Is renting a better option for building a good credit score?

[jim hardy]

Going into debt to buy a house is smart debt.

Buying a modest house so that you can double down and pay off that mortgage is REALLY smart.

When you have no house payment a paycheck goes a LOT further.

Drive secondhand cars and get out of debt altogether is smart^3.

 

[lisab]

There's smart debt and stupid debt. Going into debt to buy a car is stupid debt. Going into debt to buy a house is smart debt. Going into debt to start a business is smart debt...if you're arealdy smart about your business!

Going into debt on student loan is stupid^2.

Eric

If you go into debt to buy something that is going to increase in value faster than the interest you pay, then it's a smart move.

I wouldn't necessarily lump *all* student loans into the "stupid" category, much less "stupid²". I bet lots of psychology graduates complain about their student load payments holding them back in life, but not many petroleum engineers do.

 

[OmCheeto]

It took me 5 years to pay off my new truck. Last month someone stopped in front of my house, and asked if I wanted to sell it. I asked how much. They offered me $4000 more than I paid for it, including interest. I thought that was stupid. Then someone told me I was stupid for not selling it. I thought that was stupid, because I had checked the prices for new trucks, and the cheapest one was $12,000 more than I would have gotten for mine. And my gas mileage would have gotten much worse.

And Fuzzyfelt implied we should buy things to help the economy.

Dec15-08, 03:21 PM

The bad case scenario is that US consumers stop spending, start saving, all at once. This appears to be happening, sadly.

So I did.

And I had never been able to afford a new car before that, so it was kind of a thrill. It was my 50th birthday present to myself. I made the last payment the same month I retired. Kind of worked out perfectly.

I would define "stupid" debt, as that debt you incurred for things you don't need.
Cars let you get back and forth to work: smart debt!
Houses give you a place to sleep, build gutter gardens, and smoke salmon in the back yard: smart debt!
Student loans get you a (hopefully) better paying job: smart debt!

Going into debt to start a business is smart debt...if you're arealdy smart about your business!

hmmm...

Startup Business Failure Rate By Industry

Businesses with Best Rate of Success After Fifth Year
1 Religious Organizations
2 Apartment Building Operators
3 Vegetable Crop Productions
4 Offices & Clinics of Medical Doctors
5 Child Day Care Services

No, no, no, no, and hell no.

I think I'll skip going into debt to start up my $1,000,000,000,000 business.

Interesting set of statistics though on that website. I've saved it to my "Bwah ha ha" folder on my desktop.

 

[edward]

How the recession changed the economy in 255 charts.

Not much to cut and paste here the charts tell the story

http://www.nytimes.com/interactive/...conomy-in-255-charts.html?_r=0&abt=0002&abg=1

New jobs since recession pay 23% less.

Jobs created in the US after the Great Recession tend to pay significantly less than the ones that were lost during the steep economic downturn, according to a new wage study.

Although the country has regained the 8.7 million jobs lost in the 2008-9 financial crisis, the average wage has dropped 23 percent, according to a study released Monday by the US Conference of Mayors, which represents cities with populations of more than 30,000.

According to the US Labor Department, the jobless rate was 6.2 percent in July, and businesses added 209,000 workers, representing the sixth straight month of job gains greater than 200,000.

However, the Economic Policy Institute (EPI) estimates that given the pace of population growth since the recession, in July there were 5,860,000 “missing workers,” which include potential workers who aren’t in the labor force – many because they’re discouraged. EPI estimates if these workers were looking for jobs, the actual unemployment rate would be about 9.6 percent.

http://www.presstv.ir/detail/2014/08/13/375131/new-us-jobs-pay-significantly-less-study/
This Heritage Foundation article gives a lot of data, makes a lot of claims and accusation, but in the end doesn't even explain the title of the article.

Not Looking for Work: Why Labor Force Participation Has Fallen During the Recovery

http://www.heritage.org/research/re...-participation-has-fallen-during-the-recovery

Not looking for work or Have they given up out of pure discouragement? Nothing is ever addressed about the "labor force drop outs". Where did they go? What are they doing. There has to be a large number of Joad families out there somewhere.

