query: Income in zero-interest environment

positive: Dividends. There are blue chip companies that have paid and raised their dividends for 20 or more years. As an example: Altria (MO). There are also ETFs that specialize in such stocks such as SDY.

positive: "anything that produces steady income will produce a ""real return"" (return above inflation) in a zero-interest rate environment: Note, however, that all of these will decline in value if interest rates rise."

negative: It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want.  Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe.   Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD.  The very fact that USD is safe in today's environment is reflected in the Treasury rates.

negative: Fundamentally, it's no different than normal.  A risky entity must entice investors with higher interest rates than less risky entities.  We're just in such a low interest rate environment that the rate spread now dips below zero and very low risk entities can issue debt with a negative coupon. Though I agree that this makes no sense and the world's gone mad.

negative: Credit products and securitized debt.  Credit/debt is the flip side of equity but has less volatility. In today's investing environment people are not looking for a big return as much as less risk with a modest return. Another trend I think you will see is the disappearance of the wall between interest rate products/fixed income and credit products.

negative: The Fed sets the overnight borrowing costs by setting its overnight target rate.  The markets determine the rates at which the treasury can borrow through the issuance of bonds. The Fed's actions will certainly influence the price of very short term bonds, but the Fed's influence on anything other than very short term bonds in the current environment is very muted. Currently, the most influential factor keeping bond prices high and yields low is the high demand for US treasuries coming from overseas governments and institutions.  This is being caused by two factors : sluggish growth in overseas economies and the ongoing strength of the US dollar.  With many European government bonds offering negative redemption yields, income investors see US yields as relatively attractive.  Those non-US economies which do not have negative bond yields either have near zero yields or large currency risks or both.  Political issues such as the survival of the Euro also weigh heavily on market perceptions of the current attractiveness of the US dollar.  Italian banks may be about to deliver a shock to the Eurozone, and the Spanish and French banks may not be far behind. Another factor is the continued threat of deflation.  Growth is slowing around the world which negatively effects demand.  Commodity prices remain depressed. Low growth and recession outside of the US translate into a prolonged period of near zero interest rates elsewhere together with renewed QE programmes in Europe, Japan, and possibly elsewhere.  This makes the US look relatively attractive and so there is huge demand for US dollars and bonds.  Any significant move in US interest rates risks driving to dollar ever higher which would be very negative for the future earning of US companies which rely on exports and foreign income.  All of this makes the market believe that the Fed's hands are tied and low bond yields are here for the foreseeable future.    Of course, even in the US growth is relatively slow and vulnerable to a loss of steam following a move in interest rates.

negative: Every economy wants growth and for growth to come you need investments. So, you must provide some motive for people to risk their money (every investment has inherently a degree of risk or if you want uncertainty about the outcome). As a result the tax on capital gains is lower than on other types of income (because the risk is almost zero). The tax is considered in the calculation of the net interest rate. And you can see this as the interest which the investors demand in order to invest their money.

negative: The problem with having no debt at all and relying totally on your income from working is that if you lose your job you'll have no income. Now there are 2 types of debt: good debt and bad debt. You should stay away from bad debt. But good debt is good — it should produce an income higher than the interest payments on the debt. Good debt will help you supplement your income from work and eventually replace your income from work. I have over $2M in good debt, have been semi-retired since 42, and sleep very well at night. By the way I also have zero bad debt. As Joe says, you have to be at a level you are comfortable with, can sleep at night, and try to limit your bad debt by showing some delayed gratification when you are starting off.

negative: "Here's a number-crunching example of how the ""Zero interest rate"" offer is misleading. Suppose the offer is that a car ""costs $24,000.00 with zero percent financing over 24 months""  or as an alternative, ""$3,000.00 off for cash"". Ignore the hype:  the quoted prices and the quoted interest rates.  Look at what really happens to two people who take advantage of the two offers, One person hands over $21,000.00 cash, and leaves with the new car. The second promises to make 24 payments of $1000.00, one a month, starting in one month's time, and also leaves with the same make and model new car. The two people have received exactly the same benefit, so the two payment schemes must have the same value. A mortgage program will tell you that paying off a $21,000.00 loan by making 24 monthly payments of $1000.00 requires an interest rate of 1.10% a month, or an effective annual rate of 14.03%."

negative: The most common usage of interest rate swaps is by corporates who issue bonds.  Most US investors (e.g. insurance companies & pensions) want fixed-rate bonds, so that they know what their interest income will be for the life of the investment.  Many financial issuers prefer to have their liabilities be floating rate, so that they will benefit if the Fed keep interest rates at zero for a long time.  So the financial issuer issues the fixed rate bond, the insurance company buys it, and the issuer converts the obligation to floating with an interest rate swap.

negative: Duration is the weighted average time until all the cash flows of a fixed income security are received. There are a few different measures of duration but generally, duration measures the sensitivity of the price of a fixed income asset to a change in the yield of that asset. If you're familiar with calculus, duration is the first derivative of price with respect to yield.  Convexity is the sensitivity of the duration of bond with respect to changes in yield, or the second derivative.   The first chart [here](http://www.investopedia.com/terms/c/convexity.asp#axzz1x4F075zM) will help. Convexity measures the curvature of the blue or pink line, the steeper the curve the higher the convexity.   The more cash flows there are in a bond (higher or more frequent coupon) the lower the duration, because you are receiving more of your investment earlier as opposed to later (think time value of money). If a bond has one cash flow, meaning you get paid back only at maturity (zero coupon) then any changes in interest rates will have a greater impact on the price of the bond since you are discounting only one cash flow in the future. Think of buying a bond with no coupons and a 5% yield that matures in 5 years, or a bond with similar yield and maturity buy pays a coupon. If interest rates rise, the zero coupon bond's price will fall more than the bond with coupons. Why? Because if you own the zero coupon bond you have to wait 5 years to get your money back and reinvest it at the higher rate, while if you have the bond that pays coupons you can reinvest those incremental cash flows at the higher rate, even though at purchase they had the same yield and maturity.  These are both tough concepts that took me a fair amount of time to really understand. If you're investing in bonds or any fixed income asset, these topics are crucial to understanding interest rate risk.

