This will build your credit and avoid interest. You will still have to use the card for 12 months to do much for your score, but you won’t be paying interest. After 6 months, apply for a second credit card and use both. This will further expand your credit history.

Even with a limited credit history, it is possible to qualify for a mortgage. You will probably need a much larger downpayment — at least 20%. Clean credit reports are more important than scores. Other factors considered in the mortgage application are: minimum 2 years stable employment history, income, low debt to income ratio, and other assets.

You may have to wait to get that home.

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