Sam asked in Business & FinanceCredit · 3 years ago

How does credit work specifically?

I am 19 years old and have zero credit. In the near future, I want to start investing in real estate properties. I recently get approved for a credit card through my bank for gas and recently purchased a car making monthly payments with my dad as a cosigner. So my question is what how is credit score developed, meaning each month does my score go from 0 then 100 the next month and so on and so forth? How long does it take to develop? Just general question like that would be useful. I understand what credit is, and somewhat how a person develops it (somewhat to a very simplistic standpoint), I am just not sure of the process of how it work, strength, and understanding how I can get it to where it needs to be in taking on a mortgage/loan for investment properties.

-any information is helpful, thank you

Update:

Don't necessarily need to know how to use credit to buy a house. Just want to know how it is measured and developed in terms of credit score/ ratings to eventually get me there. Reason I talked about a house is just for the purpose of why I want to know how it works, so I can get a conventional loan on an house, instead of FHA.

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  • 3 years ago
    Favorite Answer

    "Credit" in the sense of "good credit" or "bad credit" is your history regarding incurring and paying back debt. Credit scores are numbers that are somewhat arbitrary, but are based on algorithms that assign values to certain factors (paying on time vs. late, balance outstanding vs. credit available, type of loan, age of credit, how many credit inquiries you have) and are easy benchmarks for people who lend money to gauge how risky it would be to give you money.

    If you have no history, you're a new borrower and people pretty much assume the worst. If all you have is a credit card, then you'll establish and build credit fairly slowly. Bigger, long-term items like cars and houses have a much bigger impact.

  • 3 years ago

    My sweetie and I bought a house in 1987. At the time I had never been in debt, never bought anything on credit, etc. I never even had a credit card! I wondered how I would get a loan for a house with no credit rating, no credit history.

    The loan guy at the bank explained that if we put down 20% it would be easy to lend us the money. Because we couldn't just take off with the house. The bank could always come and take it back! We had to have insurance on the house so even if we burned it down the bank would get their money back.

    I think you'll find that's how it is with property. The idea is that once you have one house, after a few years you have enough equity in it that you can 'leverage' it to buy another house. I know a lot of people who did this, piling up 3 or 4 or 5 houses, letting the tenants make their payments for them. By their mid-40s they were millionaires! But this only would work as long as property values were continuously rising.

    • Re Vera
      Lv 7
      3 years agoReport

      "But this only would work as long as property values were continuously rising." Or at least relatively stable. But yeah... this is one excellent way to build positive net worth.

  • 3 years ago

    A credit score develops when you pay debts on time. So with a credit card, if you pay when you are suppose to, your credit score will go up. It can change pretty quickly. You can definitely build good credit with credit cards and buy a house pretty soon! Above 650 is acceptable for a house, but they can go up to 850.

  • Singh
    Lv 5
    3 years ago

    You might be able to get a loan with your Dad as cosigner, but nobody is going to give you a loan on your own unless you have 1. a high paying stable job and a track record of high paying jobs or 2. a lot of cash or other valuables you can use as collateral.

    Having a credit card and a acar loan that you pay on time and eventually pay off gives you a track record as someone who has, in the past, been able to make their payments and pay off a loan. But it doesn't mean they are going to hand you a large amount of money for "investing".

    • Sam3 years agoReport

      I understand that, I just want to know how credit works for down the line. I have zero intentions of buying a house anytime soon. I'm talking 3 to 4 years from now. I just want to know how credit develops over time, from a number standpoint in credit score.

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  • 3 years ago

    You now have new credit. It goes up a LITTLE each time you pay on time. No where near 100 points a month though. If you pay late it goes down A LOT.

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