negative: "As a legal contract, a mortgage is a form of secured debt. In the case of a mortgage, the debt is secured using the property asset as collateral. So ""no"", there is no such thing as a mortgage contract without a property to act as collateral. Is it a good idea?  In the current low interest rate environment, people with good income and credit can obtain a creditline from their bank at a rate comparable to current mortgage rates.  However, if you wish to setup a credit line for an amount comparable to a mortgage, then you will need to secure it with some form of collateral."

negative: good.  pple need to stop spending so much on material stuff.  help save the environment.  also, have less kids.  govt needs to impose some sort of birthing restriction or law enforced on people making less than a certain level of income.  This helps the environment.  And if the law is broken, then govt needs to sterilize the perpetrators.

negative: Recruiters in HR generally know nothing about in-depth about the role. Trust me. I wouldn't really worry about it. Feel free to talk with them about your interest in financial markets, etc. However, if you're taking to an analyst within the firm then I'd be careful. Don't come across as a know-it-all. The best method to bypass this is to ask genuine questions you have about the field.   If you want to go buyside, then do you want to go into equities or fixed income? For instance, if you strike up a conversation with someone in fixed income you can ask them why they ended up in fixed income over equities. How do they think the fixed income landscape will play out given today's low yield environment? How are they dealing with the current macropolitical uncertainty?

negative: Companies, especially big ones, find in Switzerland a business-friendly environment and often benefit from a special tax regime. Don't mix the companies interests with yours.

negative: "First note that CIBC issued these bonds with a zero coupon, so they do not pay any interest.  They were purchased by the market participants at a small premium, paying an average of 100.054 for a nominal value of 100.  This equates to a negative annual ""redemption"" yield of 0.009% - i.e., if held until maturity, then the holder will witness a negative annual return of 0.009%. You ask ""why does this make sense?"".  Clearly it makes no sense for a private individual to purchase these bonds since they will be better off simply holding cash.  To understand why there is a demand for these bonds we need to look elsewhere. The European bond market is currently suffering a dwindling supply owing to the ECBs bond buying programme (i.e., quantitative easing).  The ECB is purchasing EUR 80 billion per month of Eurozone sovereign debt.  This means that the quantity of high grade bonds available for purchase is shrinking fast. Against this backdrop we have all of those European institutions and financial corporations who are legally obliged to purchase bonds to be held as assets against their obligations.  These are mostly national and private pension funds as well as insurance companies and fund managers.   In this sort of environment, the price of high quality bonds is quickly bid up to the point where we see negative yields. In this environment companies like CIBC can borrow by issuing bonds with a zero coupon and the market is willing to pay a small premium over their nominal value. TL/DR The situation is further complicated by the subdued inflation outlook for the Eurozone, with a very real possibility of deflation.  Should a prolonged period of deflation materialise, then negative redemption yield bonds may provide a positive real return."

negative: "If you earn $160 a week for 26 weeks, are unable to claim yourself, have no other income at all, you will earn $4,160, which falls under the standard deduction, in your case a bit over $4,500; per publication 17, it is $350 above your earned income, to a maximum of $6300 as of 2016.  (H/t Hart CO for the reminder.) In that case, if you paid no taxes (at all) last year (either did not file or filed and had 0 tax paid, so got a 100% refund), you could legitimately claim ""exempt"" by writing that on line 7.   However, you would be very close to owing taxes, so if you have any unearned income (interest from bank accounts, dividends from your non-sheltered college fund, etc.), you would possibly owe taxes.  You're also going to owe taxes if you have another ~$2150 of earned income from any other source (including things like mowing lawns, tutoring, etc.). Keep all of that in mind if you have any other sources of income other than the above."

negative: Sometimes I think it helps to think of the scenario in reverse. If you had a completely paid off car, would you take out a title loan (even at 0%) for a few months to put the cash in a low-interest savings account? For me, I think the risk of losing the car due to non-payment outweighs the tens of dollars I might earn.

negative: It’s not misleading at all.  People making the highest incomes already pay the vast majority of income taxes.  Something like 40% of Americans pay zero net federal income tax.  These people have ZERO skin in the game and yet they think they should have a seat at the table demanding more!  The entitlement is sickening.  The current tax regime already soaks the rich.  You can play all the mental gymnastics you want, but you can’t change the facts.

negative: I understand the frustration, American politics is pretty utterly fucked isn't it?  > Anyway, I think we should be doing our best to incentivize corporate formation by lowering corporate taxes to zero and moving the incidence of taxation directly to capital.  That's interesting, and I've heard it before. Is something [like this writer](http://www.theatlantic.com/business/archive/2010/10/why-we-should-eliminate-the-corporate-income-tax/65351/) outlines what you are thinking? Essentially remove corporate taxes, and then tax dividends and capital gains as normal income?

negative: Zero positive feedback (except my performance review), cold attitude (friendly with others), regularly does not invite me, and only me, to meetings that affect me, etc.  Outside of work, makes it really uncomfortable to talk to him, but is great to everyone else.  It seems more personal than professional, and he just comes off as cold to only myself.  I really just want to bring this up to make work more pleasant; it's not really a 'hostile work environment'.

negative: According to TurboTax, it is perfectly legal to final as an individual with zero income. But, alas, according to Entities, by the IRS, you must file as a partnership or a corporation even if you have zero income.  As for my two cents, I can only see it being advantageous for filing on expense purposes, but as you have no income, the point is mute. Hope it all goes over well as the forms are due March 15.

negative: "How should I allocate short-term assets in a rising-interest rate   environment? Assuming that the last part is correct, there could be bear bond funds that short bonds that could work well as a way to invest. However, bear in that the the ""rising-interest rate environment"" is part of the basis that may or may not be true in the end as I'm not sure I've seen anything to tell me why rates couldn't stay where they are for another couple of years or more. Long-Term Capital Management would be a cautionary tale before about bonds that had assumptions that backfired when something that wasn't supposed to happen, happened. Thus, while you can say there is ""rising-interest rate environment"" what else are you prepared to assume and how certain are you of that happening? An alternate theory here would be that ""junk bonds"" may do well because the economy has to be heating up for rates to rise and thus the bonds that are priced down so much because of default risk may turn out to not go bust and thus could do well. Course this would carry the ""Your mileage may vary"" and without a working time machine I couldn't say which funds will be good and which would suck. As for what I would do if I was dealing with my own money: Money market funds and CDs would likely be my suggestion for the short-term where I want to prevent principal risk. This is likely what I would do if I believed the rising rate environment is here."

