I agree with you -- and even rich people need and use credit...

You got that right, the only way you don't need credit is if your retired. Any seasoned investor will risk YOUR money instead of his. How many times in the last 10 years could you have been burned loaning me 50k on anything. Ya, you just lost your 50k. :rofl: I have a brand new bottle of vaseline. Credit means more now than it ever has, and I'll prove it to you. Anybody could get a loan 3 years ago. It made sense to everybody. Now, you better be iron clad to stand a chance. I can't disagreee. Money was waaaaaaay to looose. I made a boat load of money off loose money. The good ol days. :_paranoid In this economy(I hate this term)if you can obtain money with CREDIT you can make it happen. END OF STORY. I need to get off my ass.

VERY, VERY TRUE!!!! :cheers:

I have to take issue with your statement. I am more inclined to think people that aren't rich need less credit. Most middle class to lower people use credit to purchase things they cannot afford to buy with cash. Hence there is NOT a NEED for credit. A home while nice to have is not a neccessity. And yet you can buy a home with higher interest rate, or higher down payment or puchase down points, or many other means to get a home. And with timely payments over a few years you can refi or pay down your mortgage earlier negating much of the interest no matter the rate.

Cash forces you to live within your means. Credit allows you the freedom to ruin everything.
And here again. I know a few small business owners with "iron clad" credit that cannot get increases or more credit to grow their business's. Banks and business are withdrawn and holding their credit and reserves because of the uncertain future. Remember a lot of that bailout money was supposed to be passed down to business to continue the business of business. That didn't happen.

and that is exactly why credit is needed, when you aren't a very wealthy person. if you didn't make timely payments, you wouldn't be allowed to refi because you wouldn't have built up good credit, not to mention that good credit makes things affordable. if I had bad, or no credit, there is no way I could buy a house because the interest rates would make it totally unaffordable for me

Business credit is a different discussion.

I think it's safe to say that there are both good and not so good things about having and using credit. If it is used wisely it can be a great thing. If used (abused) it can be a very bad thing.

So we can all agree that we don't all agree......:beathorse

It's the "current state" of the banks. Hardly any businesses are getting credit. The company I used to work for had their credit cut in half. I do agree with the bailout money comment, but that is another story for another time.

Well, yes and no...

The backbone of this country is built on small businesses and their payrolls, and the very large majority of these small businesses (like my 2) are dependent on credit/financing that is applied for based on personal credit. I am dealing with this right now with both of my businesses.

Banks just aren't lending like the govt is asking them to, and I don't necessarily blame them from a business perspective, but it surely isn't helping solve the problems.

I have no experience obtaining credit personally for my business. I get offered business credit at the bank but I'm sure it's not much. When I said business credit is a different discussion, I meant the guidelines between obtaining a loan with business credit and personal credit are different.

Ageed. At the end of the day, many small business loans often require signing a personal guaranty anyway, so you're on the hook regardless.

However you slice it, it's a terrible time to be needing financing.

Actually,.....it's just a terrible time, period!!!:(

I think the financing angle is all just wrong.... and that what you're really experiencing is a just a "return to normal financing"... You actually have to show you can pay a loan back... there are percentage of income calcs that went out the window with all the phony come on teaser rates and no doc loans.

When I owned a business the bank would make us do a audit... and an audited inventory. They held our feet to the fire. We used to have to "clean up" our line of credit for 30 days (in other words pay it off) every year. We had lunch once a month or so with our banker and it usually included our accounting firm management. They watched us like a hawk. We had 750K in cash on deposit - and a one million dollar revolving line. This was in 1975 and our sales were 3.5 million a year - with a 63% gross margin. We were hugely profitable and had very positive cash flow. They didn't trust us one bit.

Now - for someone to say they "can't get credit" - that only means they don't QUALIFY under the CORRECTED real world credit we have returned to. People typically are "needing" credit to bail themselves out - not to "expand" - or to take advantage of an opportunity. They're needing credit to EXIST. They're already over-extended or have a lack of assets and a lack of capital (aka cash on hand). There used to be a saying - you can get credit if you don't need it. That actually was ALWAYS TRUE until this crazy credit came about.

When I "grew up" you couldn't buy a house unless you had AT LEAST a 20% down payment - and you QUALIFIED for a fixed rate 30 or 15 year mortgage. They did a REAL credit check - and if you were late paying the electric bill once - you had to document why. The fixed rate was designed so that you knew EXACTLY what your payment was going to be - and so that over time - the percentage of your income that made that payment was LESS not more.

You walk into a bank now - and your credit cards are about maxed or carrying large balances -- your house payment is 40% of your gross -- your business revenue is down -- you owe on 3 cars.... Guess what... NOBODY is going to loan you anything. And they shouldn't because you can't pay it back -- and CREDIT means that you can pay back - not just borrow more. Sorry.

I don't disagree Greg, but like most bubbles, there is an overcorrection and the banks' overtightening is exactly just that. It should settle back to where it should be at some point.... rational sensible lending. Gee, what a novel idea huh?

