Quote Originally Posted by iloveboost
Probably some of the worst advice on building credit I've ever heard. No offense, but that's not true.

Debt to income is based on your outstanding loans, credit cards, monthly obligations vs your income. I don't feel like typing up the formula right now, but do a simple Google search.

Credit is not an evil thing if you're responsible with your money.

"Wow, I need new tires but can't afford to pay cash for them all right now. Glad I have a credit card to buy them with and can pay half now, and half next month."

Keeping a balance on all credit cards at 33% is ideal. It shows you're not spending every dollar of credit you've given, but still manage it in a responsible manner.

Credit is not just about credit cards. Creditors like to see multiple forms of credit. Revovling credit accounts (credit cards, personal lines of credit, home equity lines of credit), charge accounts (store cards such as Macys, Bloomingdales, etc), long term payment history (car loans, mortgages). This helps better gauge the type of person you are. Low risk, high risk, etc.

Another thing is length of time you've had open, good standing accounts. How many derogatory accounts you've had (over the limit, late payments, always maxed on cards) and how long it's been since you've had a derogatory mark on your credit.

Another false assumption is that after 7 years, it will fall off your credit report. THIS IS NOT TRUE. It will not fall off until after you've PAID IT FIRST, and then it will fall off after 7 years. Don't think because it's been 7 years it's going to magically disappear and all will be well.

This is a lot of typing for before lunch. I may chime in again later.
This is probably the best advice given so far, although there are a couple of things that need clarifications.

1. The credit bureaus have no clue what kind of money you make. Any DTI ratios will have to be determined by the creditor themselves, so therefore what you "make" is not a factor used in determining your score. The bureaus have no clue, so how could they use it?

2. It is Federal law that your credit has to be as close to accurate as possible and there is where the 7 yr rule comes into play. After 7 yrs of inactivity (you making payments to them or lack thereof), the credit bureau MUST delete that account from your file.

Problem here comes in that shady collection agencies and creditors found a loophole in that. This is how it sometimes happens:

You get a Sears account when you're a 18 yrs old. You don't pay them for whatever reason. They report it to all 3 repositories as bad debt. They try and collect from you, but you still don't pay. If the balance is high enough, they damn straight are gonna sue you and get a judgement against you. If the balance is small, they may not sue you but will send you to a collection agency. That agency tries anb tries to get you to pay. You don't. Time passes and they give up. They send the "debt" back to Sears as "uncollectable". Sears has 2 choices: Write it off as bad debt on their books or continue to try and collect.

The majority of the time they write it off. If they do that, by law, they can still report you as delinquent and bad payer for up to 7 yrs from the date of last activity WITH THEM. After that, the bureau HAS TO take off your credit and you're done.

Problem comes in when shady collection practices START that 7 yr clock all over again everytime they "take over" the account to try and collect the debt. So in other words, Collection agency "A" may get it 2 yrs after you originally refused to pay. They report it to the bureau as "new" account, because it technically is to them, and so therefore your 7 yr clock STARTS all over again for technically the SAME debt that is actually 2 yrs old. THAT is how the 7 yr rule gets circumvented. If you are not watching your credit report, they may do this 3 or 4 times before you realize that's what's happening, and in the meantime your score is in the dumps. This is why sometimes lawyers will advice their clients NOT to pay certain debts at certain times because you will START that 7 yr clock right back up again the second you make that payment, even it's 6 yrs and 364 days after the last one.

So in conclusion, the bureau HAS to remove it after 7 yrs of inactivity but it is usually up to YOU to call for that. It doesn't usually happen all by itself, nor is it always accurate.