negative: "This is a supplement to the additional answers.   One way to generate ""passive"" income is by taking advantage of high interest checking / saving accounts.  If you need to have a sum of liquid cash readily available at all times, you might as well earn the most interest you can while doing so.  I'm not on any bank's payroll, so a Google search can yield a lot on this topic and help you decide what's in your best interest (pun intended).     More amazingly, some banks will reward you straight in cash for simply using their accounts, barring some criteria.  There's one promotion I've been taking advantage of which provides me $20/month flat, irrespective of my account balance.  Again, I am not on anyone's payroll, but a Google search can be helpful here.  I'd call these passive, as once you meet the promotion criteria, you don't need to do anything else but wait for your money.   Of course, none of this will be enough to live off of, but any extra amount with minimal to zero time investment seems to be a good deal.   (if people do want links for the claims I make, I will put these up.  I just do not want to advertise directly for any banks or companies.)"

negative: Asset prices are inversely related to interest rates. If you're valuing a business or a bond, if you use a lower interest rate you get a higher valuation.  Historic equity returns benefit from a falling interest rate environment which won't be repeated as interest rates can only go so low.  edit: typo

negative: "When you say that the problem is ""high supply but no demand"" you are actually correct. Here's why:  The phrase ""borrow/spend less, save more"" isn't an absolute law. It's more of a cautionary tale. Obviously, spending is an integral part of an economy: it accounts for at least 50% of every transaction! But the aphorism is getting at something other than admonishing people to not spend. The point of the saying is that interest rates should reflect savings rates.   What it comes down to is the how the law of supply and demand applies to the relationship between savings and interest rates. Consider this thought experiment: in a world where everybody saves 50% of their income, what would happen to interest rates? Banks would have a glut of savings, relative to the population. Assuming demand remains constant, interest rates would go down: the price of borrowing goes down as the supply of money to be borrowed increases. Thus a corollary of the law of supply and demand is that as savings increase, interest rates tend to go down.   So, as savings increase, the economic environment encourages capital improvements. Businesses can borrow at lower rates and increase long-term productive capacity. This is what the federal reserve has attempted to do by lowering the Fed Funds rate to near zero and by Operation Twist: increase economic activity through low borrowing costs.   So, what's the problem? When interest rates are artificially low there are no savings to support the production later in time. A company that borrows at a 1% rate created by the feds can build a factory to make widgets, but it will have a hard time selling that widget to a population with a negative net worth. However, if the 1% rate is ""natural"", then the company should be fine: the savings of the population should support the production from his widget factory.   For about 30 years we have experienced a credit boom in this country that was not created by excess savings. This trend couldn't continue forever. Look around you. At the end of the day, an economy is simply a group of people getting together to buy and sell stuff and services. Right now there is a lot of debt, and little cash. Who will be doing the buying?"

negative: This is just a pedestrian (my) opinion: Yes, It is wise to invest in bond funds even in a low interest environment. Check out the lazy man's portfolio on bogleheads. The reason is:

negative: If interest rates are negative, a 0% load might still be profitable.

negative: I gather it's been up until now cost prohibitive to build upward, and in such an environment, cities have a vested interest in maintaining their skyline. They'll probably need to adapt, but the idea that zoning is capricious is false.

negative: "Mortgage is a (secured) debt, a combination of a promissory note, and a security interest providing the mortage holder a secured interest in the property. Yes, you are ""in debt"". But that depends upon whether you define the term ""in debt"" as a debt appearing on the balance sheet, or the net of assets - liabilities is less than zero, whether you have a ""debt"" expense on the income statement (budget), or whether the net of income - expenses is less than zero. One person might look at their budget, find the (monthly) mortgage payment listed, and judge that they have a debt payment, and thus are ""in debt"". Or they might look at their expenses, find they exceed their income, and judge that they are ""in debt"". Another person might look at their balance sheet, compare assets to liabilities, and only say they were ""in debt"" when their liabilities exceeded their assets. Some people view mortgage debt as ""good debt"", as they view certain debts as ""good"" and others as ""bad"". Trust me, having a high mortgage payment (higher 30% of your net income) is hard, and over 40% is bad. Consider you balance sheet and your income statement.  On your balance sheet, the house appears on the ""asset"" side with an (estimated) value, while the ""mortgage"" (really, the promissory note part of the mortgage) appears on the ""liability"" side. On your income statement, your house does not appear on the income side, but the mortgage (promissory note) payment appears on the expense side. So, you clearly have both a ""liability"" with a clearly-defined value and an ""expense"" with a clearly-defined payment. But do you have an ""asset""? According to an accountant, you have an ""asset"" and a ""liability"". But you do not have a business asset that is producing revenue (income), nor do you have a business asset that can be amortized and expensed to reduce taxable income. When we think about an asset, does the word have the connotation of some thing with value, something that produces income?  Well, by that measure, a house only provides income when we rent it out, and only has value when we consider selling it. As millions of families discovered during the housing (price) collapse, when the market price of your ""asset"" falls substantially, your personal financial status can fall negative and you can be ""broke""."

negative: "It's correct.   Be sure of your personal opportunity cost and not that you're letting the tax tail wag the dog just to score ""tax free"".  Your upside is $3,700 (single) or $7,000 (married) in taxes saved until you're out of the 0% zone.  Is that worth not receiving an income? Even if your savings are such that you don't need to work for income for a fiscal year, how would this affect the rest of your career and lifetime total earning prospects?  Now, maybe: Otherwise, I'd hope you have solid contacts in your network who won't be fazed by a resume gap and be delighted to have a position open for you in 2019 (and won't give you the ""mother returning to the workforce"" treatment in salary negotiations)."

negative: Avoiding a cost (interest) isn't quite the same as income. There is no entry, nothing for you to consider for this avoided interest.  What you do have is an expense that's no longer there, and you can decide to use that money elsewhere each month.

