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I’ll take a lower score and no debt. They can eat their score.
This is silly anyway. I’ve paid off and cancelled many credit cards and loans, and your score drops by a small amount temporarily. It doesn’t stay down.
They said, getting an offer for as low as 20% on their mortgage.
I said, having locked in at 2.75 when rates were at a record low.
So the secret to not worrying about credit score is simply already have the loans you want at an interest rate you want. Why didn’t I try that???
Are we talking about 35 points from paying off a car? Or hundreds of points because reasons?
2 of the factors are debt to income ratio and how many accounts of different types are open. If you pay off 99% of a car and refinance 100$ loan for 84 months… does that keep your score up?
So the reason this kinda idiocy happens is when the line of credit is closed, it actually decreases the average age of your credit accounts- which decreases your score.
That’s why people who pay off student loans have their scores drop sometimes, especially if they’ve avoided any other lines of credit.
This. Average age of active credit accounts went down thus drop. Same thing happened to me
This is part of why getting credit cards early (if you’re capable of being responsible with them) is so important. All my oldest credit lines are credit cards (I have 4 of them), so any future loans will be taking my average credit line down instead of up. As a result I’ll always have those old credit lines and my score will only go up when I pay things off completely.
This right here is the way. Just gotta be cautious.
Credit rating measures your profitability to the credit industry, if you pay off your loan early, they make in interest, thus less profit.
Not entirely true. I’m what they call a deadbeat (meaning I pay off my cards in full every month and have been doing so for the past 10 years, making them $0 profit), and I have a 800 score.
I think the more correct way to think about it is that it’s an estimate of your profit potential. What everyone tells you to do with a score this high is to buy a house because you qualify for the best mortgage interest rates. But of course then they’ll have me on the hook for the next 30 years, and they stand to make in excess of $100k in profit.
100K profit on a mortgage? that’s insane
Way more actually. Whatever the house costs you’ll pay 2x-3x in interest.
It’s actually far worse than that. If you get $400k loan at the current rate and pay it off over 30 years, you’ll end up paying over 1.5x times the principal in interest. Over the lifetime of the loan, a $500k home will cost you over $1M.
(from mortgagecalculator.org)
Wait why are the banks investing in home loans when instead investing that money into the stock market (should?) yield greater returns over the course of the loan period (even at a very conservative 5% yearly compounding interest, $400,000 turns into $1.7M over the course of 30 years)
Mortgages are fixed income. Stock market returns are variable and therefore riskier. One bad year can wipe out multiple years of gains. Meanwhile, the money you collect as interest has already been paid, and as you can see from the calculator, the interest is front loaded, meaning the majority of it is paid at the beginning of the loan. So even with the probability of a default wiping out the remainder that’s owed, it’s still a much safer investment.
Why aren’t these practices considered criminal?
Because the people and organizations with the capital to loan out millions of dollars for house purchases are the ones who make the rules.
What is your proposed alternative system? All of this is just an interest rate applied to an outstanding balance. Many less people would own a house without such an option.
removed by mod
Mortgages are “secured debt”, meaning that they are backed by a collateral (in this case, the house). If the person defaults, the bank can seize the house. The risk is lower, and thus even when the interest rate is lower, the bank is willing to take it.
jeez, my apartment is fixed at 1% for 10 years, my house for some reason I didn’t think about fixing it for longer and it’s 1% for only 5 years, but even now that mortgages are peaking in my country they don’t go over 6%
That would imply people who constantly carry credit card debt would have high credit ratings, which is false as far as I understand.
no it wouldn’t, due to the higher risk of them not peying it back
It’s not, really, although it’s a bit more nuanced than that.
Credit scores are now taking in more information than ever, so things like your debt repayments as a % of your income (affordability) are feeding in as well.
For the people carrying credit card debt, one CRA might give you a better score if you carry a balance >0 but <25% of your total credit limit, and another it could be 0 to 40% so you will see some score variability.