I couldn't have said it better if I tried. The entire idea behind credit was to make it so people or business could buy now what they normally couldn't buy until later. It was never intended to make it so that people could buy what they normally couldn't have purchased on their own at a later date.

Shiny Side Up!
Bill

Another vote for Dave Ramsey :thumbsup:

The definition is gunshy. You cut off the tip of your finger using a circular saw and your going to be careful until that becomes a distant memory. I can't say I blame them, most lenders have lost there ass and they can't afford another run of losses.

I can't honestly say I feel anybody that deserved a home loan has been denied in the last 3 years in my presence. You can still obtain a loan as a veteran with $1 down and an FHA with 3.5%. Not exactly much assurance for the lender. If it wasn't government insured, it would never happen today. Conventional loans require a minimum of 10% and that's if you are iron clad and it's a primary residence. Mortgage insurance won't be as inexpensive as it was 3 years ago. In many cases the lender will loan the money but there aren't any Mortage insurance companies that will write the policy. With that being said, almost every conventional deal I've done in the past 3 years has been 20% down. Over a 1/3 of my transaction in 2009 were Cash.

Then there is buying power. Sure the low down payment government loans are available, but they stand little to no chance against a conventional buyer. That's the way it should be. Those that are most financially able should have more buying power and obtain the best property. That's a variable that went by the wayside. Anybody with a fico score and a pulse could get a conventional loan 3 years ago.

BTW -- I'm not ragging on anyone -- nor pointing fingers -- nor trying to show anyone is better or smarter.

I'm merely stating what I "see", and feel, to be the facts.

We (wife and I) sit on several boards.... some have finance issues - most do not. I'm a "lender" and an angel investor on a personal basis. I can tell you that I'm hit every day with, "invest in my great game changing idea" - and, "I just need some help" - and, my personal favorite line, "I don't really need to but....."

Had I been really smart -- I would have shorted all the home builders to zero... because the people that I hang with all saw this coming. None of us (and admittedly we're on the older side) could understand why financial institutions were lending to the LEAST credit worthy folks (those with no downs) and giving them the "best" (lowest) rates. I knew then as I know now - that isn't going to work. In my life - the least credit worthy didn't qualify for loans - and the "on the edge ones" got little credit and PAID A PREMIUM rate.... only the most credit worthy got the Prime plus rates...

When you see credit issued to those that deserve and EARN it... things will return to normal. I also agree with Dave (Flash) when he says the pendulum tends to swing too far to one side on both sides. That is what we're seeing now, but if you have good (top tier) credit - you can get it without too much hassle. What's too much -- is open for debate... but expect to actually have to PROVE that you can pay it back.

Very sound analysis Greg. Whether it's real estate prices, or IPOs, or conventional lending, most asset bubble pops overcorrect and here we are.

Regarding your homebuilder shorting, I essentially did that with an ETF back in 08-09 with SRS - a "double-short" real estate index fund. It worked out quite well.

I'm not sure if it was mentioned, but " Credit Score " can and will effect job prospectus and insurance rates. I would venture to guess there are other things I dont know about.

I know some jobs might run your credit if you have some substantial financial or collections aspect to your role, but definitely not the majority of jobs out there.

And what types of insurance carriers use your FICO score? I am not aware of any. ?

Some jobs, in the financial sector. Allstate is one.

Coverage for what though?

State Farm too, on every policy we have. They use it to determine what kind of "risk" you are.

Great playing - acting on what you saw and feel. Personally I NEVER SHORT. The downside is almost unlimited and the risk more than I want to take, regardless of my gut feeling. I've personally tried to invest in things I thought were going "well" rather than betting on something going bad. I can't tell you how many times I could have made some serious ROI shorting... but I just won't do it. I stick to what I "think" I know. :rolleyes:

I bought Apple 5 years ago when I was at the mall - and noticed the only store in the entire mall that had people coming out the front door waiting to pay for the stuff they'd bought.... I came home and said - hmmmmmm.... That looks like a growing business to me.... Some call that the Peter Lynch version of investing. I tend to agree with that version of investment style. Something I can see - no analyst required. I wish I could repeat that "winner" on a more consistent basis. I have others we won't mention. :rofl:

I'm not a "gambler" -- I don't day trade - I don't short - I don't buy anything with money I can't afford to lose. People say that - but they don't stick to it. I'm a stick to it kinda guy. I came from nothing... got lucky a couple of times - and have a total fear of returning to my roots... I DO NOT GAMBLE - that is different from "I never lose" because I lose all the time... I stick to the 5% rule - never more than 5% in any investment EVER... if the investment grows and is 8% - I take some off and invest in something else - I'm never a pig. I never "average down". I have a separate bucket of risk investment - think "Venture Capital"... that is a completely different investment play than the apartments I own. BALANCE is the way to not go broke. I've been broke - it's not nearly as much fun. I do take calculated risk... and sometimes they don't work out... but it never affects my lifestyle... nor causes me to have to bail on a winner to cover.

