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I recently checked my credit reports and score and found out I had a score in the high 630's - this was a shock as I had checked this a couple of years ago and my score was in the high 730's

I suspect it is because I paid off my student loans which I had been doing for the past 8 years and now all those accounts are closed and I have no debts.

I don't want to be in debt again except for a home. I don't care about cash back, miles, or whatever else they sell. I approach spending with if I can't pay for it in cash I can't afford it mindset.

However I have just completed my emergency fund and want to start saving for a home . In my area in the US a decent one runs around 600k.

The worry is that when I do get to this milestone I will be charged an unfavorable rate for my home loan.

My questions are:

  1. What is the minimum amount I can spend on a credit card monthly and still improve this score. If it is something like buying a pack of gum and paying it off every month that would be ideal.

  2. Under this method just how much could I improve my score in a year or 5?

  3. Do I actually need a credit card to continue improving my score - could I do it with rent or utility payments?

Any advice from those who are debt adverse and paying in cash inclined appreciated.

  • Are you debt averse because you're scared that you'll go hog wild, or for a moral reason? – RonJohn Mar 10 at 3:55
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    @RonJohn I'm debt adverse because I never want to owe anyone anything. Given the state of the country and the financial situations of some family members I have a clear picture of behavior that I do not want to emulate. – gwar9 Mar 10 at 3:58
  • In my question the exception stated was for a home. Also entirely possible once I save 300k cash I could decide I don't want a 600k house. I really would like to focus on the questions I asked regarding credit score though. – gwar9 Mar 10 at 4:03
  • So you did. My mistake. – RonJohn Mar 10 at 4:04
  • Is that a weirdness of US's credit scoring system? For me as a European, it seems quite unlogical that credit scoring goes down, if you're free of debt. Granted, you can score anyone's debt-payment behaviour, when there isn't any debt. However, that should not cause the score to go down. – Dohn Joe Mar 11 at 14:31
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What is the minimum amount I can spend on a credit card monthly and still improve this score. If it is something like buying a pack of gum and paying it off every month that would be ideal.

Any amount is fine, even a pack of gum. Try not to overthink this. Many people advocate spending at least 1% every month yet less than 10% of your limit, but that's pointless except for the month you're actually going to ask a bank to check your credit score (e.g. the month you're buying the house). If you spend $0 some months and $1 or $500 other months, it doesn't really matter. Just use the card sometimes to keep it active and always pay it off in full.

Under this method just how much could I improve my score in a year or 5?

That depends on what factors are currently putting your score in the 630s. Did you have some late student loan payments or otherwise? Are there any defaults? If no, then opening a credit card will likely increase your score quite a bit. If you don't have any negative marks right now, then in 1 year I think it's reasonable that your score could jump by 100 points or more by adding open lines of credit with a perfect payment history.

Do I actually need a credit card to continue improving my score - could I do it with rent or utility payments?

Probably, yes. Of course you can see some improvements without a credit card, but the kind of significant increases you're striving for will most likely require some type of open lines of credit, since a big factor in the FICO score is based on that.

Lastly, I'd like to comment on this statement you made:

I don't want to be in debt again except for a home. I don't care about cash back, miles, or whatever else they sell. I approach spending with if I can't pay for it in cash I can't afford it mindset.

That's a great mindset to have, but don't confuse using a credit card with having debt. They are not one in the same. For many people, having a credit card causes that person to end up in debt, because they don't have a handle on what they can afford, or they lack self control (or both). Based on the fact that you have already built up an emergency fund, and made a comment about wishing to save $300K in cash to purchase a $600K home, I don't think you are the type of person that would be tempted to overspend on a credit card. So with that in mind, I recommend trying to find a good credit card with no annual fee and high cash back rewards. Then you might as well start swiping that instead of your debit card (or using cash) just to get the 1-2% free money. Make sure to set up your CC to auto pay in full every month (or at least auto pay the minimum) so you never have to worry about a late payment fee or getting a negative mark on your credit report. If I'm wrong and you ever find yourself overspending one month just because you're carrying a credit card, then pay it off in full, stop carrying it in your wallet, and revert to just buying that pack of gum every 6 months.

  • Thanks for your details answers and response point by point. I never had a negative mark on my reports I just repaid my loans aggressively and twelve years ahead of schedule so the credit history is only about 8 years - just now there are no accounts open. If the score only matters when the bank is going to check it to approve a loan I imagine there is no rush to do this since I won't be in my position to fulfill my goal of 50% down payment for at least 6 years? – gwar9 Mar 10 at 19:45
  • @gwar9 - Definitely no rush, however, one factor in the credit score is the average age of accounts (AAoA)- the longer the better. So if you open up a credit card and rarely ever use it, it will still help you more 6 years from now if you open it sooner. But the weight of AAoA is generally less compared to the credit line utilization. So, opening the CC will help much more than whether you have the card for 6 years, or say, 3 years. – TTT Mar 10 at 20:18
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Any advice from those who are debt adverse and paying in cash inclined appreciated.

Use the CC as a "delayed debit card". That's what I do, and it's worked well since we decided to get out of our pit of CC debt.

I pay off my previous week's charges every Sunday night. You'll, though, have to wait until the statement arrives so the bank will tell the reporting agencies that you've got a balance which you pay on time.

  • If you're paying once a week, then when the statement gets cut, it should have up to a week's expenses on it. – Ben Voigt Mar 10 at 5:01
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Opening s credit card will likely improve your credit score, but is it worth it?

One of the easiest ways to improve your credit score is to adopt the practice of charging everything to your credit card and paying it off on a regular basis. The banks motivator for floating the loan for this is that they skim a percentage off the top of every transaction as their profit. If you fall to pay on time, they start charging interest on that loan. They win either way.

The credit score is a proprietary model of purchasing behavior that measures the likelihood that a bank will make a profit doing business with you. If you are debt adverse, then the model should rightly predict a lower score because your decisions will not make the bank profit. You are likely to pay off any debts early, costing the bank profit.

I have lived without debt long enough that I have no credit score. I have no issues buying or selling property, traveling internationally, renting cars, renting hotel rooms, purchasing electronically, etc.

I'm a fan of both Dave Ramsey and Mark Cuban, who both say to never use credit cards. Worry about your own cash reserves. There will come a point where the credit score stops mattering.

Paying cash for a property or a car is a much less expensive and more pleasant process than incurring debt. And it's sustainable in the face of "s*** happens" that is outside of your control.

  • Although I agree with some of your sentiments, this answer doesn't answer the question, and your 3rd paragraph is incorrect. The credit score predicts your likelihood of repaying debt, should you choose to take any on. It has nothing to do with bank profits. – TTT Mar 10 at 15:14
  • @Ttt My former mortgage officer, now bank VP disagrees. I have the ability to pay off debt, as she well knows, but no credit score. After seeing how my finances revolved over the years, she has adopted the same financial plan I did. – pojo-guy Mar 10 at 16:28
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    Obviously the credit score prediction model is imperfect. Especially if the number of data points is 0. ;) – TTT Mar 10 at 16:31
  • Yup, but it's correct that my business as a borrower does not put money in the banks pocket – pojo-guy Mar 10 at 19:17
  • It's also a predictive model of future purchasing behavior based on past behavior. If you don't do debt, the bank can't skim it's percentage, so it makes no profit. The model is sound. – pojo-guy Mar 10 at 19:23

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