If your utilisation is higher your score may suffer. This is only one aspect, though. Repayments on other debt (mortgages, utilities, mobile phones) play a part, as do things like voter registration and the time you have kept open your accounts. TransUnion is now incorporating BNPL (like Klarna) data for some reporting, although not sure it feeds into the score view yet).
I would highly recommend using whatever free apps are available for each of the CRAs (TransUnion, Experian and Equifax are the three main providers) to monitor your score.
For TransUnion you should be able to use the Credit Karma app in both the US and UK, and in the UK you also have the ClearScore app for Equifax score.
Experian in the UK is on the process of removing 3rd party app access (would have been MoneySaving Expert app before, but that’s moving to TransUnion).
Voter registration?? So you get a higher score if you’re a certain political party. Alrighty then.
I wish they were transparent about what exactly they use and how they use it, not what they’re saying they “may” use.
Not sure which part of the world the above poster was referencing, but I wanted to highlight that in some countries (like the UK that is briefly mentioned) registering to vote doesn’t come with a political alignment, it’s merely registering to vote.
From what I recall that is definitely a factor in credit ratings here in the UK, and may well be in other countries as well.
No it’s nothing to do with political affiliation at all,
And someone has already replied about the UK which is largely where my experience lies in this area.
Voter registration (entry onto the electoral roll) is additional confirmation that the address you are using for other credit/loan information is accurate.
ooh this reminds me I had a coworker confidentially tell me credit doesn’t go down after closing a line! I know in the long run it’s beneficial but when living paycheck to paycheck it’s not very easy to think about the future :)
I have refused to talk to her since lmao
My uhm, social score… cough, I mean credit score is very good right now. I’ve been a good little capitalist.
*score goes down 17 points for coughing*
insurance goes up $50 due to preexisting condition
LEMME OFF THIS FUCKING RIDE ALREADY!!!
“…we base our entire lives on”
The vast majority of people barely think about their credit score
Yeah you only care about credit score when you’re young. I dont base shit off my credit score
Or when you’re american.
Well yes, but also no. Buying a house or getting a mobile phone (a car too, but less so) are pretty essential parts of functioning in society.
Who the fuck needs credit to get a mobile phone? lmfao
That Android better be gold plated, able to use every network possible in the world with satellite without roaming, and shit out by Taylor Swift herself.
I’d settle for an android that’s fully functional and programmed in multiple techniques.
As a brit who moved to America with a company sponsored visa and half decent full time job I could only get a 250 dollar credit card and a pay as you go phone.
and a pay as you go phone.
Murica
If you’ve got a half decent job why do you need a credit card at all? And what’s wrong with PAYG? Phone contracts are for chumps!
It’s even being involved in job interviews and renting a house. I’m sure a bunch of others as well.
Oh God, I forgot checking credit scores for applicants was legal
Sorry, we can’t just hire someone who’s in debt. Maybe come back in a few weeks when you’re in better shape financially.
My wife and I both have shit credit score, we still got a mortgage at a preferable rate based on our income and job stability alone.
Sorry to say, credit score is a meme
why do you need to take out a loan for a phone?
just go and buy one outright if you need it?
I mean where you are allowed to live is impacted by credit score a lot.
As long as you’re in the middle you’re okayish. But how you live is impacted by it in the US.
I shat my credit into single digit range threeish decades ago (yeah, I’m a boomer puke). I couldn’t even get a bank account until about eight years ago. I finally was able to get an acct, got a secured card, and built my credit up to 729. ‘Upgraded’ my secured card to unsecured, but left the limit at $300 to keep me in check.
Then I made the mistake for applying for a modest credit line with my bank. Not only did I get denied, but the hard credit hit put me under 700. Then my credit took another major hit because I used that card for more than 31% of its limit. Never once made a late payment, neither.
As I hoped that a line of credit could afford me access to an oral surgeon (which I really need to even consider dentures, as I have mucho malo in my mouth), and as I have no interest in writing a grant to cover it, I’m fucked, as oral surgeons don’t seem to take Medicaid in my shit state.
If I survive another yearish, Medicare might be helpful, but the problems in my pie-hole might not wait that long.