A quick story - neighbor comes over 3 years ago - says he just inherited 3/4's of a mil - and wants to know what stocks to buy. I asked him about his "other" investments - to which he says he has none. I asked him how much does it cost you to live a year? He tells me - I say where's that come from... He's retired - but he's NEGATIVE CASH FLOW... So I said - here's the way I'd go about this: Take 4 years of the negative flow - stick it in laddered CD's... SO THAT YOU DON'T HAVE TO SELL IN A DOWN MARKET.... and then pick 10 or so stocks - and buy into them over TIME... not all at once. So if you target Apple, for instance - and want to invest 10K in it - buy 2500 worth every quarter - up or down - stick to that... BUT DO NOT BUY ALL AT ONCE... I tell him.... There's a guy on Wall Street - when you buy -- he yells to his buddies "okay guys - he's in - take 'er down!" -- then when you sell -- He says - "he's out -- take 'er up!"

Needless to say he did what he wanted to do and his house is for sale. :willy:

Am I smart -- Have any of you ever met me? :wow: The answer is ABSOLUTELY NOT... but, better lucky, than smart! is my favorite saying. And I want to live to be able to play another day. I don't do anything well - I do it all "average" - I realize this and I stick to it. Right now - I know lots of really broke smart people. They were greedy and margined their accounts and they leased their cars - and bought way more house than I... and have way nicer cars and toys. I hope they enjoyed them.

It just occurred to me why I'm an "average" guy...

I'm more afraid to loose what I have, which is way more than I ever dreamed of - than I am of loosing out on something better, or bigger, or more.

I never dreamed of having a Ferrari, ever, not once so just because I could now have one why would I? I've always dreamed of owning/building a decent hot rod. I never dreamed about owning a "yacht"... but always wanted a decent boat...

I try to keep that in "perspective". I have way more than I ever dreamed of and I intend to keep it at that.

Does that make sense?

Very much so!

Shiny Side Up!
Bill

Makes perfect sense Greg.:cheers:

I get what you guys are saying, and honestly, I fell victim to the "college credit card" out of high school, and not having a lick of financial smarts, it ruined me. And know I am paying for it, in more ways than one. But as of this year, short of my house and small car payment, I will be debt free, making 70k a year. I am just upset that it has taken me until I am 30 to finally figure it out, however, my wife and I would like to have another child, and move to a bigger house (the house we have now is not above our means) but my past will haunt me once again, so what are my options? Credit seems like it takes so long to build back up, but so easy to ruin. And I ghfear that when looking at the next house, it will be unbeleivably hard to get a decent loan. what are your guys opinions on this? (sorry if this is off track or a hi-jack)

I love that kind of question INDY ---

Well.... Yes and no... :lol:

I'd say - stay where you are for at least 2 years - with no debt other than as you stated - make sure you don't change jobs either... unless you're taking a big move up.


STABILITY and track record will help you. It's kinda like your GPA -- everybody screws the pooch the first quarter at college - but if you figure it out and start doing what you should from then on - GREAT.

Todd can jump in and tell you what you need to qualify for a house - he deals with that... so would know what the banks are demanding currently - down - rates - FICO - etc.

This whole "housing" thing gets me. Back in the day - the sole reason you bought a house - was to work to pay it off - so that you could live for "free" when you retired. So a 30 year mortgage was paid off when you were 60... earlier if you were "smart". People raised whole families in 1400 sq ft ramblers and post war bungalows. They knew all their neighbors - and their kids... they started out young families and grew old together. Why is it we all have to have "more" house now? I didn't have my own bedroom til my brother went to Vietnam! Now a married couple no kids (DINKS?) have to have 5000 sq ft 4 bedroom 5 bath house in the burbs... they live there 3 years and move - never knowing anyone. WTF is up with that? :rofl: You (not YOU personally - it's a rhetorical "you") have to be a complete moron to be 50 years old and taking out a 30 year $4,000 a month mortgage!! How are you EVER going to pay that off - let alone retire? Oh -- wait -- I know!! You're hoping like hell that it DOUBLES in price... good luck with that.

I love this thread. Greg your advice is simple and straight forward. I'm hoping my next move will be into a larger garage / shop and smaller house.

^^^^^^^^^


NOW YOU'RE TALKIN' !!!

A man after my own heart -- a man can NEVER have too much shop... the house is just a place to eat and sleep. :hail: :hail: :rofl:

^^^^^^

Dont forget Sh*t :rofl:

I'm hoping my next move will be into GREGS shed.......:lol:

The answer is simple...most people don't "own" anything anymore and......THEY ARE COMFORTABLE WITH THAT. Different set of values, they don't lose any sleep knowing they are breaking a $4000 nut. Hell..everything they have is financed, right down to the toaster oven. Very sad but true.

I'm almost 40 and have never paid a dime in credit card debt, my vehicles are paid for, I buy what I can afford, I know a ALOT of people and I'm alone in the way I handle my finances...to the point where I have been made fun of....I must be doing something right. :D

We're in the same boat Bryan. I cannot stand the fact that I have any debt hanging over my head. Nowadays, people think that it's a way of life to finance everything and have debt. NO THANKS!!!:_paranoid :willy:
I did finance my vehicles, but, had them paid off way before the time was up to help avoid finance charges and to save what I can.:thumbsup:

That's what I'm talking about! :thumbsup: