The Credit Fix

[superdog]

I am actually a little confused right now.

When I was a kid, I ruined my credit by not returning a rented VHS tape from Blockbuster. I learned a hard lesson.

Over the last 20 years I have been diligent about my credit.

I had only had an Amex and I rarely carry a balance as I typically set up electronic payment for the items I buy the same day I buy them.

I don't owe on my house or my cars. I have just about what I am supposed to have in retirement funds (for my age) and I have enough liquid to an emergency.

I do things the right way. At least I thought I did. I watch my credit like a hawk. And it pretty much never moves. If anything, for random reasons, it goes down a little bit and then over months it slowly ticks back up.

Well, I just got a Chase United Rewards card so that I can take advantage of the premier check-in, bag free etc.

And I just saw a huge jump in my score. IT WENT UP. By getting a freaking credit card, IT WENT UP. BY A LOT.

This is so not cool. What a fix the government has us in.

So maybe I am out of line here. Maybe, I am just ignorant to the way things work. But it appears to me that owing no one, and having savings would me a good candidate, even a safe candidate for credit. And now because I open myself up to more risk, my credit rating improves.

This just seems so wrong to me. Am I wrong.

[Etschell]

actually charging and paying off, in full and on time, carries more weight. buying a house and paying as well. same with cars etc.

that said i have 1 credit card and own my house outright. i lease cars at favorable rates.

i dont think ill ever get a mortgage again at this point. it is a huge waste of money. the biggest scam is a 30 year mortgage. american dream.

[cda555]

Credit scores are so mysterious. Even experts don't know everything about credit scores. Sometimes opening a new card improves your score because it shows diversity in your lines of credit, and it increases your available credit. You may have gotten the same effect if you had asked for a credit line increase from your existing card. Also, it helps to see about increasing the limit of your existing cards every 6 months to a year (as long as they don't do a hard pull).

[TheBluePrince]

To a point (quite a high one), the more credit you have and manage well the higher your score will get.

[watchwatcher]

No. You are not wrong, Seth. I feel you...I hate to owe anyone anything.

But, the sad truth is, guys like us who live within our means and do the right thing will never score as well as some a-hole with a bunch of credit cards...sad indeed.

[azguy]

Originally Posted by superdog

This is so not cool. What a fix the government has us in.

What does the "government" have to do it with

On a side note, in 2012 I sold my house and moved into a friends condo that I rent. I had a $450K mortgage and about $80k out on a home equity line of credit.

I got out of $530K in debt obligations and my score went down nearly 100 pts in the next few months, figure that one out

[superdog]

Originally Posted by azguy

What does the "government" have to do it with

On a side note, in 2012 I sold my house and moved into a friends condo that I rent. I had a $450K mortgage and about $80k out on a home equity line of credit.

I got out of $530K in debt obligations and my score went down nearly 100 pts in the next few months, figure that one out

Are you saying the credit ratings are not a government construct? I'm genuinely asking as I am ignorant on the subject. I've always been under the impression it was.

And if not, how can they get away with their apparent impunity.

7 years ago I traded a Nissan Maxima for a Grand Cherokee. The Jeep dealer them went under. They did not pay off the car, or my payment for 2 months. My credit took another hit. I fought it to no avail. And it still comes up on my report. How is this even possible?

Your example also makes zero sense to me.

I just don't get how the ability to borrow is based on a system that is so clearly flawed.

[520Matt]

Having 1- 3 credit cards and using them and paying them off each month shows that you are a sound user of credit. Having a history of Installment loans (cars, mortgages) that you have paid off also helped(s) build your credit. The example above where AZguy took a 100 pt hit after paying off his mortgages doesn't make sense, not sure why that would have happened. Your fico score is generated by Equifax, Trans Union and Experian. Each of these has their own "model" that results in a score (no body knows exactly how it's factored). PM me if you want more info.

[ronricks]

Originally Posted by superdog

Are you saying the credit ratings are not a government construct? I'm genuinely asking as I am ignorant on the subject. I've always been under the impression it was.

And if not, how can they get away with their apparent impunity.

7 years ago I traded a Nissan Maxima for a Grand Cherokee. The Jeep dealer them went under. They did not pay off the car, or my payment for 2 months. My credit took another hit. I fought it to no avail. And it still comes up on my report. How is this even possible?

Your example also makes zero sense to me.

I just don't get how the ability to borrow is based on a system that is so clearly flawed.

If it was 7 years ago it should be about to drop off your credit report and that will in turn help your score. Had the same thing happen to me.

[Dr. Prunesquallor]

I have the highest credit score in my life right now (841), mainly because I have been shoving an obscene amount of money through my credit card and immediately paying it off in full.

[superdog]

Originally Posted by ronricks

If it was 7 years ago it should be about to drop off your credit report and that will in turn help your score. Had the same thing happen to me.

I look forward to that happening.

I expect it'll be soon. I hope anyway.

I'm pretty good with my scores, but I'd enjoy a decent jump to get the three where I'd like them.