I do not want a handout. I want the chance to pay it off and not leave it to Medicare…and not die of the infections spreading to either my brain (such as it is) or my heart.
(Yaay, America!)
It seems there are details missing from your story. I find some similarities to your story to my credit history and I’ve had drastically different results.
Also, single digit credit scores aren’t a thing.
What’s a “boomer puke”?
Not really any significant details missing.
The single digit score was what I was told by a friend in banking who looked it up for me, years ago, but I’m not arguing with you, as I didn’t see it with my own eyes. She could have been lying.
Boomer = old person. Puke = asshole, fucker, or other insult.
Why do you use credit cards in the first place? As a non American I never really understood that. Why doesn’t America just have the “normal” (from my perspective) bank cards that just let you use money from your bank account. Why do you need to borrow and pay back? It seems like such a weird system, not just weird also dangerous, where you can end up in debt.
Credit cards offer more fraud protection, at least where I live, while debit cards offer nothing much. I buy on credit and pay it off fully every month.
American here. We have normal cards, they are called debit cards and are what most people use. Generizing a lot here, but credit cards are for people who were never financially educated, desperate poor people, or people who only use them to get plane miles or cash back.
It’s absurd to me to put myself in debt for all but the most desperate of cases.
Thanks, I didn’t know that, you always hear about credit card (debt) but never about debit cards. Can you still use the for a good credit score?
I don’t think debit cards or their associated bank accounts affect your credit in any way since those transactions don’t go through any of the credit agencies.
When I was just starting out in life, I had a credit card but only used it maybe once a year. Just with that I somehow had a credit score in the upper 700s.
Most good credit cards have some form cash back, as in they give you a little bit of the credit card processing fee they place on merchants. Credit card benefits vary from card to card.
We use credit cards so much because it builds our credit score, which makes it significantly easier to take out loans for large purchases (eg car, house, etc) or rent an apartment.
We do have “normal” cards, they’re called debit cards. You are right that it’s weird and bizarre and dangerous. You shouldn’t be using credit cards if you’re living paycheck to paycheck imo.
Does that mean that your credit score is determined by companies? Or is the credit score something the government calculates for people?
I think in the Netherlands if you want to get a mortgage, the bank looks at your income, other loans you have, etc and they determine on rules the government set how much you ca borrow. There is a register for people that fail to pay bills, but it’s not something you get on easily, you really need to fail a lot.
Most Americans can’t afford a $400 emergency and live pay check to paycheck. Car breaks down, emergency medical expenses, emergency house breaks down could all cost over $400. You need a Credit card for that back up that you could eventually pay back by probably sacrificing something else. Need a car need a credit score or you pay $3-10,000 more in interest same with buying a home. Want to rent need a credit check. Want to get a job at a bank, military contractor, some government positions, and other secure jobs. They want to make sure you don’t have bad credit or can’t be taken advantage of . Which no credit is often considered bad credit.
If you don’t have 400 in savings and live paycheck to paycheck how can you borrow 400? Like how can you pay that back? It still seems really weird, and if you can somehow pay it back, why didn’t you save a small amount before the car broke down?
Buy ramen, skip meals, Put off getting new shoes for another year, Don’t get a haircut, skip an oil change, run your car on a donut, cut cable or internet or phone for a few months, pick up overtime or get a second job, wait for tax refund.
There is flexibility but doesn’t mean you have savings. When you are poor some things are an emergency and sometimes you have flexibility or a chance to earn a bit more money. But when you are poor life is expensive and there is a ton of things you can buy as an upgrade, fix, or comfort.
When you are poor there is an endless list of things that need to be fixed and improved.
Median income for an individual is $50k median which is $39,129 a year after taxes. $3,260 monthly budget. Rent for 1 bedroom is $1,496 that is 46% of your real income. Usda say cost for food for male is 300$ a month on the low side that brings you to $1,464. Transportation for a household with 1 car(not median individual) is 410$ a month. $1054-electric $84- phone $140-water $30- health insurance $456 - car insurance $165- internet $75 =$104 leftover
Some of these costs are a mix of average per person or median per person. Health insurance cost you money to use. I didn’t put dental or eye insurance it is easy for you to live in a place where these expenses are more or less. Only recently has 10% of Americans built positive wealth. I think we got it to 7% recently people aren’t in total debt. (1% of Americans is 3.5 million people)
Agreed. Weird system, and dangerous for many. That’s why I only allow myself a very limited card, which is what I used to build my shitty credit back up.