This is a science forum and people want numbers. The problem is that the study of economics is not a perfect science. That said I would love to see some numbers on the missing Joad families.

This has been a therapeutic ramble.

 

[Astronuc]

Our economy has changed, lest you think that the minimum wage is for teenagers. The average age of a fast-food worker is 28. And minimum wage jobs aren’t confined to a small corner of the economy. By 2040, it is estimated that 48 percent of all American jobs will be low-wage service jobs. We need to reckon with this. What will our economy be like when it’s dominated by low paying service jobs? What proportion of the population do we want to live on food stamps? 50 percent? Does this matter? Should we care?

We’re undeniably becoming a more unequal society—in incomes and in opportunity. The danger is that economic inequality always begets political inequality, which always begets more economic inequality. Low-wage workers stuck on a path to poverty are not only weak customers; they’re also anemic taxpayers, absent citizens and inattentive neighbors.

http://billmoyers.com/2014/09/11/a-wealthy-capitalist-on-why-money-doesnt-trickle-down/

 

[OmCheeto]

http://billmoyers.com/2014/09/11/a-wealthy-capitalist-on-why-money-doesnt-trickle-down/

That guy seems to be listening to the past. What the hell do old people know?

The fundamental law of capitalism is: When workers have more money, businesses have more customers. Which makes middle-class consumers — not rich businesspeople — the true job creators. A thriving middle class isn’t a consequence of growth — which is what the trickle-down advocates would tell you. A thriving middle class is the source of growth and prosperity in capitalist economies.

hmmm...

It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages.

hmmm...

He is credited with "*******": mass production of inexpensive goods coupled with high wages for workers.

hmmm...

vs., um, mass production of expensive goods, coupled with low wages paid to workers in another country?

I wonder what the USA vs Lesotho trade imbalance was that year.

hmmmm...

 

[OmCheeto]

At least there are people researching the "New American Dream".

Living Simply in a Dumpster
One professor left his home for a 36-square-foot open-air box, and he is happier for it. How much does a person really need?
SEPTEMBER 11, 2014

Tucked behind the women’s residence halls in a back corner of Huston-Tillotson University’s campus in Austin, Texas, sits a green dumpster. Were it not for the sliding pitched roof and weather station perched on top, a reasonable person might dismiss the box as “just another dumpster”—providing this person did not encounter the dean of the University College Jeff Wilson living inside.

Professor Wilson went to the dumpster not just because he wished to live deliberately, and not just to teach his students about the environmental impacts of day-to-day life, and not just to gradually transform the dumpster into “the most thoughtfully-designed, tiniest home ever constructed.” Wilson’s reasons are a tapestry of these things.

Sounds very much like something I would do.

 

[edward]

At least there are people researching the "New American Dream".



Sounds very much like something I would do.

I wanted to do something similar. I was going install basic conveniences in a horse trailer and park it on the back of my property and live in it. The general consensus of my family was to have the people in white jackets come and get me.

Horse trailers are built like an A1M1 Abrams tank and it would have been mine, all mine.

 

[OmCheeto]

Yay! It appears I've been living the "New American Dream" for the last 25 years.

Your Thoughts on Tiny Houses
October 14, 2014
Last week, BillMoyers.com published a report on micro-houses (or, more popularly, “tiny houses”). These ultra-compact homes of 1,000 square feet or less are appealing to those who want to make their lives more sustainable, and, increasingly, are being looked at by some as a model for affordable housing.​

My house is only 900 ft².

Fighting the trend toward “McMansions”
Others noted that in the past, America favored much smaller homes than what has become popular in recent years. Between 1973 and 2007, the average size of a single family home https://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf from 1,660 square feet to 2,521 square feet, even though family size decreased during the same period. ...​

2500 ft²? That's nearly half of my property!

Anyways, from the article, it looks as though a lot of people are comfortable with downsizing.

 

[edward]

Yay! It appears I've been living the "New American Dream" for the last 25 years.

Your Thoughts on Tiny Houses
October 14, 2014
Last week, BillMoyers.com published a report on micro-houses (or, more popularly, “tiny houses”). These ultra-compact homes of 1,000 square feet or less are appealing to those who want to make their lives more sustainable, and, increasingly, are being looked at by some as a model for affordable housing.​

My house is only 900 ft².

Fighting the trend toward “McMansions”
Others noted that in the past, America favored much smaller homes than what has become popular in recent years. Between 1973 and 2007, the average size of a single family home https://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf from 1,660 square feet to 2,521 square feet, even though family size decreased during the same period. ...​

2500 ft²? That's nearly half of my property!

Anyways, from the article, it looks as though a lot of people are comfortable with downsizing.

That explains all of the "stuff" for sale on Craigslist. When my son downsized; one truckload went to Good Will, one truckload went to the landfill and the rest was sold on Craigslist to pay off a medical bill.

 

[Astronuc]

Why renters in America feel trapped
http://finance.yahoo.com/news/here-s-why-renters-in-america-feel-trapped-205700354.html

 

[russ_watters]

Why renters in America feel trapped
http://finance.yahoo.com/news/here-s-why-renters-in-america-feel-trapped-205700354.html

That's what I call a self-selecting sample or a backwards-reading poll/study. It isn't a coincidence that more renters than homeowners are in financial stress: that's why they are renters!

 

[OmCheeto]

That's what I call a self-selecting sample or a backwards-reading poll/study. It isn't a coincidence that more renters than homeowners are in financial stress: that's why they are renters!

Is it because some renters are stupid?

...
Because the cost of renting and buying varies so widely across the U.S., you have to take reports like these with a healthy dose of salt. In some metro areas, like San Antonio and Phoenix, it’s actually much cheaper to buy a home than rent.
...

But I must say, this thread has me feeling good about my situation:

...
But the reality is that the cost of renting across the country is on the rise, straining the budgets of many renters. In the largest 25 metro areas in the U.S., rents increased by 5.5% in 2013, eating up more than 40% of the average renter’s household income, according to http://www.trulia.com/trends/2014/07/trulia-price-rent-monitors-jun-2014/. Most financial experts recommend spending less than one-third of income on housing.
...

That's almost exactly what I spend on my mortgage. Yay! And it should be paid off within 4 years. Double-Yay!

And, as edward posted last year:

Today, it seems, the American Dream has taken another hit. It is simply about being able to quit work before you die.

I did it!

hmmmm... What's in store for me now?

Can You Handle The Truth About Retirement?

Seven hard realities that come with retirement:

1) You can never save enough money to retire happily ever after because money and happiness have nothing to do with each other.
2) After you retire, the only guarantee is that you will die.
etc. etc.​

hmmm... I figured that all out by the time I was 25.

But anyways, as I said the other day, it's not that bad down here at the bottom. You all will just have to get used to not having a skating rink for a house.

:)

Do folks see owning a home or living debt-free as eventualities? Is retirement at 65 to 70 feasible?

55! Whoop Whoop!

Yes. I know...

​

all bolding mine

 

[russ_watters]

Is it because some renters are stupid?

What? No: They are renters because they are unable to be homeowners. The homeowners self-select out of the group of renters via the act of buying a house, thus demonstrating they have the financial means to buy a house!

And, as edward posted last year:
Today, it seems, the American Dream has taken another hit. It is simply about being able to quit work before you die.

Well, that shoe hasn't really dropped yet. Social security still provides the same benefit it always has and the elderly poverty rate is still low because of it. But *something* will have to change in the next decade or two as the fund goes bankrupt. What changes, we'll just have to wait and see but my guess is that instead of re-vamping the program, they'll just raise taxes again, crushing working/younger people even more than they are already being crushed by the way-too-high already SS tax. That it what I see as most damaging now and in the future to the American Dream.

 

[Borg]

What? No: They are renters because they are unable to be homeowners. The homeowners self-select out of the group of renters via the act of buying a house, thus demonstrating they have the financial means to buy a house!