[andromeda160]

Originally Posted by superdog

Are you saying the credit ratings are not a government construct? I'm genuinely asking as I am ignorant on the subject. I've always been under the impression it was.

And if not, how can they get away with their apparent impunity.

7 years ago I traded a Nissan Maxima for a Grand Cherokee. The Jeep dealer them went under. They did not pay off the car, or my payment for 2 months. My credit took another hit. I fought it to no avail. And it still comes up on my report. How is this even possible?

Your example also makes zero sense to me.

I just don't get how the ability to borrow is based on a system that is so clearly flawed.

Neither can I, I had 20% to put down on a house, and couldn't get financed for the sheer fact that I never have had or used a CC. However my sister who never has 2 nickels to rub together and makes about as much as I do was able to qualify for $160k. The bank literally told me to open up a CC or a few and call them back in a year when I have a credit score. I never thought I'd live in a world where money was relatively worthless. I figured with a large down payment the loan risk would be relatively minimal. Instead they'd rather get 3% + closing costs from Joe shmoe who can't afford a house and has a higher chance IMO of defaulting a few months down the line due to financial hardship.

The banks and governments are shafting everyone. The housing crisis 2.0 is in full effect

[Tri-Tip]

Unfortunately, the methods used to calculate credit scores are not known to the general public.

[Syed117]

A little side question for you guys.

I pay my cards in full immediately, but I've always wondered if it makes a difference to pay as soon as there is a balance or wait until the end of the month.

Online banking makes it so easy to make payments.

I've gotten into the habit of logging on a day or two after using a card and paying them off immediately.

Not sure if this is good or bad.

[Etschell]

Originally Posted by Syed117

A little side question for you guys.

I pay my cards in full immediately, but I've always wondered if it makes a difference to pay as soon as there is a balance or wait until the end of the month.

Online banking makes it so easy to make payments.

I've gotten into the habit of logging on a day or two after using a card and paying them off immediately.

Not sure if this is good or bad.

Once it is due pay it. It reports that way. If you paid it off before it was billed you would be screwing yourself.

[bdex75]

All of the credit bureau people will tell you the biggest determining factor in credit scores is the amount of available credit you have as compared to the amount of debt you carry. If you have a bunch of credit cards that are maxed out then your score will be worse than if you have a bunch with the same limit and a zero balance.

As much of a pita as it is I try to keep about 5-7 credit cards open at a time sit my decent limits. No balances, but higher limits. Every few years I get a letter in the mail from one that threatens to close the account if there is not activity. I grab the card out of the safe the next time I go to fill the truck with gas. Problem solved.

You are doing it right Seth but unfortunately the world is not a place that rewards us that do it right any more. You have to play the game if you want credit to be available to you on the cheap (or apparently at all in Greg's case). Goofy world we live in today.


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[Dr. Prunesquallor]

Originally Posted by Syed117

A little side question for you guys.

I pay my cards in full immediately, but I've always wondered if it makes a difference to pay as soon as there is a balance or wait until the end of the month.

Online banking makes it so easy to make payments.

I've gotten into the habit of logging on a day or two after using a card and paying them off immediately.

Not sure if this is good or bad.

I think the credit agencies only do their calculations once a month and look at the balance on that particular date (and whether a payment is overdue). So if you have just paid your bill and have zero balance you would presumably have a better score than if you paid it earlier and now have a balance (even if it payment is not yet due).

I have an app that has a score simulator and seemed to indicate that was how it worked.


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[GB-man]

Presumably because it increased your available credit providing a more favorable debt to credit ratio.

Generally I agree though. Stupid system.

I too don't do debt. No thanks.

[bplusr]

Originally Posted by Syed117

A little side question for you guys.

I pay my cards in full immediately, but I've always wondered if it makes a difference to pay as soon as there is a balance or wait until the end of the month.

Online banking makes it so easy to make payments.

I've gotten into the habit of logging on a day or two after using a card and paying them off immediately.

Not sure if this is good or bad.

You should allow 1% of all your revolving credit to report if you want to maximize your score. But unless you are planning on buying a house or car soon then it really doesn't matter if you pay it all off before the post date.


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[Dan Pierce]

Haven't had a cc balance in 30 years. I find it ironic that cc companies call those who pay their complete balance every month freeloaders.
dP

[Abdullah71601]

Originally Posted by 520Matt

Having 1- 3 credit cards and using them and paying them off each month shows that you are a sound user of credit. Having a history of Installment loans (cars, mortgages) that you have paid off also helped(s) build your credit. The example above where AZguy took a 100 pt hit after paying off his mortgages doesn't make sense, not sure why that would have happened. Your fico score is generated by Equifax, Trans Union and Experian. Each of these has their own "model" that results in a score (no body knows exactly how it's factored). PM me if you want more info.

This is the best answer.