Have you considered committing a crime and getting caught so that you can go to prison for a year or two and get free dental?
Imagine a country for which this sounds even remotely viable.
As much as I can see the appeal of gaming the system, I don’t look good in orange.
Also, I have gigs to attend to (filthy bass player here), as well as taking care of my sweetheart, who has wicked mobility issues. I don’t think I can do that from a cell.
I like the cut of your jib, tho’.
Best of luck then, friend 🙏
Even though we Australians get mostly free healthcare, teeth are still considered luxury bones that we have to pay for out of pocket too.
There are numerous proprietary score algorithms out there. The newer ones seem to have fixed this bug by factoring history of closed accounts but many online “free credit report” services still use the old ones.
Old algorithms would often penalize account closure due to sudden reductions in average credit age, available credit, or credit mix (any of which might apply to the OP, but especially if that car loan represented a significant portion of their credit history).
Likewise, they would sometimes reward new debt if it significantly increased available credit or added a unique credit type to the mix. For example, a first mortgage could bump a credit score by 30 points or more, even though the individual is no more credit worthy than they were before.
Regardless, I think a good thing to keep in mind is that banks tend to maintain their own internal scoring systems. So not only is there no such thing as “THE score,” but the scores people are referring to when they say that are mostly just one credit bureau’s estimate, based on their proprietary rubric, of how a lender MIGHT see a potential borrower’s likelihood of default.
The banks often use the score by such scoring companies, as those scoring companies have access to all sorts of contracts, bank accounts etc. you have. Wheras you bank only has information provided directly by you.
The scoring companies can have tremendous impact on your life and often they use completely bullshit factors, like your postal code, where you are punished for living in a “poor” neighbourhood or rewards for living in a “good” niegbourhood.
There is also credible reports of ethnical discrimination, e.g. if your name is not a “white” name.
The scoring companies should be obliged to provide full disclourse for how they define a score and banks should be demanded to provide information, if they denied a credit based on such a credit score, with full liability of the scoring company, if their score was using discriminatory criteria.
The banks often use the score by such scoring companies, as those scoring companies have access to all sorts of contracts, bank accounts etc. you have. Wheras you bank only has information provided directly by you.
At least in the US, banks see the full credit report you see, not just a number. Using any of the specific scoring models (FICO X, VantageScore X.0, etc) that are championed by scoring companies or the various US credit bureaus is entirely optional.
The scoring companies can have tremendous impact on your life and often they use completely bullshit factors, like your postal code, where you are punished for living in a “poor” neighbourhood or rewards for living in a “good” niegbourhood.
This is quite a claim. How easy would it be to detect and verify that credit bureaus are using borrowers’ associated addresses substantively in their nationally deployed scoring models? I’d wager a college student with an excel spreadsheet and a one-line mailer could do this in a single semester. Now consider the CFPB auditor, with direct records access. How long would that take?
There is also credible reports of ethnical discrimination, e.g. if your name is not a “white” name.
Again, I respectfully suggest thinking these conspiracies through. Credit reporting agencies are fancy bookies in the end, right? They live and die by the legitimacy of the service they offer. So if one of their scoring models has worse predictive accuracy because it’s evil, few banks will use it. Not even because it’s evil, just because it sucks.
The scoring companies should be obliged to provide full disclourse for how they define a score…
They are. In the US, it’s the Fair Credit Reporting Act. In Germany, I think it’s tied to the EU Credit Servicers Directive.
I don’t enjoy defending credit bureaus of all things but conspiracy theories like the ones you’ve described distract from real systemic injustice and disrupt real collective action.
Edit: changed localized phrasing and content so as to not accidentally come across as disrespectful or dismissive.
