We had that thread a couple weeks ago about credit cards. I was reading this New York Times article about the unfolding credit card mess. I think most ETS readers are pretty responsible with their credit cards, so I was struck by one aspect of this mess that I hadn't thought of--lower personal credit ratings.

One part of the formulas various rating agencies use to calculate your credit rating is how much of your credit line you are actually borrowing against. However, banks have been unilaterally lowering the credit lines of many people or even cutting off some credit, like home equity lines of credit, even though they haven't missed any payments, lost a job, or done anything "bad". So, even if you faithfully pay off the balance every month, your average balance is going to be a larger percentage of your available credit if your bank lowers your limit or closes a line of credit, therefore your credit score could go down. That could make it harder to borrow or lead to higher interest rates to borrow for a car, a student loan, a mortgage, etc.

Which is why my policy for the past few years is to rely as little as possible on credit.

Really, credit is a crutch. We as a society have been relying on it far too heavily. I believe it is a far better thing for most folks to learn to get by on what they have, which includes buying a house, paying for an education, buying a car, a boat, a plane, etc.

The less you have to use it, the less it will affect you. Couldn't afford to own a house otherwise you say? Well, tell that to the how many thousands of folks that have gone/are going through foreclosure today. Of course, those of us who were smart enough not to bite the rotten carrot of an ARM to finance a house purchase we couldn't otherwise afford now also get to pay the price for those who relied on credit rather than good sense. Might as well have taken those loans to the horse track for all the good it did us.

There's dozens of ways to slice the finance calcs and credit ratings, but no matter how you slice it, it's almost always ends up as one man living at the expense of another.

It all reminds me of Wimpy's motto, "I will gladly pay you Tuesday for a hamburger today."

Ah the days before Subprime, Structured Investment Vehicles SIVs, Derivatives and Credit Cards (or would that be Debt cards),

http://uk.youtube.com/watch?v=ysCNXBbLC-U

http://uk.youtube.com/watch?v=Kc_iWPnjtCI - When borrowing a few shillings was poetry itself.

The society we live in works on credit, the biggest part of the current financial crisis is banks that are afraid to lend to one another. It's not that they don't have money, they're just afraid to lend it.

Shopping for a car doesn't lower your credit rating nor does checking your rating on a regular basis. Opening a lot of lines of credit will lower your credit rating.

If anyone is afraid of having their credit score lowered by shopping, don't give the dealer any personal information until after you've made up your mind which car and which dealer you want to use.

Given that virtually all businesses, large and small use credit every day, how can we expect individuals to not use it too? It's simply woven into our everyday lives. Credit isn't the problem, people are the problem.

As for credit lines being lowered and cancelled, that's just the fear being transmitted downwards. We have to remember that to creditors, being responsible means they don't make as much money. People who pay off their credit card bills regularly are referred to as "deadbeats" in the credit card business. Ironically enough, in the midst of all this craziness, I've had interest rates lowered, credit lines increased and offers for more cards coming in thru the mail slot with ever increasing frequency. My girlfriend has had her line of credit increased without being asked several times recently. We can proudly go into even deeper debt at a moment's notice...;^)

John E

It seems ironic that the lending institutions are the ones who are guilty of poor management of their resources yet it is the diligent consumer/borrower whose credit rating/limit is being lowered indiscriminately while bailing out the lenders.

Actually Benjammin, YMMV.

We closed on a new home three years ago this week, as well as vacant wooded lot that we intended to build a large custom home on just down the street. Despite the fact that interest rates were at near historic lows this time three years ago, I nevertheless chose a three year ARM (fixed for the first three years, then adjustable annually each October) for the simple fact that we originally intended to have our custom home completed (and this home sold) prior to the rate adjustment, so I figured it would be nice to save with the lower monthly payments that the ARM provided.

Situations change, and for the foreseeable future my wife and I plan to stay in the house we're in now, and continue to defer construction on the new home until some later time. I received formal notice from the mortgage holder earlier this month that the interest rate adjustment on our variable rate mortgage has actually dropped from 5.50% to 5.25%

Based upon the best fixed rate mortgage that was available back when we closed this time in 2005, the ARM has saved us close to $10k in interest. With the recent 1/4 point drop, we'll save an additional $4k or so this year alone (over the fixed rate offered three years ago) with the intention of refinancing to a fixed rate mortgage sometime next summer (unless of course rates continue to drop significantly).

Jim

Jim, that wasn't good planning, it was just dumb luck.

Sue

Glad it's working out for Jim. But what about the million others who rolled the dice and lost? Who picks up the tab for their risk? Folks like Benjammin suggests: folks who tightened their belts and passed up the ARM gamble.

Anyway, I guess we'll all be bailing. Problem is, someone keeps punching more holes in my bailing bucket.

You need lots of debt so you can get a high credit score which you need because it allows you to... get more debt. How is that a good thing?

Next thing they'll be telling us we need to pay lots of mortgage interest so we can deduct it on our taxes. Right, send $10,000 to the bank to save $1,500 in taxes. Even I don't hate taxes that much.

Perhaps you really mean "Don't fill out credit applications at multiple dealerships?"

Pay cash. It drives them crazy.

All this consumer credit behavior is people agreeing to be sharecroppers. They work while the CC company gets a share of the harvest.

Better still, save your money until you have enough to buy the car for cash.
Negotiate like mad, set a price, get them to write it down on a sales contract.

Then, when they come to the "ok, so how will be pay for this?" point, whip out your American Express card, and watch the color drain from their face.

Argue - strenuously - that they MUST accept Amex as payment for anything they sell, per the terms of their Merchant agreement. When they deny this is so, pull a copy of the Amex Merchant agreement out of your backpack, with the pertinent section highlighted.

Go back to the service area, and have the cashier run the transaction for $32,413.43, have it go through, sign the receipt, and then enjoy the 32,413 Amex Member Rewards Points to take your wife on a free flight to Disney.

Well, at least that's what I did.

What if the dealer doesn't accept American Express for anything?

Just kiddin...you're absolutely right, arrive at a price before you tell them how you're gonna pay for it. The problem is that the salespeople are SO good at working things like that into the conversation, you find yourself giving them more info than you planned on.

Same goes for trade ins, establish the value of the trade in before you set the price for the new car.

John E

After every credit card commercial they should play a little Tennessee Earnie Ford.

"You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store"

Izzy, are you sure that it wasn't actually your 10th cousin's best friend's girlfriend's nephew's neighbor giving you a thumbs down reference?

Just kidding. I've heard the "too many credit checks" advice, too. But as a point of clarification, you can check your own credit history as much as you want without it counting against you. Just be careful of how many businesses you let run your credit in a relatively short period of time.

When I was living in Indiana a few years back 99-01 (there abouts), I was in need of a new car and didn't have to do anything to get a test drive. Went to several dealerships and ended up with an olds (yeah yeah... old man's car - but great for commuting!) mainly cause of customer service. I must of test drove 12 cars over the course of the weekend and most time alone till settled on the alero. Took all the cars on the highway for 20 mins since I was going to clock alot of hours on the road then.

Even had the same place do the service on the car for a few years... even if I wasn't living in the same city. I would try to schedule some time in that area. They took very good care of me.

Never once happened to me. Never. I go in, I say, "I want to drive THAT."

I've never given more than my first name, I show that I have a driver's license, I don't let them touch it.

That is not true. Multiple credit checks do not always lower your credit score. There is a difference between a hard pull and a soft pull.

There is some info in this thread that is just plain wrong. A good place to go for questions on all credit related questions is www.creditboards.com

As far as Izzy's point about credit checks that are run to just get a test drive, this CreditBoards thread says that car dealerships can only do hard pulls, which do affect your credit score. Well, at least no one posted in that thread that dealerships only do soft pulls for test drives. I've never read CreditBoards before this, but my understanding from past reading was that car dealers always do hard pulls as well.

Hard pulls affect you, barely, and if you do them all in 1 week it's not affecting you like 1 per-week. They get `lumped`, and your score won't go down 5x if you get 5 checks.

When I got my truck a few years ago the 1 dealership shopped around and I had 5 checks from 5 different places in 1 day, my credit maybe dropped 5 points.

If you have a house, have a car, why do you need 800pts credit score anyway.. I mean 720 is just as good most of time at any place.

I've never had that happen. Any dealer that wants anything more than driver's license or insurance to test drive a car (especially credit info) will be watching me leave the lot with no sale.

As others have said: set the price then talk payment. It's nice to be able to write the check sitting in their office but not always possible. I managed it on the last one two years ago but if I had to do it again today, I'd have to set the price & call the bank.

I've never had the problem of dealers checking credit when I test drive either. This used to be common practice I believe and now they can get in BIG trouble for doing it w/out your permission.

The only thing that has adversely affected my credit score this year is moving, and a credit check by a lessor. All of the others have been soft pulls because I requested them.
I haven't bought a car since '07, and only went to one dealer (I knew what I wanted and knew their reputation), so I can't speak to the hard pull at a dealership.