I'm not trying to take your statement out of context but I'm not exactly sure how to phrase this. I wouldn't see all renters as being renters just because they don't have the financial means. In the Washington DC area for example, there are a lot of military renters who are stationed here for a few years and then transfer to another base. It doesn't always make good financial sense for them to purchase even if they can because of the short time span involved. I would think that the same applies to areas around the many bases in the US. I'm not saying that there aren't a lot of renters that don't have the financial means to purchase a home but that there are a significant number of non-financial reasons.

 

[russ_watters]

I'm not trying to take your statement out of context but I'm not exactly sure how to phrase this. I wouldn't see all renters as being renters just because they don't have the financial means.

Sorry, I didn't mean to imply that no one who rents is capable of buying a home (though I can see how my post could have been read that way). Indeed, if that were true very few people would ever be able to buy a home since most people rent before owning (I assume...). The other side of the coin, however, is necessarily/self-evidently true: everyone who owns a home was capable of buying a home.

That's why think the article has little value, at least in the way it presents the key finding/thesis:

For renters who aspire to own a home one day, the biggest hurdle they'll face is matering cash flow...
[out of order from conclusion...]

Nearly one-quarter of renters in a survey of 25,509 renters and homeowners combined say meeting their monthly financial commitments is "very difficult," and more than half say they wouldn't be able to come up with $2,000 to cover an emergency expense.

Homeowners, by comparison, feel much more stable.

It is measuring something that is self-evident and logically required to be true. Homeowners have more spare cash than renters because the spare cash was required to become a homeowner!

It would have been useful to track these stats through time to see if the prospects for aspiring homeowners today are better or worse than they have been previously.

 

[Borg]

The other side of the coin, however, is necessarily/self-evidently true: everyone who owns a home was capable of buying a home.

I would exclude many who bought homes during the 2005-2007 years building up to the mortgage crisis when banks were handing out mortgages like candy to just about anyone who applied. I say this mainly with respect to the historical data discussion below. I would love to see how the numbers in the FINRA report would have changed yearly from 2000 to 20012. I'm sure that there would have been some interesting spikes right before the mortgage crisis.

That's why think the article has little value, at least in the way it presents the key finding/thesis:

It is measuring something that is self-evident and logically required to be true. Homeowners have more spare cash than renters because the spare cash was required to become a homeowner!

It would have been useful to track these stats through time to see if the prospects for aspiring homeowners today are better or worse than they have been previously.

I agree. The linked http://www.finra.org/web/groups/foundation/@foundation/documents/foundation/p601077.pdf at the beginning of the article clearly states its objective:

The purpose of this issue brief is to examine data from the 2012 NFCS StatebyState Survey to lend broad, initial insight into the financial capabilities of American renters, a little-explored segment of the population that may be more financially fragile and face more economic challenges than many other segments.

By its own definition, this is a single snapshot in time. It does say that renters may be more financially fragile and I think that we can all agree on this. However, is this any different from the way things have always been? That isn't addressed by the report.

But, of course, the Yahoo story begins using the phrase

Things aren’t looking great for aspiring homeowners in the U.S.

This is a bit misleading and can be seen by readers as implying a change from the past when things were better.

 

[edward]

One disadvantage to renting is that paying your rent on time, even for years, does not improve your credit score. That needs to be changed.

Even if your landlord or service firm is one of the few that does report, the payments may not be included in the most common credit score lenders use, called the FICO score. So if you were counting on your on-time monthly rent checks to help you build your credit score, you’re out of luck.

http://time.com/money/3525296/rent-payments-credit-report/

 

[russ_watters]

...

I agree with basically all of that. I think the study may become a useful tool that would feed well into the subject of this thread by directly measuring the change in a specific aspect of the American Dream. But right now, with one data point it doesn't do that. As a starting point/baseline it is less interesting -- and the Yahoo article is crap.

 

[mheslep]

One disadvantage to renting is that paying your rent on time, even for years, does not improve your credit score. ...

Time improves flaws in a rating, given no more delinquencies in payments. The FICO score subtracts points for delinquent payments, and then degrades those delinquencies with time. You're right though in that no credit is given over time to someone making on-time payments versus someone making no payments (because for instance their home is paid off, living as a dependent, etc).
http://www.myfico.com/crediteducation/whatsinyourscore.aspx