One hole in your “if it’s terrible banks wouldn’t use it” Equifax still exists
Well in Germany there is currently an ongoing dispute because the main credit scoring company refuses to disclose the details of its scoring algorithm.
I would also disagree on the banks interests there. The banks don’t see the customers they loose because of an overly restrictive scoring model. Also for them to see things like discrimination based on names they first would need to develop a sense to question their own prejudices. Something that white people in Germany, and given the constant issues of racial discrimination, i’d dare to claim in the US too, struggle with extensively.
I want to ask on this though:
At least in the US, banks see the full credit report you see, not just a number.
Do you mean the report provided by the scoring company? Or is there a national register, where all your contracts, credit cards, bank accounts etc. are stored and all banks can access it? That is what i mean. W.o. the scoring company, the bank only knows about the business you have with them and what you disclose to them. They don’t know wether you have an overdrawn credit card with a different bank. At least that is how it is in Europe.
I hadn’t heard about the dispute in Germany but found some articles about it. If I’m reading correctly, I would say practices were definitely not more responsible in the US, but the history of disputes here may go back a bit further, with a slew of regulatory reforms we benefit from today — namely FCRA, TILA, BSA (1968-1970), ECOA, FCBA (1974), RFPA (1978), and FACTA (2003).
For them to see things like discrimination based on names they first would need to develop a sense to question their own prejudices.
I definitely agree regarding the universality of blindness to such biases. I suppose automated credit decisions (based purely on scoring models) might have a better shot at eliminating the factor of implicit biases in human agents. Even so, there is a lot of debate over here about how best to filter data that reflects biases and also what data is currently being ignored due to biases, because any algorithm that solves these issues, in part or whole, allows better value capture and increased revenue.
The banks don’t see customers they loose because of an overly restrictive scoring model.
Perhaps, but even if their stakeholders don’t notice or care about discrimination at all, they do take notice when a competitor scoops up a portion of the market they failed to realize due to biased/inferior analysis. After all, the original goal of credit scoring was to increase objectivity and predictive accuracy by reducing bias for the sake of better (more profitable) lending decisions.
To your question re: the credit reporting system in the US, it sounds like it works a bit differently here. There are credit bureaus (sometimes called “reporting agencies”) such as Experian, TransUnion, and Equifax (“the big three”). They functioned historically as lending history aggregators, but now also have scoring models they develop and sell. There are also companies who specialize in scoring models, but they use data from the credit bureaus. These companies often tailor their models to specific markets.
In general, if you apply for any form of credit, the lender formally submits a requisition (a “hard inquiry”) for your file (a “credit report”). Only very specific information is allowed in that credit report, and it must be made available to you at your request (free annually, otherwise for a nominal fee). There are other situations where credit scores can be ordered as a “soft inquiry” without the report, and there are particular rules and restrictions that apply, but the lending history contained in your credit report is what banks and lenders routinely use for applications, even automated/instant credit decisions.
ITT I’m seeing a few common misconceptions repeated by many otherwise correct and knowledgeable commenters without remediation. I’m addressing them here, because understanding financial systems empowers everyone, whether they wish to use them, change them, or burn them to the ground.
- Lenders only see your credit score. Mixed truth. Lenders can order specific scores to get a quick idea of credit-worthiness, but for most credit decisions a credit report or ordered. (This is often called a hard inquiry, and indicates a credit was applied for. A single inquiry is basically ignored by most scoring models. Many inquiries in a short timespan can be considered risky.) Regardless, the report is the same one you see when you order it directly from a credit bureau.
- Your credit score is universal. Mostly false. Credit scores are just someone’s guess of your risk to a lender based on data reported by previous lenders. Good guessers can make money guessing, but none are perfect, and some are only good at guessing risk for specific contexts. Who are they? First, there are the bureaus. They have various branded scores that they sell as products to lenders (for credit decisions) and borrowers (for credit building). Next, there are numerous companies who exclusively develop and sell scoring models. Finally, some lenders such as larger banks develop their own internal scoring models. All the above are adjusted regularly and tailored for specific industries and debt classes. I say “mostly false,” because it’s true that many scores use similar scales and the same records, which means they tend to rise and fall together. That’s why lot of people, even financial wellness advocates, often talk about “your score” as if it’s a single agreed-upon value, but the reality is scores are numerous, distinct, and variable.