negative: In today's low interest environment capital is cheap and relatively easy to come by. If a business has an idea for expansion it should be easy enough to get a business loan and have enough ROI that the interest is not a huge cost.   There are many more ways to pay for business growth than cutting taxes

negative: edit: nevermind.  i glanced and thought you meant total market mutual funds.    For fixed income - if you want to get a good analysis of the bond market/interest rates, i would suggest you read some of bill gross' letters off the pimco site - a lot of discussion about our current zero bound interest rates.    For equities - I have the view that if the economy is doing well, people are less inclined to focus on dividend yield...thereby lowering the relative multiples on dividend/fcf yielding stocks.  So total return fund may be trading slightly cheaper.


query: What options are available for a home loan with poor credit but a good rental history?

positive: Why not just do an FHA loan? The minimum credit score is 580, and you can sometimes even go lower than that. Another alternative is to consider a rent-to-own agreement with his landlord, since it sounds like if he doesn't buy he'd continue renting there anyway.

positive: Here are some (not all) things that can help overcome a low credit score: Getting a new job may actually hurt unless it's a substantial increase in income.  Banks usually look at salary going back 2 years, and look for consistent, maintainable income.  If you just got a new job that pays more, the bank may conservatively assume that it may not last.

positive: Take the long term view.  Build up the cash.  Once you have enough cash in the bank, you don't need a credit score.  With 6 months living expenses in the bank after paying 20% down on a small house, he should have no issues getting a reasonably priced mortgage.   However, if he waited just a bit longer he might buy the same house outright with cash. When I ran the computations for myself many years ago, it would have taken me half as long to save the money and pay cash for my home as it did for me to take a mortgage and pay it off.

negative: Credit cards are a golden goose for banks, as they get to issue high-interest loans and simultaneously generate alot of fee income. Debit cards aren't quite as good, but they still generate substantial fee income -- ~2% of every credit/non-PIN debit transaction goes to the bank and credit card network. Credit histories exist because they are the most effective tool available to predict whether you will pay back your loans or not. You don't need a credit history to buy most things, you need a credit history to get a large loan. Think of it from perspective of a lender: Credit scoring is the bank's way screening out people who are expensive to do business with. It's objective, doesn't discriminate on the basis of race, sex or other factors, and you have recourse if the rating agencies have incorrect information.

negative: When you start living in US, it doesn't actually matter what was your Credit history in another country. Your Credit History in US is tied to your SSN (Social Security Number), which will be awarded once you are in the country legally and apply for it. Getting an SSN also doesn't guarantee you nothing and you have to build your credit history slowly. Opening a Checking or Savings account will not help you in building a credit history. You need to have some type of Credit Account (credit card, car loan, mortgage etc.) linked to your SSN to start building your credit history. When you are new to US, you probably won't find any bank that will give you a Credit Card as you have no Credit history. One alternative is to apply for a secured credit card. A secured credit card is one you get by putting money or paying money to a bank and open a Credit Card against that money, thereby the bank can be secure that they won't lose any money. Once you have that, you can use that to build up your credit history slowly and once you have a good credit history and score, apply for regular Credit Card or apply for a car loan, mortgage etc. When I came to US 8 years ago, my Credit History was nothing, even though I had pretty good balance and credit history back in my country. I applied for secured credit card by paying $500 to a bank ( which got acquired by CapitalOne ), got it approved and used it for everything, for three years. I applied for other cards in the mean time but got rejected every time. Finally got approved for a regular credit card after three years and in one year added a mortgage and car loan, which helped me to get a decent score now. And Yes, a good Credit Score is important and essential for renting an apartment, leasing a car, getting a Credit Card etc.  but normally your employer can always arrange for an apartment given your situation or you need to share apartment with someone else. You can rent a car without and credit score, but need a valid US / International Drivers license and a Credit Card :-) Best option will be to open a secured credit card and start building your credit. When your wife and family arrives, they also will be assigned individual SSN and can start building their credit history themselves. Please keep in mind that Credit Score and Credit History is always individual here...

negative: In most cases, a debit card can be charged like a credit card so there is typically no strict need for a credit card. However, a debit card provides weaker guarantees to the merchant that an arbitrary amount of money will be available. This is for several reasons: As such, there are a few situations where a credit card is required. For example, Amazon requires a credit card for Prime membership, and car rental companies usually require a credit card. The following does not apply to the OP and is provided for reference. Debit cards don't build credit, so if you've never had a credit card or loan before, you'll likely have no credit history at all if you've never had a credit card. This will make it very difficult to get any nontrivially-sized loan. Also, some employers (typically if the job you're applying for involves financial or other highly sensitive information) check credit when hiring, and not having credit puts you at a disadvantage.

negative: The article states their reasons pretty clearly, and indicates that some people won't qualify under the new requirements that would have previously, they're not courting people with bad credit, they're just looking beyond credit score at other factors. They aren't opening floodgates for anyone with a pulse to get a car loan, just shifting things a bit to cast a slightly wider net. This is not new in the world of secured debt, the FHA has methodology for establishing a non-traditional credit report based on things like rental history, utility payments, auto-insurance payments, a person can't be declined an FHA loan for lack for lack of traditional credit history. I look beyond credit score as a landlord, a tenant with poor credit but a stellar rental history is more appealing than someone with great credit but a bad rental history. Vehicles and housing are very important to people, so they are likely to prioritize them above credit card payments or hospital bills. Time will tell, but it seems like a solid move in my view, they can refine their model over time and likely find a solid customer base among those who wouldn't qualify on credit score alone.

negative: "Here's what Suze Orman has to say about it: Good debt is money you borrow to purchase an asset, such as a home you can afford. History shows that home values generally rise in step with the inflation rate, so a mortgage is good debt. Student loans are, too, because they're an investment in the future. Census data pegs the average lifetime earnings of a high school graduate at a million dollars below that of someone with a bachelor's degree. Bad debt is money you borrow to buy a depreciating asset or to finance a ""want"" rather than a ""need."" A car is a depreciating asset; from the day you drive it off the lot, it starts losing value. Credit card balances or a home equity line of credit that's used to pay for indulgences—vacations, shopping, spa days—is bad debt."