The FICO score is a performance based risk rating. You have to prove that you are credit worthy to be awarded a high credit score, which is not as much a function of wealth as it is a function of debt service discipline. You prove you are disciplined (and reliable) by demonstrating that you can pay installments against a debt. You are rewarded for on time payments and smart use of your available credit.

Having several credit cards that you keep low balances on tells the model that you are smart with your debt management (you aren't likely to get in over your head). Paying installments on cars and mortgages tells the model you can be relied upon to service your debt over time. Paying with cash all the time doesn't prove you can service a debt, only that you have cash.

Maxing out your available credit hurts you, even if you have millions in cash lying around. It tells the model you don't manage debt well. Missing payments tells the model you aren't entirely reliable. Defaulting tells the model you are unreliable.

My score has been in the mid-eight hundreds for a while. I've paid off a lot of car and motorcycle loans over the years, a few boats, a couple tractors, and have a mortgage. I've had the same credit cards for decades (longevity is rewarded, so don't keep flipping CC companies). They have accumulated some fairly high limits which allows me to easily maintain a very low debt ratio, even if I spring for something pricey now and again.

[El Cascarrabias]

Originally Posted by Dan Pierce

. . . I find it ironic that cc companies call those who pay their complete balance every month freeloaders.
dP

Because they're not making any money off of you.

[Dan Pierce]

Originally Posted by El Cascarrabias

Because they're not making any money off of you.

Damn right, and gonna keep it that way.
dP

[kulak]

There are multi-millionaires that have no credit score and would have difficult time financing a car or house. They also wouldn't pass the credit check for an apartment. Most places can't think outside the score and manually underwrite someone.

Unfortunately the credit score is just a reflection on how much you could, do borrow, and repay regularly.

[Abdullah71601]

Originally Posted by El Cascarrabias

Because they're not making any money off of you.

They don't need to make money off of me from interest, they are already making money off the sale. The more sales I book, the more money they make. It's in their interest for me to have high limits so that I can book many more sales, but they need to balance that against the risk that I won't repay the unsecured debt, hence my credit score.

The credit score has nothing to do with paying before the interest is billed. It's evaluating risk of nonpayment. If you always pay before the charge is billed there is nothing to evaluate. It's like dividing by zero - it's undefined and a useless metric for credit risk evaluation.

If I'm a good risk, it's in their interest for me to carry balances. But if I'm a high risk, the interest won't pay off the sale, and they lose money. Allowing some debt to be scored, then paying it all off demonstrates you are a good risk.

There are a lot of disadvantages in the US economy in not having good credit. The economy runs on debt and you can't get a lot of services without proving credit worthiness. It makes sense to understand the process and use it as a tool rather than avoiding it as a plague (it is a plague IMO, but I don't make the rules).

[TheVTCGuy]

I don't know how it works, but I am refinancing my condo, and my Credit came in at 781, which they said was excellent. So... I'm pretty proud of myself

[Wingman244]

Originally Posted by El Cascarrabias

Because they're not making any money off of you.

Therefore you are classified as a deadbeat.

I understand that is the new definition in the credit industry for someone who has no debt and pays off all their credit cards and carry a zero balance.

[BNA/LION]

Originally Posted by Dan Pierce

Haven't had a cc balance in 30 years. I find it ironic that cc companies call those who pay their complete balance every month freeloaders.
dP

X2... When I bought my last car I hadn't looked at my credit rating in years and My Wife and I were pleasantly surprised it was so high it is, over 800.

Originally Posted by TheVTCGuy

I don't know how it works, but I am refinancing my condo, and my Credit came in at 781, which they said was excellent. So... I'm pretty proud of myself

NICE!

The increasingly used VantageScore also employs a 300-850 scoring range, as do most other credit scores. “Good” or “excellent” scores depend on what an individual lender decides, but in general 720 and up is considered excellent. The average VantageScore in 2016 was 673, according to credit reporting agency Experian.Jun 10, 2016

[Kingair]

Originally Posted by TheVTCGuy

I don't know how it works, but I am refinancing my condo, and my Credit came in at 781, which they said was excellent. So... I'm pretty proud of myself

Now with Anna you'll hit 850 any moment !

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[cpark]

Originally Posted by superdog

Are you saying the credit ratings are not a government construct? I'm genuinely asking as I am ignorant on the subject. I've always been under the impression it was.

And if not, how can they get away with their apparent impunity.

7 years ago I traded a Nissan Maxima for a Grand Cherokee. The Jeep dealer them went under. They did not pay off the car, or my payment for 2 months. My credit took another hit. I fought it to no avail. And it still comes up on my report. How is this even possible?

Your example also makes zero sense to me.

I just don't get how the ability to borrow is based on a system that is so clearly flawed.

It's actually a construct from banks to capitalize on money. Basically, you have to use credit to buy a house with a loan or a car or any big purchase for that matter. The credit agencies love it because they make money off of their "algorithms" used to construct your credit score. I've never heard of credit rating being a government construct. The only thing really about credit scores and the government is that the government says you're entitled to one free credit score a year.