- Credit reporting agencies use personal information for scoring. Mixed truth. Many bureaus have affiliated entities that broker financial data for ad revenue, but the information they are allowed to distribute in credit reports is tightly regulated in most countries. (Exceptions: there are alternative scoring model providers who fill a gap of niche debt types sought by applicants with no credit history, such as LexisNexis’ “RiskView” which can use more personal details like address stability and online purchase history to determine risk.)
- Credit history is permanent. False. Negative records like late payment, non-payment, and bankruptcies have expiration dates by law in most countries. Aside from when accounts were opened and closed, generally nothing in a credit report is permanent, and the scores can be extremely variable in practice.
- I should worry about my old credit score. False. Credit scores are used and discarded. New score overwrites old. The only thing that persists would be a credit decision, if there is one. Most scores are partially based on transient data and thus can bounce around wildly. For example, VantageScore 2.0 can dip by over 150 points because a large transaction put a card slightly over the limit but then rebound 150 points after the balance is reported within the limit. Similarly, FICO 8 can jump by 100 points just because the applicant was added as an authorized user to a card with a long payment history. Likewise, most scores can rise and fall drastically based on credit utilization (which is usually reported based previous statement balance, meaning even if you pay off cards every month your credit score will fluctuate in proportion to variance in monthly spending).
- Banks like credit card debt. False True. (Corrected by @[email protected]) Banks love it when you carry a balance. The interest accounts for the majority of their revenue.
The volatility of scoring is the most important takeaway, I think. The temporary nature of scores can be exploited pretty easily. If you understand how they work, you can often get the score you need at a particular time with a bit of planning. And the rest of the time, when you aren’t using your scores for anything, they’re vanity numbers at best.
Anyway, if I missed something or am wrong, please point it out.
I was under the impression that many hard inquiries in a small time frame was ignored because it means you’re shopping for a loan.
Having a single hard enquiry every so often would mean you’re needing to keep borrowing money for some reason.
True. This inquiry collapsing behavior is a feature of recent iterations of two popular models: FICO (8,9,10) and VantageScore (2.0,3.0).
Note however that:
- It only works for certain types of debt. For example, FICO8+ includes auto, student, and mortgage. VantageScore2+ includes utilities, auto, mortgage. No model includes revolving accounts like credit, retail, or charge cards.
- The inquiry collapsing behavior only occurs within a single asset class. For example, FICO8+ would collapse simultaneous shopping for student loans, car loans, and mortgages into 3 inquiries, not 1.
- The shopping period varies. FICO8+ ignores same-class inquiries for 30 days and collapses same-class inquiries within a 45-day window. VantageScore2+ does the same but only within a 14-day window.
Bonus hack: Certain banks also routinely collapse/reuse inquiries for same-day applications, permitting additional applications “for free,” which can be useful if you are denied your first choice and have a fallback in mind or if you are instantly approved for one product and want to try for another.
Credit card companies posted $176 billion in income in 2020, down from $178 billion in 2018. Interest fees accounted for $76 billion and interchange [merchant] fees accounted for $51 billion in 2020.
https://www.fool.com/the-ascent/research/credit-card-company-earnings/
This source suggests interest, fees and charges account for well over 50% of income
True! Fed data corroborates this, and it appears the gap has only widened since.
(Image from 2022 CC profitability report)
So I was wrong. Thank you for the heads up. I’ll correct it shortly.
Interesting to see that this has only changed, fairly (last 3 - 6 years), recently and the profit from merchant vs interest fees has pretty much flipped!
I didn’t know about the Fed data, so that to me feels like a good solid source as well.
I’d say inb4 someone high on copium tries to justify it, but I’m already too late.
Tell ya what, I got a plan! We go back to the way it was before credit scores. If you’re white, socially acceptable, know your banker and are a deacon in your church, you’re approved!
