Credit score is a poorly implemented modern invention.
(midwest.social)
VetOfTheSeas
People TwitterThis myth is the dumber cousin of ‘tax write offs generate income’.
It's not poorly implemented. It works exactly as designed. What most people fail to understand is it's not a rating of how likely you are to repay a loan, it's a rating of how profitable it is to loan to you.
So if you pay off your cards completely, you aren't paying interest, and you're not as profitable a customer as someone who has 10k in debt that they're paying interest on every month.
Yup
Goes up if you make minimum payments on credit cards
Goes down if you pay off a credit card
Goes down if you miss credit card payments.
They also don't exactly have an 850 rating if they're $10k in credit card debt though.
My wife has a really high credit score. It's taken me years to get her to understand that it's not a rating of how good you are at paying your debts, but how much of a sucker you are.
The trick is to pay it off, but never fully. At least that seems to be working for me
A lot of people in here arguing about how this works. Short answer is it doesn't work that way. Period.
Like others said, I'm calling bull on this. I'm young and haven't had my card for a long time, but I pay it off in full each month and I'm in the high 700s. The only things I can remember reducing my score are: 1. My credit history is too young, 2. I only have 1 line of credit rn, and 3. I had high revolving utilization one month. So now I try to keep my utilization around 30-35%.
If you don't pay off in full you are now paying interest on your card. I did take econ class in high school (basically US financial education, and if it's not federally required then it's a mandatory class in my state.) and while it left much to be desired, this was one of the few things we learned. Basically the biggest lesson from that class was interest sucks and you should avoid it at all costs in anything, wether it be a credit card, payment plan, loan, etc. Always try to pay outright if you can, and reduce your credit usage to what you can actually afford. We would literally do the math to show how much more money you spend over time.
and reduce your credit usage to what you can actually afford.
Just be sure not to reduce it too much, otherwise it will lower your credit score.
That's right, having a credit card but having a credit utilization under something like 30% will hurt your score.
Defend that one.
You've been saying the same bad advice up and down this thread.
If you reliably pay your credit card bills in full by the due date, your score climbs and climbs. Not instantly, over time. Reliability isn't a one-off.
If you cancel your credit card, you have less evidence that other institutions are happy to lend to you, and your score could go down.
The highest credit scores are for people who have been loaned plenty of money, and who always make their payments.
Deliberately causing them to charge you interest just makes you poorer and does not show that you're a good risk to loan to. It's the front door for ballooning debt, and that's what they want none of - people who get declared bankrupt or have other debt interventions are a massive loss to them, and what they want to avoid like the plague.
It might depend on the particular credit score assessment. Mine is always low - 6% currently - and I have an 850 FICO score. Per FICO that's one of the reasons it's so high.
Whatever score the Chase app shows says I'm at 826, so also no apparent penalty for low usage.
Huh, I'll have to take a look at mine. I usually just do credit karma. My score has gone up considerably since the years where I was worrying about credit utilization percentages. I'm wondering if it has to do with how many other things you've got going on that also indicate good credit.
In other words, when I was just out of school with shit credit and student loans to pay back, they had very little data on me to determine my "worthiness" or whatever, so my only real option was to open credit cards and to use them maybe?
Maybe now that I've been consistently paying my shit back for decade(s), they don't put as much weight in credit card utilization %?
I wish I had a screenshot from years ago, but it was like the exact opposite. Like some "Your score is low because your 'WELLS FARGO N.A. XX86' credit card utilization is only at 11%. Please increase utilization of this account" bullshit. And all of the links they'd give you were about how you want to keep it at like 30%.
Maybe I'll go to credit karma today and see whats up. I hate credit cards, and I hate carrying a balance but it was drilled into my skull. My credit score is great right now so maybe I should just pay em all off.
Sorry if im rambling, I took a nice strong edible today.
Edit: Is it possible that the discrepency between the 850 and the 826 as reported by Chase (a bank) to be itself the "penalty" as you say?
Regarding my FICO score, the details on my utilization percentage says it makes up approx 30% of the score, and as you can see in the screenshot above, that highlighted as a positive, not a negative.
The score I see in the Chase app is my VantageScore from Experion, a different credit agency. Not sure what their max is but 826 is an excellent score too.
As far as carrying a balance goes on my credit card, we do not. We use it for most purchases and pay it off in full at the end of the month. So while it has a balance month-to-month, and makes up most of our utilization, nothing carries over and we pay no interest but instead get cash back. We have high limits on most cards so that keeps our % utilization low, which really is an advantage.
On our recommendation most of our adult kids do the same re: using the credit card as a debit and paying it off monthly. I know at least 3 have their scores in 800s too. If you have the discipline, having the high limit with a low utilization seems to be advantageous.
I meant to add I wouldn't trust Wells Fargo with anything given their corrupt & recent history. Doing the opposite of what they suggest is probably better with nothing else to go on.
True. But to be clear I literally just put the first thing that came into my head in there. I should have just used a fake company instead so as to not distract from the point.
Ah good, because fuck Wells Fargo!
my usage decreased to 0% and my score went up 10 points this month to 799.
That doesn't seem to be true from my experience. My credit limit is more than 10x my normal usage per month and i never carry a balance forward. My credit score is 825 right now.
That's great. I'm sure you have more than just a credit card, and those other things have a much larger affect on your score. And there's probably a million other variables in there.
I am not going to claim to know the exact formulae used... But it's my understanding that something around ~30% utilization for credit cards is optimal in terms of the agencies giving these scores.
Say all you've got are student loans (that you've been consistently paying back for like a year), and you've got a score of say 600 and you want to try to establish credit.
If you open up a credit card with a $1,000 limit, your score will immediately go down to like ~585 or something, despite the fact that you don't owe any money on that card and have $1,000 more credit available than you did before. Yes, it's fucking stupid.
(I'm admittedly pulling these specific numbers from my ass, but this is nearly exactly what my experience was many years ago).
The only reason I have a great credit score is because I opened a credit line at 18, and have a house, which I was only able up get because, when we got married, our parents and family helped raise 10k instead of having a large wedding. Add our 20k in savings that we were only able to get because we lived with my parents, and we were able to put a down payment on the house. Thanks to crazy house prices, we look well off. On paper.
We have less than 1k in savings, so any surprise bill or breakdown might have us having to take a loan. I've been learning how to fix and repair everything we own. Basically me, every time something breaks. I spent the last 6 months doing maintenance on our 2 vehicles. Transmission filters, brakes, radiator coolant, diff oil, etc. I realized I've become my grandpa who drove a 35 year old POS, but kept it running well.
I seriously don't know how us regular ppl are supposed to better our lives when everything is predatory and something as simple a credit score fucks you.
The hard inquiry for opening that new card lowers your score. The avg age of accounts drops with the new card and that also lowers your score. The $1k credit limit doesn't raise your credit enough to offset the drops but over time the impact of those will wear off and your score will go back above 600.
What the OP in the image probably means is that paying off a non-revolving account (not credit, something like a personal loan or car loan) can drop your score. It will drop more if its a large account because it drops the total value of all accounts or the total value of non-revolving accounts you owe on (not the remaining value, it uses the total for some reason afaik) + your credit limits from cards.
The best way to raise your credit is to just have an assortment of different credit cards, continually pay them off in full, and have some other type of account in the mix like an auto or personal loan that you continually pay off.
Opening all of those at once will tank your credit for a bit because "credit seeking behavior" is a ding against you. That's not an actual term I don't think, but opening a bunch of credit lines at the same time is a bad look and could be a sign of financial distress that scares off lenders. So just start with 1 card and 1 loan then open a new card every 6 mo to 1 yr. Then when you eventually pay off the loan your score may drop anyways so use that time to open a new loan so you offset the impact of the drop.
The system is dumb but it isn't incomprehensible and it's actually possible to game the system a bit. There are companies that offer pre-paid debit cards but they report to the credit agencies as if you have a credit card with like a $1200 limit and they always report that you have a 20% utilization and always pay on time. That way you build credit without ever actually using credit or racking up debt.
My usage is less than 10% my combined credit limits are ~100k my scores are around 800-817 depending where I check. Actually when I went to buy a car 2 years ago I overheard the sales guy and the finance guy who were talking about it say "holy shit, she has really good credit."
Edit to correct my numbers after I looked them up
I didn't say it was the entire score (unless all you have is a credit card).
You can call up the agencies yourself and ask. They will tell you that the optimum is something like ~30% credit utilization. More or less than that will affect your score negatively.
I imagine how big/small that affect is depends on all sorts of other factors.