negative: Credit is important for many reasons. Establishing credit is an important step and should be no challenge for someone who already has good habits.  The same lessons and advice that you would find for a student to establish credit would be applicable to your case as well. Factors that influence credit score, Since you are already established in your home country (Australia), you probably have a credit card (and references) that you can provide for the first few challenges (renting a car, renting an apartment). Here are the steps, Your credit score should improve quickly as the first couple of credit cards and the installment loan show good payment history, low utilization, and gain some age. After 1-2 years, you should have a good score.

negative: Are financial institutions less likely to lend me money because of my age Yes.  But they are especially unlikely to loan you money because you have little income.   or because they know I avoid interest by paying things off aggressively? This won't affect them.  But you might ask yourself how much credit history you have.  Credit history can include all of loans, credit cards, rent, utilities, etc.  You mention three loans.  But you don't mention rent or utilities.  You may simply not have much credit history, even if what you do have is good.   But again, the biggest thing that they will look at is your income history.  If you have a small income, then it doesn't matter what your payment history is.  They don't want to loan money to people who need money.  They want to loan money to people who don't need to borrow but are instead bringing a future purchase into the present.   The ideal recipient is someone who has a high income and spends it all every month.  Such a person is likely to borrow heavily but be able to keep up the payments.   Obsessing about your ability to borrow is probably the wrong approach.  Instead focus on how you can meet your goals without borrowing.  Eventually your ability to pay will catch up.  Then they'll offer you money.  Of course, you might not need it then.   Note that when I say little income, I'm talking about their perspective.  You may be fully on track and making decent money or even very good money for your age.  But they're looking for people who are mature in their careers and regularly bringing home large sums but who spend it faster than they can get it.

negative: "The basic optimization rule on distributing windfalls toward debt is to pay off the highest interest rate debt first putting any extra money into that debt while making minimum payments to the other creditors. If the 5k in ""other debt"" is credit card debt it is virtually certain to be the highest interest rate debt. Pay it off immediately. Don't wait for the next statement. Once you are paying on credit cards there is no grace period and the sooner you pay it the less interest you will accrue. Second, keep 10k for emergencies but pretend you don't have it. Keep your spending as close as possible to what it is now. Check the interest rate on the auto loan v student loans. If the auto loan is materially higher pay it off, then pay the remaining 20k toward the student loans. Added this comment about credit with a view towards the OP's future: Something to consider for the longer term is getting your credit situation set up so that should you want to buy a new car or a home a few years down the road you will be paying the lowest possible interest. You can jump start your credit by taking out one or two secured credit cards from one of the banks that will, in a few years, unsecure your account, return your deposit, and leave no trace you ever opened a secured account. That's the route I took with Citi and Wells Fargo. While over spending on credit cards can be tempting, they are, with a solid payment history, the single most important positive attribute on a credit report and impact FICO scores more than other type of credit or debt. So make an absolute practice of only using them for things you would buy anyway and always, always, pay each monthly bill in full. This one thing will make it far easier to find a good rental, buy a car on the best terms, or get a mortgage at good rates. And remember: Credit is not equal to debt. Maximize the former and minimize the latter."

negative: I would imagine that it goes beyond purpose and also addresses the demographic as a poor credit risk. Those seeking a post secondary education are a poor credit risk.  They are at the beginning of their careers so tend to have low income, a short credit history, and a very short time of managing money on their own.  Also many don't know how to work.  This later fact, to me, is a great predictor of financial success. Reading into the financial data surrounding student loans, it pretty easy to see that this demographic makes poor money decisions.  I live near a state university.  A large percentage of students drive late model luxury cars, frequent expensive bars and restaurants, and wear pretty nice clothes.  They also graduate with, on average 60K in student loans.  Keep in mind a 4 year degree could be had for about 30K and could be paid for working a part time job.  And that, to me, is the wisdom in bank's decision.  Sure they will loan you all the money you want with a government guarantee.  However, once that disappears they will not you money for unnecessary purposes.

negative: 12% is ridiculously high and routine for loans with no credit history, esp. from the dealer. I don't think though paying off would hurt your credit - you've already got installment loan on your report, and you have history of payments, so it shouldn't matter how long the history is (warning: this is kind of guesswork compiled from personal experience and stuff read on the net, since officially how credit score calculated is Top Secret).  If you have the loan and credit card with good payments, only thing you need to build credit is time (and, of course, keeping everything nicely paid). Of course, if you could find a loan with lower rate somewhere it's be great to refinance but with low credit you would probably not get the best rates from anywhere, unfortunately.

negative: You have a few options and sometimes challenges help us improve our situation. First, you can not borrow to buy a car.  Reducing the massive depreciation that cars undergo will help you be wealthier.  It is hard to find a good use car that you can buy for cash, but it will play out best for your finances in the long run. If your heart is set on borrowing, I would encourage you to go to the bank/credit union where you have your checking account.  They will see your history of deposits and may grant you a loan based on that.  Also you are likely to get a better deal from the bank than from the car dealer. Thirdly, you can simply go to your employer's HR department and ask them.  Surely someone has applied for a loan during the company's history.  What did they do for them?

negative: No, it will have no negative impact on getting a mortgage. You are building up a history with regular payments and are not carrying a balance on the card each month. Your ability to get a mortgage will ultimately be based on other things. Money Saving Expert has a good guide on what will affect your credit score. A further discussion on the topic that backs up that what a mortgage company is interested in is affordability and a stable history. They really don't care about utilisation ratios.  (Though might be spooked by almost maxed out cards - sign of poor spending control, or large unused limits - too easy to go into bad debt.)

negative: "Based on your information...  The house is $130,000 all in (this might not be the case)  Your payment term is 30 years.  Your interest rate is about 7.35%.  Your payments are about $895.66  Your total payments will total $322,438.95  That's not a very good interest rate for a mortgage, but this might be due to poor credit or limited credit history, too low income, or too much home value being financed (or a combination of the above and other factors).  Northern Alabama may not specifically be higher interest rate: it might, honestly, just be you.  The reason that you're paying $320,000 is that you're taking $130,000 from a bank and promising to pay it back with interest. Keep in mind, that's over *thirty years.* That's a LONG time. And the bank needs to earn enough interest to combat inflation (roughly 2% annually, generally). During that time, the bank *can't* invest that money elsewhere, return it to depositors, etc.  A good rule to keep in mind is the ""rule of 72."" It's a simple trick to determine, based on an interest rate, how quickly the value of something will double (in this case, the value of your loan payments). If your interest rate was exactly 7.2%, this method would calculate 10 years until doubling.   In your case, 72 / 7.35 = 9.7959 years.   Now, you're paying off your loan simultaneously, which lowers your interest over time, so your payments total 2.48x of loan value at origination. That still sucks, but remember, it's over a loooooooooooooooooooooooooooooooooong time."