“nOt LikE thAT!”
Children: I don’t understand how this works so it’s unfair!
Just because the old system was worse does not mean we can’t have better than the current system.
Normal countries don’t have credit scores. It’s once again a US-only problem.
Wait… Seriously?
I knew it was ridiculous (literally two companies who assign you a numeric value in an arbitrary range and refuse to elaborate why)
But I never considered other places not having some version of this, probably run by the government (or are just using ours)
Can you walk me through how getting a loan works? Let’s say a home loan, what would they ask and what decides the terms you get?
I’m not the person you asked but there aren’t credit scores where I live (Netherlands).
First of all when you take a loan it’s officially registered with the Bureau of credit registration. Yes paying of a loan nicely will still help but not having any loans at all is usually better. If you already have a loan you can’t loan as much money. So there’s some kind of system but generally loaning as little ad possible is much better. There’s no score though, just positive and negative registrations. Every loan above 250€ is registered. This includes stuff like a phone subscription with included phone.
Besides that if you want loan the lender will ask for income and expenses.
Also almost nobody ever uses credit cards. We all just use debit cards. So you can’t spend what you don’t have.
Lmao what? I’m from a third world country and credit score is a thing here.
USA?
DAE that USA iz a third world country. I iz a geneus.
🤦♂️
Come live in an actual third world country, live the way average citizen in that country live, and you’ll be yearning to be in USA instead by week 2.
Fuck this dumb circlejerk.
Some people love taking time out of their day to type out at least one full paragraph on why this is okay and makes sense! When we know it doesn’t, but they sure try their darndest to justify it.
What a waste of time and nonsense.
It’s categorically ridiculous how the credit system in good ol’ 'Murica is based on you getting into debt so you can be deemed “trustworthy” by the banks.
A system designed to keep you tight om a leash, forever selling your labor to pay off that first debt.
Categorically ridiculous? Try systemic evil.
It’s even more “funny” if you think it’s the very opposite of how old fashioned bank managers used to judge people’s creditworthiness in order to decide if they should get a loan or not, back in the day (and not even that much back: algorithmic loan decisions only became a thing in the late 80s and 90s.).
I missed a credit card repayment by 1 day and my score dropped almost 300 points (UK. 800 (very good) -> ~500 (below average))
That’s very unlikely, there’s more to that than you’re letting on. Was the card maxed? What was your total utilization?
I paid off all of my debt and closed all of my open accounts. Credit score 515. Make it make sense. Fuck up once? 7 years of bad juju. Pay off all your debt? they forget immediately.
You need open accounts. You need to show you’re responsible with debt management. Use a credit card like a debit card, any purchase you make pay it right away.
Credit scores don’t measure financial responsibility, they measure how much money banks think they can make of of you.
The want you paying interest and account fees, even if that isn’t financially responsible.
I paid a credit card down from $1700 to $1200. My score went from 795 to 763. Fuck 'em and their fake money.
You’re still carrying a balance of $1200 though. Pay it off and it should go up.
Believe it or not, it is better for your credit score to carry a low balance on your credit accounts than no balance, because glue tastes yummy to the credit agencies, I assume. /s
The reality is that lenders would rather have customers that utilize their credit and pay a lot of interest than ones that aren’t lucrative and pay off their credit use immediately. They’re looking for people willing to fall into debt traps that are ALSO able to reliably pay the interest within them without ever defaulting. That is what a perfect customer/capital battery looks like to consumer lenders.
Which means that credit scores are just an arcane measure to determine the potential profitability of borrowers, NOT a metric of the most responsible borrowers at all, because that would mean utilizing the least credit.
You only need a balance on the day the company reports to the credit bureaus. They have to and will tell you the day they do this. You can buy something the day before and pay it off the dat after and never have a balance on your statement and still appear to be using credit.
it is better for your credit score to carry a low balance on your credit accounts than no balance
That’s a myth that credit providers like to persist because it tricks people into paying interest. Pay off your credit card every month, don’t carry a balance, and use less than 30% of your available credit. That’s what’s best for your credit score.
