Am I On the Right Track?- Any Advice Would Be Greatly Appreciated

**jIM_Ohio** · 08-21-2008, 03:06 PM

Pay off the cc and don't worry about "building up the credit score"- that is bad logic to be paying interest on debt.

If you truly use the card then pay it in full each month, your credit score will be solid when you need it.

You win NOTHING for having a higher credit score than me, so the score really means little.

I would reduce the debt
I would also list the investments together, then identify what investments are in what accounts- why have a taxable account when Roth is not fully funded? Why have the taxable account when you still have debt?

You are doing OK, I think you could do better.

Can you live on 30k salary (without any commissions?). My advice (if the answer is no) is to boost the emergency fund up to 6-18 months income.

Keep 6 months income in cash
put 6 months income into a muni bond or similar (avoid taxes)
put 6 months income into a moderate growth investment which year over year tends to not lose money

You will thank me if you ever have a bad year in sales- maybe you get sick and lose the commissions for example- you will want a higher cash cushion than most because of your occupation.

**buzz** · 08-21-2008, 03:53 PM

Overall, I'd say you are doing okay for your age. There are some easy adjustments you can make to make things even better, improving your wealth and your credit at the same time.

Your savings aren't bad for a twenty-something, but you have too much consumer debt. The high balances on your loans are not only hurting your finances, they are probably killing your credit score as well.

If you have no lates, charge-offs, etc pulling your score down, paying off the LOC should put your score in the 700 neighborhood as soon as the lower balance shows up on your reports.

You have the right idea showing good use of different kinds of credit, but in reality, you don't need an installment loan at all to achieve a 750 score or even higher.

The 2 things that are most important to your score right now are paying on time, and keeping a low utilization percentage of your total credit. These two things alone account for 65% of your score. Reduce your balances. When your scores are over 720 or so, try to get a good high-limit card. This will really help your score, by reducing your utilization even more. You have a decent income, so choose cards wisely--don't settle for junk.

Also, I'd recommend at least doubling the emergency fund over time. Ease up on the non-tax-sheltered investments for a while until you have less debt and more savings. With so much income depending upon commision, having plenty of liquid savings is a good idea.

**MaverickSB** · 08-21-2008, 07:11 PM

Thank you both. These are some valuable insights and will take your advice to heart.

A main reason I need to raise the credit score is that I want to become a police officer. One of the main requirements is a high credit score. I have been denied twice since I applied.

-Mike

**Broken Arrow** · 08-21-2008, 07:33 PM

Wow, which department or agency is this? I know they're strict about finances, but I've never heard of this requirement before. Did they say how high your score has to be?

Credit cards isn't the only way to increase your FICO score. I've been told that taking out a secured loan from a bank or credit union, and paying it back, can also help increase your score. But I've never gone that route before, so I recommend to talk to your bank's loan officer first. (Or better yet, pay off your Citi LOC first. The APR is atrocious.)

Here's the link to the myFICO website for more help on improving your credit score. FairIsaac owns the site, so it's safe to say their advice is highly reliable.

Also, depending on your area's cost of living, you realize you'll be making less for probably a lot more stress?

**kork13** · 08-21-2008, 08:25 PM

Originally posted by jIM_Ohio View Post

....... and don't worry about "building up the credit score"- that is bad logic to be paying interest on debt.

Jim mentioned this, so i thought i would ask about it for myself... I bought a car 15 months ago, and financed $10900 of it. I have a couple peculiarities about my finances, but long story short, I the car loan I got was 8.74% over 5 years--$225/mo.

Now, I say this, but I have actually had the cash all along that I could almost have paid it in full outright if desired (short maybe $1k-$2k), but as I'm only 22 and haven't entirely built a solid credit rating yet, I intentionally chose to draw out the loan for the benefit of showing consistency of payments. However, to lessen the interest blow, I've been paying $500/mo on it (double plus $50), and now have it at ~$4200, which by following my current plan, will have it paid in full by June 2009.

So my question is basically 'is this worth it?'.... the interest is on the higher end, i know, but I'm trying to balance that with the benefit that having the loan for at least 2 years of strong payment history would do for my credit. To add into the mix, I'm looking at potentially buying property within the next 2-3 years, so again, I want to make sure my credit is where I'd like it to be. Thoughts anyone? much appreciated.....

**mrpaseo** · 08-22-2008, 02:20 AM

From what I recall (Somewhere) in order to show you can handle a bill, you need only show 12 months worth of good payments, then you can pay it off. Keep in mind, once you do this once, you need not do it again, as was mentioned, paying your cc off and not carrying a balance will show the crediters the same thing.