negative: "People act like lawsuits are the end of the world, her suing shouldn't be considered a threat, it should be considered the accurate course of action to resolve contractual obligations. Of course, it would be convenient if she did nothing at all!  If you believe her real goal is to ""get it off her credit"", then have her come refinance with you. This will give you the opportunity to not have her on it and you to get different terms. Of course, if your credit still is poor then this option also exacerbates the inconvenience. None of the options sounds like they will ruin your credit (unless you are scrounging for cash through credit facilities to pay her off). You have several completely benign options available."

negative: "One of the factors of a credit score is the ""length of time revolving accounts have been established"". Having a credit card with any line of credit will help in this regard. The account will age regardless of your use or utilization. If you are having issues with credit limits and no credit history, you may have trouble getting financing for the purchase. You should be sure you're approved for financing, and not just that the financing option is ""available"" (potentially with the caveat of ""for well qualified borrowers""). Generally, if you've gotten approved for financing, that will come in the form of another credit card account (many contracting and plumbing companies will do this in hopes you will use the card for future purchases) or a bank loan account (more common for auto and home loans). With the credit card account, you might be able to perform a balance transfer, but there are usually fees associated with that. For bank loan accounts, you probably can't pay that off with a credit card. You'll need to transfer money to the account via ACH or send in a check. In short: I wouldn't bet on paying with your current credit card to get any benefit. IANAL. Utilizing promotional offers, whether interest-free for __ months, no balance transfer fees, or whatever, and passing your debt around is not illegal, not fraudulent, and in many cases advised (this is a link), though that is more for people to distribute utilization across multiple cards, and to minimize interest accrued. Many people, myself included, use a credit card for purchasing EVERYTHING, then pay it off in full every month (or sometimes immediately) to reap the benefit of cash back rewards and other cardholder benefits. I've also made a major payment (tuition, actually) on a Discover card, and opened up a new Visa card with 18-months of no interest and no balance transfer fees to let the bill sit for 12 months while I finished school and got a job."

negative: what you aim to do is a great idea and it will work in your favor for a number of reasons. First, paying down your loan early will save you lots in interest, no brainer. Second, keeping the account open will improve your credit score by 1) increases the number of installment trade lines you have open, 2)adds to your positive payment history and 3) varies your credit mix. If your paid your car off you will see a DROP in your credit score because now you have one less trade line. To address other issues as far as credit scoring, it does not matter(much) for your score if you have a $1000 car loan or a $100,000 car loan. what matters is whether or not you pay on time, and what your balance is compared to the original loan amount. So the quicker you pay DOWN the loans or mortgages the better. Pay them down, not off! As far how the extra payments will report, one of two things will happen. Either they will report every month paid as agreed (most likely), or they wont report anything for a few years until your next payment is due(unlikely, this wont hurt you but wont help you either). Someone posted they would lower the amount you paid every month on your report and thus lower your score. This is not true. even if they reported you paid $1/ month the scoring calculations do not care. All they care is whether or not you're on time, and in your case you would be months AHEAD of time(even though your report cant reflect this fact either) HOWEVER, if you are applying for a mortgage the lower monthly payment WOULD affect you in the sense that now you qualify for a BIGGER loan because now your debt to income ratio has improved. People will argue to just pay it off and be debt free, however being debt free does NOT help your credit. And being that you own a home and a car you see the benefits of good credit. You can have a million dollars in the bank but you will be denied a loan if you have NO or bad credit.  Nothing wrong with living on cash, I've done it for years, but good luck trying to rent a car, or getting the best insurance rates, and ANYTHING in life with poor credit. Yeah it sucks but you have to play the game. I would not pay down do $1 though because like someone else said they may just close the account. Pay it down to 10 or 20 percent and you will see the most impact on your credit and invest the rest of your cash elsewhere.

negative: You're lending the money to your business by paying for it directly.  The company accounts must reflect a credit (the amount you lend to it) and a debit (what it then puts that loan towards).   It's fairly normal for a small(ish) owner-driven company to reflect a large loan-account for the owners.  For example, if you have a room at home dedicated for the business it is impractical to pay rent directly via the company.  The rental agreement is probably in your name, you pay the rent, and you reconcile it with the company later. You could even charge your company (taxable) interest on this loan. When you draw down the loan from the company you reverse this, debit your loan account and credit the company (paying off the debt). As far as tracking that expenditure, simply handle those third-party invoices in the normal way and file them for reference.

negative: This very much depends how you use that second line of credit and what your current credit is. There are of course many more combinations buy you can probably infer the impact based on these cases.   Your credit score is based on your likely hood of being profitable to a creditor should they issue you credit. This is based on your history of your ability to manage your credit.  Having more credit and managing it well shows that you have a history of being responsible with greater sums of money available.  If you use the card responsibly now then you are more likely to continue that trend than someone with a history of irresponsibility.  Having a line but not using it is not a good thing.  It costs the creditor money for you to have an account.  If you never use that account then you are not showing that you can use the account responsibly so if you are just going to throw the card in a safe and never access it then you are better off not getting the card in the first place.

negative: A bank or credit card agency can deny your application for pretty much any reason. That said, it's extremely unlikely they'd do so for a secured credit card. This is because the credit is secured. If your sister is to get a card with, say, a $1000 limit, she will have to provide $1000 in security. This means the banks risk practically nothing. That said, I have found one reference that claims you need a score of above 600 to qualify for a secured credit card, though this is hard to believe. Secured credit cards are a reasonable way of building your credit back up. Just about the only other way for her credit rating to improve is for her history of bad debt to fall off the credit report, but that's going to take quite some time. She should be working hard to provide positive credit history to replace the old negative history, assuming her credit rating is important to her. It may not be; it's only important if she plans on taking on debt in the future. Honestly, a credit rating of around 500 is so bad that I wouldn't even worry much about lowering it. It's already low enough as to make it all but impossible to qualify for (unsecured) credit or loans. A single denial is unlikely to significantly affect the score, except in the very short term. With two bankruptcies, I encourage credit counselling for your sister. There are a number of good books available, too. Credit counselling should go into detail on credit scores, unsecured credit, proper budgeting, and all that sort of useful information.