Please don’t spread that myth. You’re literally helping people fall for the trap you’re complaining about.
https://www.cnbc.com/select/what-is-a-good-credit-utilization-ratio/
"Why you shouldn’t go as low as a 0% credit utilization rate
If your CUR is 0%, it shows lenders and credit card issuers that you aren’t making any purchases on your credit card. Remember, it’s important to use your card.
“When a credit card account is reported with a zero balance, some scoring models will look at a zero balance as if the card is not being used,” Droske says. “Maybe it’s in your drawer at home, or, for whatever reason, you aren’t using it at that point. Not using it at all is not as good as using it in very small, controlled ways.”
While a 0% utilization is certainly better than having a high CUR, it’s not as good as something in the single digits. Depending on the scoring model used, some experts recommend aiming to keep your credit utilization rate at 10% (or below) as a healthy goal to get the best credit score."
It’s not a myth. I keep a 0 debt load because I don’t want to be bothered playing their infantile game for another 20-30 points, but a low balance increases your score a little over a 0 balance.
I despise capitalism, and I know my enemy well. Credit utilization matters beyond full or no utilization. This is how credit scores work.
Your source does not seem very definitive.
“Depending on the scoring model used, some experts recommend aiming to keep your credit utilization rate at 10% (or below) as a healthy goal to get the best credit score.”
But even if carrying a single digit CUR is the optimal way to maximize your credit score, paying off your cards is going to be the best advice for 99% of people.
And even Experian, the credit reporting agency says carrying a balance helps your score is a myth.
paying off your cards is going to be the best advice for 99% of people
No duh, this isn’t asking for financial advice though. This post was about what maximizes your credit score.
Two entirely different things.
Also, you linked to an ad for what experian wants to sell you. The credit agencies have proven time and time again they are the last source of information you want to use regarding how they generate credit scores, when they aren’t proving they can’t be trusted with your data and should be dissolved by government for their constant data breaches it’s almost impossible to opt out from while still participating in society.
“Carrying a credit card balance will not benefit your credit score, but enrolling in Experian Boost®ø has helped many people increase FICO® Scores based on their Experian credit reports, and a free credit score from Experian can help you track progress toward score improvement.”
-Your source. A sales pitch is never a valid source, unless it’s to prove someone tried to sell you something.
You guys are talking about different things.
Credit utilization of 0% doesn’t mean paying your cards off on time every month so you avoid interest. It means paying your cards off before the statement period even closes so nothing is reported to the credit agencies.
I do this. All my cards have a statement period ending on the 19th or 20th. Around the 17th every month I pre-pay so my statement is $0 on every card.
When I use a card after doing this and the charge goes through before the statement closes, my FICO score goes up (vantage doesn’t seem to do this).
For the last 18 months or so my FICO has been going up 22 points every time there is at least a little balance to report and down 22 points every time my credit utilization is 0.0%.
You can have debt utilization while still paying off the full statement balance each month and not being charged interest. I always have a balance, but I rarely carry the balance beyond the statement due date and interest free grace period. (I just have new charges that make the balance non zero.)
It won’t, necessarily. They don’t want people who will pay off their debt, they don’t make money off of interest if you pay your debt off. They want people constantly in debt making monthly payments.
Source: I paid off lots of debt and my score plummeted.
Your score could have gone down because closing the account effected the length of your credit history, or because the credit mix (types of accounts) was changed, or because the account showed the entire loan amount as available credit which was removed when the account was closed. Yes they make money off of people who carry some balance but they track credit scores to attempt to predict whether a person will repay credit that is offered to them.
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Or, hear me out, he could go all Tyler Durden.
That’s probably not a good long term decision.
Some institutions deserve to die.
Your face is not a good long term decision.
That man had a family!
Also probably not the best decision.
It’s a good long term decision for the rest of us. I’d appreciate it if someone took that sacrifice sooner rather than later.
The numbers Mason, what do they mean?
Credit history length was shortened, lowering the score. Just give it another 5-7 years it’ll build back up!