If you chose to hold the balance, pay it off on month 13, otherwise your just wasting money.

Good luck,
Ray

PS. I have never worried about a FICO, only about paying on time and keeping myself in the clear, the FICO has taken care of it's self. Keep in mind, if you pay cash for everything as you should, the FICO means nothing. If you pay your bills and never fault, you will easily get a loan for a house (The only loan you should get, everthing else should be paid for with cash).

If you want a vehicle, pay cash for a well used reliable vehicle, PAY CASH. Then, pay yourself a 300 dollar payment monthly as if you were paying on a new car... Once you have enough money, buy your vehicle for cash, in doing this, you will receive the interest rather than pay the interest to someone else.

Dave Ramsey has a bood idea, let's say you have a vehicle worth 2000 dollars, you save 400 a month for 10 months then trade in your vehicle (2000) and use the 4000 you saved, to purchase a used 6000 dollar vehicle, keep paying yourself (Into a savings account) the 400 a month and in 10 more months, trade in your 6000 dollar car and purchse a 10,000 dollar car, continue this process until you have a brand new vehicle paid outright for.

If you continue to pay yourself these 400 dollar payments into an average mutual fund you will be able to purchase a new vehicle every seven years or so without ever paying someone else interest.

Good luck,
Ray

PS. A quick search will find a video on this so you can better understand.

**mrpaseo** · 08-22-2008, 02:26 AM

Oh and I agree, pay off your debt, all of it, bringing in over 4500 a month you should be able to do this quickly (Within 10-12 months).

Build a diversified mutual fund portfolio for retirement then pre-retirement. Start saving for a down payment for a house, even if you don't want one now, you will someday.

Also, get on a written budget (If your not already), spend your money on paper before you receive it so you know where every cent is going.

Ray

**Tree0164** · 08-22-2008, 03:14 AM

I would get the debt paid off. And if you are commission (which my husband is) and having a bad sales cycle you will be thankful for having a large emergency fund.

My husband's commission varies so budget primarily for living off of his base and 1/4 of his average for the past year. If we have extra that goes into savings/sinking funds.

**jIM_Ohio** · 08-22-2008, 04:09 AM

What is your current credit score?
What are your account limits and account balances? List all accounts- even ones with 0 balance.

Your low score is probably because of
a) past credit issues
b) high balances on low limit cards
c) late recent payments

You are better of paying down/off all the cards, then using one card each month and paying it off in full.

The interest rates on the car loans (7%+) suggest to me there is a low score somewhere.

**red92s** · 08-22-2008, 05:12 AM

I'm 25 as well, and was under the impression I had to "buy my credit score" by utilizing large portions of my available credit until I found this site about 12 months ago. I started aggressively paying off my car loan and credit card (about $5k in total) around last august or september. My FICO score has gone up almost 100 points (mid 700 range) as I've paid things down and now have near-zero balances. DON'T fall into the trap of thinking you need to be constantly tapping available credit to make you attractive to lenders. Reducing your credit utilization is probably the fastest way to bump your score.

**jIM_Ohio** · 08-22-2008, 10:07 AM

Originally posted by red92s View Post

I'm 25 as well, and was under the impression I had to "buy my credit score" by utilizing large portions of my available credit until I found this site about 12 months ago. I started aggressively paying off my car loan and credit card (about $5k in total) around last august or september. My FICO score has gone up almost 100 points (mid 700 range) as I've paid things down and now have near-zero balances. DON'T fall into the trap of thinking you need to be constantly tapping available credit to make you attractive to lenders. Reducing your credit utilization is probably the fastest way to bump your score.

Congrats on the score improvement. Having a good credit score means little (you didn't "win" anything with the higher score, did you?).

Just pay off the debts you have and there is NO reason your score would be anything below 650- which is average, I think.

**red92s** · 08-22-2008, 10:50 AM

Originally posted by jIM_Ohio View Post

Congrats on the score improvement. Having a good credit score means little (you didn't "win" anything with the higher score, did you?).

Nope, didn't win a thing. But, I certainly wasn't chasing a higher score, just happened to be a byproduct of wanting to live debt-free. I'm opted-out of credit card offers permanently, and have frozen my files with the three big credit bureaus . . . don't plan on needing anything more than my single rewards card for quite some time!

Am I On the Right Track?- Any Advice Would Be Greatly Appreciated