negative: "The purpose of taking a ""secured loan"" is to build credit. This might be done by someone who had a bad stain on their credit history such as a bankruptcy or foreclosure, or possibly by someone just out of school (presumably with few or no student loans),and no credit history. Not everyone needs to, or should do this, however. The advantage for a borrower is that s/he gets to create a record of repaying a loan that will partly mitigate the bad credit history. The advantage for the bank is that it is ""no risk,"" because the savings account is the security for the loan. That would make it willing to ""lend"" to a bad credit risk."

negative: Apart from the reasons currently given (which have to do with personal relations), wouldn't a good reason to take the loan from the bank be to build up a credit history and/or improve your credit score?

negative: Building your credit takes time.  The basic idea is pay bills on time, and keep the available credit high.    So you spend between 10-30% on the card and pay off in full each month.  If you have student loans, once you start paying on those, that will help too, after you get some payment history, but again, it will take time.

negative: "Your total debt is equal to your total non-credit debt (student loans, car loans) + your total available credit.   This is the truth of the ""low balance"" fear from lenders that you had heard about. Your credit utilization is across all of your cards.   So if you have two cards, both with 15K limits and one is maxed out and one is empty, that is 50% utilization.   If you have both cards with 7.5K balances, that is also 50% utilization. For the 8 cards that are paid off and still open, after you buy a house, I'd close any cards you aren't using.  Not everyone will agree with this. If possible, I would close the 8 cards now and pay off the 15K balance before buying a house.  If it's hard to pay it off now, it will be harder when you have a mortgage and home maintenance costs. If you want to buy the house before you pay off all of your credit card debt, I'd still close the 8 cards that are already paid off and pay down your last card to 4K (or less) to get under 25% utilization. The credit rating bureaus do not publish exactly how a different utilization rate of credit will affect your score, but it is known that lower utilization will improve your score.  FICO calls this ""Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)"" Also, the longevity of your credit history is based on type of account (credit cards, car loans, etc.) so if you keep one credit card open, you still keep your long ""history"" with credit cards on your credit report.  FICO calls this ""Time since accounts opened, by specific type of account"""

negative: A financial institution is not obligated to offer you a loan. They will only offer you a loan if they believe that they will make money off you. They use all the info available in order to determine if offering you a loan is profitable.  In short, whether they offer you a loan, and the interest rate they charge for that loan, is based on a few things: How much does it cost the bank to borrow money? [aka: how much does the bank need to pay people who have savings accounts with them?]; How much does the bank need to spend in order to administer the loan? [ie: the loan officer's time, a little time for the IT guy who helps around the office, office space they are renting in order to allow the transaction to take place]; and How many people will 'default' and never be able to repay their loan? [ex: if 1 out of 100 people default on their loans, then every one of those 100 loans needs to be charged an extra 1% in order to recover the money the bank will lose on the person who defaults]. What we are mostly interested in here is #3: how likely are you to default? The bank determines that by determining your income, your assets, your current debts outstanding, your past history with payments (also called a credit score), and specifically to mortgages, how much the house is worth.  If you don't have a long credit history, and because you don't have a long income history, and because you are putting <10% down on the condo [20% is often a good % to strive for, and paying less than that can often imply you will need mandatory mortgage insurance, depending on jurisdiction] the bank is a little more uncertain about your likelihood to pay.  Banks don't like uncertainty, and they can deal with that uncertainty in two ways: (1) They can charge you a higher interest rate; OR (2) They can refuse you the loan. Now just because one bank refuses you a loan, doesn't mean all will - but being refused by one bank is probably a good indication that many / most institutions would refuse you, because they all use very similar analytical tools to determine your 'risk level'. If you are refused a loan, you can try again at another institution, or you can wait, save a larger down payment, and build your credit history by faithfully paying your credit card every month, paying your utilities, and making your car and rent payments on time. This will give the banks more comfort that you will have the ability to pay your mortgage every month, and a larger down payment will give them comfort that if the housing market dips, you won't owe more than the house is worth. My parting shot is this: If you are new in your career with no income history, be very careful about buying a property immediately, even if you get approved. A good rule of thumb is to only buy a property when you plan on living there for at least 5 years, or else you are likely to lose money overall, after factoring closing costs and maintenance fees. If you are refused a loan, that's probably a good sign that you aren't financially ready yet, but even if a bank approves you for a loan, you might not be ready yet either.

negative: "The title is misleading (shocker, right?). The exact wording in the cited study is ""in order to afford a modest two-bedroom rental home at the Fair Market Rent without spending more than 30% income on rent"".  HUD says:  > The Fair Market Rent is HUD’s best estimate of what a household seeking a modest rental home in a short amount of time can expect to pay for rent and utilities in the current market.  So that's not the minimum available 2BR unit available. It's more like 50th percentile rent per zip code. Check rent.com for 2BR prices in Tennessee and Arkansas. They start in the lower $500s.  Also worth noting that if you work 40hr/week all year at minimum wage and claim 1 dependent then you don't owe a dime of Federal income tax."

negative: There are two very small catches. You have just increased your available credit.  In some cases when you want to make a loan, they will check your available credit against your creditworthiness (your income and credit history). In the short term with a greater credit limit, you may have more difficulty getting a large loan.  On the other hand, your greater credit limit will make you seem more creditworthy (as you have been walking around with the ability to borrow a whole pile and demonstrated the ability to not go bankrupt). The other possible catch is that if something goes wrong and your credit line is maxed (maybe you have a psychotic episode; maybe you give your credit card and pin number to someone who buys a car on you), your liability is larger. If you can maintain spending discipline and don't need every ounce of credit head room right now, neither of these apply.  In the medium to long term, a lower credit utilization and a higher total limit will make you more creditworthy.

