[FoRK] Credit

Stephen D. Williams sdw at lig.net
Thu Dec 16 10:35:13 PST 2004

I didn't see that advice, but here are some notes.  I have built up and 
paid off a fair amount of credit several times, mainly due to a 
combination of children, housing, and starting businesses.  I'm pretty 
rational about it and it has worked out very well, although sometimes 
I've made people nervous.

The main thing seems to be that having credit allows you to get more 
credit.  It is a kind of circle of trust arrangement where companies 
will tend to offer you credit when you have credit but haven't used all 
of it.  The most clear aspect of this is that you should have at least 2 
credit cards and you should not have a high balance on more than one of 
them.  Negatives are credit inquiries, any reported late payment 
(anything under 30 days late doesn't get reported usually), or 
especially anything 'charged off' or in litigation.

For credit cards, insist on: no annual fees, low interest rate tied to 
prime, and avoid gimmicky deals unless they are really clean (most 
aren't).  For instance, many of the affiliated cash back programs 
(except Discover and American Express in-house versions) cause you to 
have an interest rate that is at least 1% higher and often add a yearly 
fee.  Certain companies are bad about trying to change  your interest 
rate periodically to see if: a) you are paying attention, b) you can't 
move your money, or c) to see if you are in trouble.  This is why you 
must have at least 2 credit cards, if not 3: you need to keep 
competitive pressure on each company you deal with.  If they see you 
only have 1 credit card, they think you will be loyal to them even with 
a little abuse.

Certain companies are much worse than others, although this changes over 
time.  MBNA used to be bad about changing rates, but after 'spanking' 
them a few times, they reformed, maybe just for me, I don't know.  They 
do however only offer temporary promotional rates.  Bank of America, 
Citibank, and American Express will make offers to some people of low 
fixed rates until paid off for a block of credit from a balance transfer 
or one-time-payout.  Rates in these deals can be: 1.99%, 3.9%, 3.99%, or 
4.9%.  I have had a considerable amount on this kind of deal in the past.

Some of my credit philosophy:
It's all about cashflow.  Always protect your ability to meet cashflow 
requirements and everything else is easy.

The marginal value of money for people with elastic and increasing 
incomes is usually more in the present than it is in the future.  In 
other words, I am very happy that I didn't save money in my 20's when I 
was making little money, had a young family, and was researching and 
learning about things to be used both in work and startups.  The value 
of $100 then was proportionally high compared to now or, most likely, 
the future.  Buying a video camera as soon as I could possibly afford it 
to get video of my children as toddlers was an excellent investment.  
Premature saving is like premature optimization.  It only makes sense if 
you expect to have a small fixed income that grows slowly.  
Additionally, there are big discontinuities in life, especially 
children, that cause a huge difference in the marginal value of money 
between their childhood and adulthood.

Do anything to avoid negative information on your credit report.  I very 
nearly sold my house, etc. 3+ years ago.

If you do end up in a negative situation, avoid being strung along as 
you start rebuilding credit only when all activity stops on a negative 

Keep your finances separate from everyone.  I have an old partner who's 
owed me $7000 for about 10 years because he also had a corporate credit 
card that I had to pay to avoid a negative credit report.  You and your 
significant other might not have the same approach to credit, cashflow, etc.

Loans to younger family are seldom loans.

Buy a house that will appreciate as soon as you can.  A house that can 
be refinanced will hide many other ills.  With low interest rates, there 
is a good argument that you should just buy a house, pay interest only 
when you can, and never pay off the house.  The deductable interest is 
less than rent and equity is just money that you have but can't spend.  
I learned about this strategy when working in Manhattan.  Apparently 
some "apartment" buildings work this way: You 'buy' into the building 
and pay interest only plus a maintenance fee and you are specifically 
not allowed to gain equity.  The 'lender' then is the real owner and 
collects the interest forever.  I wouldn't like to go that far, but the 
idea is sound in some circumstances.


Elias Sinderson wrote:

> Hey now,
> Bolcer said he got some good advice from y'all a while back on how to 
> build a perfect credit score... I've never had a credit card (and am 
> turning 30 this coming year!), really don't want one, but realize the 
> power of good credit, especially when it comes to things like mortgage 
> applications. So, kick down, FoRKs, give me the information fix I so 
> need.
> FWIW, I do have a loan out on my car that I pay fastidiously, but that 
> is the only thing on my credit report other than the corporate travel 
> card I have through work (in my name). I'm not opposed to spending a 
> bit of money in raising my credit score (e.g. interest on short term 
> loans), but it should be within reason...
> Thanks,
> Elias
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swilliams at hpti.com http://www.hpti.com Per: sdw at lig.net http://sdw.st
Stephen D. Williams 703-724-0118W 703-995-0407Fax 20147-4622 AIM: sdw

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