Ask dumb questions here!

[Wingspan]

Ya, I'm not jumping into anything.  There are drawbacks to both.  I have little savings as I've been dumping money into debt.  I've eliminated almost all of it, but have little to show for it.  My credit ain't great either--I didn't get into debt smartly.  Also, I haven't used any consumer credit at all for about five years, so while I've been paying down my debts, I haven't been creating new, good credit.  Nor do I plan to.  It's a racket/game I don't care to play.

Establishing good credit goes a LONG way to buying a home. In fact a lot of lenders will overlook bad credit past if you've established good credit since.

I had a lot of bad debt, most of it at this point over 8 years in the past. but the last 6-7 years i had established good credit, with financing a few cars. And credit cards, of which i use/payoff in one billing cycle.

My wife and I bought a house last year, and we were bracing for a higher rate, or flat out rejection on a mortgage. It was a fairly painless process. And most of that was because of the good credit i had established since the dark times.

[Diomedes]

I'm consumer credit averse.  It's fire, I got burned.  Not gonna play again.  If I have the cash, I can afford it, if I don't have the cash, I can't afford it.

You will think I'm weak and simple and perhaps I am, but that's the deal.  Never gonna borrow for anything short of more education or a home, ever again.  Not interested in charging everything so I can pay it off at the end of the month either..that's not establishing good credit, because no one makes any money off me.

[Zanshin]

Ya, I'm not jumping into anything.  There are drawbacks to both.  I have little savings as I've been dumping money into debt.  I've eliminated almost all of it, but have little to show for it.  My credit ain't great either--I didn't get into debt smartly.  Also, I haven't used any consumer credit at all for about five years, so while I've been paying down my debts, I haven't been creating new, good credit.  Nor do I plan to.  It's a racket/game I don't care to play.

The compound interest is the only reason I wouldn't take the money and put it towards a house.  The 30% tax/penalty hit is not easy to swallow, but more than worth it to be able to buy a home before 2015. 

I'm probably going to take a huge pay cut in my next job.  Question is:  what's more valuable to me in the long run, owning a home or letting 40k worth of 401k money compound over the years?  Not an easy question.

When I left my last gig, I decided to merge all of my 401k funds into an IRA so that I'd have fewer things to track and have more control over it.  For me, it has worked well, and I think it would be worth looking into.

[Zanshin]

I'm consumer credit averse.  It's fire, I got burned.  Not gonna play again.  If I have the cash, I can afford it, if I don't have the cash, I can't afford it.

You will think I'm weak and simple and perhaps I am, but that's the deal.  Never gonna borrow for anything short of more education or a home, ever again.  Not interested in charging everything so I can pay it off at the end of the month either..that's not establishing good credit, because no one makes any money off me.

Good call.  I've never been late with a bill, and I refuse to pay interest fees on card purchases.  That said, I do charge quite a bit over the course of a month for convenience, points and to track spending...but I never charge anything that I won't pay off that month.

[PoopyfaceMcGee]

I'm consumer credit averse.  It's fire, I got burned.  Not gonna play again.  If I have the cash, I can afford it, if I don't have the cash, I can't afford it.

You will think I'm weak and simple and perhaps I am, but that's the deal.  Never gonna borrow for anything short of more education or a home, ever again.  Not interested in charging everything so I can pay it off at the end of the month either..that's not establishing good credit, because no one makes any money off me.

If you want to play the game that way (a.k.a. taking your ball and going home), you may have to do the same with a house.  Wingspan's not kidding.  Some sort of positive credit history is very important.

Maybe you could take out some college loans, get another degree, then get the home using the college loan as your credit history.  Can't really have it both ways.

That said, your decision to pay cash is admirable and responsible.  It's not something to be ashamed of.

[Seabiscuit36]

Charging and paying off does help your credit ratings.  If you can even just use a credit card for 7-11 purchases and pay it off at the end of the month, its building your credit.  My wife and i charge everything so we can get the points.  We never borrow what we cant afford and when we do borrow its always at 0% such as my recent tv purchase.  I've been in the credit card industry for over 5 years, luckily i've been able to clean up my credit mess from when i was 18 and have good credit.  

[Diomedes]

It's been like six years since I used any consumer credit, and three years since I carried any consumer debt.  What I haven't done is make the step to using a card for regular purchases and then paying it off.  I suppose I wouldn't act like an ass, but I just prefer to pay cash and be done with it.

[Seabiscuit36]

I hear ya, but use the Credit card somewhere that you dont like so they have to pay the interchange fee.  I get satisfaction out of it. 

[Diomedes]

Charging and paying off does help your credit ratings.

If you say so...but it doesn't make any sense to me.  What is your credit rating if not a measure by which prospective lenders can judge how likely it is they will make money by lending to you?  If you pay off everything every month, no one is making money on you.

[Diomedes]

I hear ya, but use the Credit card somewhere that you dont like so they have to pay the interchange fee.  I get satisfaction out of it. 

Ah!  That's where they get paid.  So I'm making money for them, without actually giving them any of my own.

And while I appreciate the spiteful nature of your practice--spite is good--I don't want to patronize places I don't like just to establish credit.

But I def. see your point.

[Seabiscuit36]

Its showing that you can have the availablity to loan a large amount and not default(chargeoff) on that loan.  

[Zanshin]

Yeah, but the idea is that if you said you'd pay for something and do...then you're more likely to be reliable in that regard in the future.  For something like a house, it's not like they're counting on you to miss a few payments so they can make more money-- they want you to pay it off every month as planned.

[Father Demon]

That siad, in my opinion it isn't wise to cash out of a 401k to finance a downpayment.  Not only do you have tax consequenses and penalties, but you miss out on the next 25 - 40 years of compound growth. 

Not entirely true:

One of those loopholes applies to first-time homebuyers. The 1997 Taxpayer Relief Act allows you to withdraw up to $10,000 penalty free - once in your lifetime -- from your traditional or Roth IRA for a purchase of a new home, as long as you are a first-time homebuyer or haven't purchased a home in at least two years.

Yes, you still have to pay taxes on the money, but if you buy early in the year, your mortgage interest deduction will offset that extra cost significantly.

Yes, you lose the long term benefit of the investment, but if you don't use the money you may end up paying extra interest (The 15 part of an 80-15-5 is lent at a higher rate) and/or mortgage insurance.  It isn't a cut and dry decision - do the math, or get some help from an accountant.

I wasn't aware of that.  Thanks for the info.

[PoopyfaceMcGee]

Charging and paying off does help your credit ratings.

If you say so...but it doesn't make any sense to me.  What is your credit rating if not a measure by which prospective lenders can judge how likely it is they will make money by lending to you?  If you pay off everything every month, no one is making money on you.

The credit rating is theoretically a measure of your risk of default / bankruptcy.  The higher the rating, the less the risk.

[Diomedes]

Its showing that you can have the availablity to loan a large amount and not default(chargeoff) on that loan. 

Sure, sure.  But there's a difference between saying "you won't lose money" with this guy and "you will make money" with this guy.

I thought the point of the credit rating was the latter.