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negative: "The worth of a credit score (CS) is variable.  If you buy your stuff outright with 100% down then your CS is worthless. If you take a loan to buy stuff then it is worth exactly what you save in interest versus a poor score. But there is also the ""access"" benefit of CS where loans will no longer be available to you, forcing you to rent. If you consider rent as money down teh tiolet then this could factor in. The formula for CS worth is different for everyone. Bill Gates CS is worth zero to him. Walking away from a mortage is not the same as walking away from a loan.  A mortage has collateral. There are 2 objects: the money, and the house. If you walk away the bank gets the house as a fair trade. They keep all money you put against the house to boot! Sometimes the bank PROFITS when you walk away.  So in a good market you could consider walking away to be the Moral Michael thing to do. :)"

negative: FHA insured loans must 'go hand in hand' with PMI, because the FHA element is the insurance itself.  The FHA isn't actually giving you a loan, that's coming from a lender; instead, the FHA is insuring the loan, at some cost to you - but allowing a loan to folks who may not be able to afford it normally (lower down payment requirements and a somewhat cheaper PMI). FHA-insured loans may be lower rates in some cases than non-FHA insured loans because of this backing; that's because they make it easier for people of poorer credit histories with smaller down payments to get a house in the first place.  Those people would tend to have a harder time getting a loan, and be charged sometimes usurious rates to get it.  Low down payment and mediocre credit history (think 580-620) mean higher risk, even beyond the risk directly coming from the poor loan to value ratio. Comparing this table of Freddie Mac rates to this table of FHA-backed loan rates, the loan rates seem comparable (though somewhat lagging in changes in some cases).  FHA loans are not nearly the size or complexity of loan population as Freddie Mac, so be wary of making direct comparisons. Looking into this in more detail, pre-collapse (before 12/07), FHA rates were a bit lower - average rate was about .5 points lower - but starting with 12/07, FHA average rates were usually higher than Freddie Mac rates for 30 year fixed loans: in 1/2009 for example they were almost a point higher.  As of the last data I see (5/13) the rates were within 0.1 points most months. This may be in part because Freddie Mac had looser requirements to get a loan pre-collapse, then tightened significantly, then started to loosen some (also around June 2013, rates climbed significantly due to some signals from the Fed, although they're almost back to their lows thanks to the Fed again).  These are averages across all loans, so you get some noise as a result. Loan interest rates are very personal, in general: they depend on your credit, your house and down payment, and your bank (which varies by your location).  The best thing to do is to shop around yourself and just see what you get, and ask your lender any questions you have: if you pick a local lender with a good service history and who is willing to talk to you in person (ie, has a direct phone number), you'll have no trouble getting answers.

negative: While I'd don't necessarily disagree with you, the example you use is a bad one, because there are problems of access to fresh produce (healthy food) in poor areas.  So the fat poor people is not because they eat a lot so much as because of what they can afford to eat, both in terms of time spent and availability of other options.

negative: "Do you guys think it's a good idea to put that much down on the car ? In my opinion, it depends on a lot of factors.  If you have nothing to pay, and are not planning to invest in something that cost a lot soon (I.E an house, etc). Then I see no problem in put ""that much down on the car"". Remember that the more you pay at first, the less you will pay interest on. However, if you are planning on buying something big soon, then you might want to pay less and keep moneys for your future investment. I would honestly not finance a car with the garage as I find their interest rate to high. Possibilities depends a lot of your bank accounts, but what I would personally do is pay it cash using my credit margin with the bank which is only 2.8% interest rate. Garage where I live rarely finance under 7% interest rate. You may not have a credit margin, but maybe you could get a loan with the bank instead ? Many bank keep an history of your loan which will get you a better credit name when trying to buy an home later. On the other side, having a good credit name is not really useful in a garage. What interest rate is reasonable based on my credit score? I don't think it is possible to give a real answer to this as it change a lot around the world. However, I would recommend to simply compare with the interest rate asked when being loan by the bank."

negative: How realistic is it that I will be able to get a home within the 250,000 range in the next year or so?  Very unlikely in the next year.  The debt/income ratio isn't good enough, and your credit score needs to show at least a year of regular payments without late or default issues before you can start asking for mortgages in this range. You don't mention how long you've been employed at these incomes, this can also count against you if you haven't both been employed for a full year at these incomes. They will look even more unfavorably on the employment situation if they aren't both full time jobs, although if you have a full year's worth of paychecks showing the income is regular then that might mitigate the full time/part time issue. next year or so? If you pay down your high interest debt (car, credit cards), and maintain employment (keep your check stubs and tax returns, the loan officer will want copies), then there's a slight chance. And, from this quick snap shot of our finances, does it look like we would be able to qualify for a USDA loan? Probably not.  Mostly for the same reasons - the only time a USDA loan helps is when you would be able to get a regular loan if you had the down payment. Even with an available down payment of 50k, you wouldn't be able to get a regular loan, therefore it's unlikely that you'd qualify for a USDA loan. If you are anxious to get into a house, choose something much smaller, in the 100k-150k range. It would improve your debt/loan ratio enough that you might then qualify for a USDA loan.  However, I think you'd still have issues if you haven't both been employed at this rate of income for at least a year, and have made regular payments on all your debts for at least a year. I'll echo what others have suggested, though, strengthen your credit, eliminate as much of your high interest debt as you can (car, credit cards), and keep your jobs for a year or two.  Start a savings plan so you can contribute a small down payment - at least 3-5% of the desired home price - when you are in a better position to buy. During this time keep track of your paycheck stubs, you may need them to prove income over the time period your loan officer will request. Note that even with a USDA loan you still have to pay closing costs, and those can run several thousand dollars, so don't expect to be able to come to the table with no cash. Lastly, there's good reason to be very conservative regarding house cost and size.  If you can, consider buying the house as if you only had the 46k per year.  Move the debt to the person making the lower income, and if you buy the house in the name of the person only making 46k per year, then the debt/loan ratio looks very positive.  Further it may be that the credit history of that person is better, and the employment history is better.  If one of you has better history in these ways, then you might have a better chance if only one of you buys the house.  Banks can't tell you about this, but it does work.  Keep in mind, though, that if you two part ways it could be very unhappy since one would be left with all the debt and the house would be in the other's name.  Not a great situation to be in, so make sure that you both carefully consider the risks associated with the decisions made.