Edit: It's stupid. Shortly after college, when I had to start paying back student loans, I decided I wanted to try to "build credit," so I got one of the few cards they were willing to give me. My (already not great) credit score immediately dropped.
When I looked into why, I learned about "credit utilization" and why you always want to carry a balance if you want to build your credit.
It's fucking stupid.
You've been saying the same bad advice up and down this thread.
If you reliably pay your credit card bills in full by the due date, your score climbs and climbs. Not instantly, over time. Reliability isn't a one-off.
If you cancel your credit card, you have less evidence that other institutions are happy to lend to you, and your score could go down.
If you apply for a new credit card, your score can go down because that's also what people who are running out of money do, not because your borrowing to limit percentage is low.
The highest credit scores are for people who have been loaned plenty of money, and who always make their payments.
Deliberately causing them to charge you interest just makes you poorer and does not show that you're a good risk to loan to. It's the front door for ballooning debt, and that's what they want none of - people who get declared bankrupt or have other debt interventions are a massive loss to them, and what they want to avoid like the plague.
The bigger impact than credit utilization would be the hard inquiry that they use to determine whether to give you the card as well as the avg age of accounts. Low credit utilization may drop your score an extremely tiny amount (only like 1 or 2 points) but the new inquiry and lowering avg age of accounts is a much bigger impact (tens to dozens of pts drop)
Credit utilization /= carrying a balance. I put most purchases and payments on CCs, pay them off completely every month, and my credit utilization is typically something like 10% without paying a cent in interest, and I have an excellent credit score.
From years and years of first-hand experience, there may be a swing of a couple 10s of points when you get closer to that 30% utilization, but it has nothing to do with whether you are carrying a balance and paying interest. Further, that 20 or 30 points basically background noise when it comes to qualifying for new credit.
People get so fucking hung up on whether this or that will change your score by 15 points and how that signals some grand conspiracy. Open a line of credit or two, use it responsibly to demonstrate that you can manage access to that credit--pay on time and in full--it really is that simple.
I just find it interesting and convoluted, not trying to imply anything about any kind of conspiracy.
It's a signal that you aren't actually using your revolving credit, which makes it less relevant for determining your credit worthiness. The formula is stupid only to the extent that the input data is bad. Otherwise, it would be an easy hack to raise your kid's credit score to open a bunch of credit cards for them at birth, and do just the bare minimum to keep the accounts active.
They could report a long history of the balance, and use some kind of historic weighting function, or they could report both the amount currently due, and the amount paid each month, or both. The institutional players don't want to reveal more than they have to to each other. Each of them is trying to know the most about you, and deny that to others.
Otherwise, it would be an easy hack to raise your kid’s credit score to open a bunch of credit cards for them at birth, and do just the bare minimum to keep the accounts active.
I think this might actually be a thing that people do (however, kids don't have a credit report til they hit 18):
https://www.chase.com/personal/credit-cards/education/build-credit/how-to-establish-credit-history-for-your-child
Your score does not drop when you pay off a card. It's drops when you pay off a loan.
And the reason is because your mix of credit changes. The formula says you're lower risk if you use more types of credit responsibly. Having a mortgage, a car loan, and some revolving credit is better than just two of the three.
I think it's important to mention why this is:
Your credit score is NOT a measure of just "how likely are you to pay off your debt".
It is a measure of how likely you are to earn creditors money rather than lose them money.
Successfully keeping up with 4 monthly payments indicates you're a likelier source of profit than only having one line of credit you pay each month. You likely have more expendable income, you're more likely to pay interest instead of paying down extra principle, you're clearly accustomed to carrying debt, etc.
This is a common misconception. Credit scores are actuarial risk, not profit utility. Having some debt load is a portion of that equation because it basically prevents dividing by zero. This is very basic actuarial science - you cannot produce a risk/utility metric without actually having priors, and within those priors there's a concept of Fisher Information, which measures the likelihood that some sample of a random variable reflects true information about an unknown parameter. Simply put, the more information you have, the stronger the model. So the more debt you manage the more information about your debt management practices is available to the actuary. Up until the point that you have too much debt that it becomes very certain that you are high risk. If you have little credit history, but that history is perfect, you will still usually be in the lowest risk tier, but that might be like 780 instead of 850, or whatever, and that's merely a reflection of certainly within the model, not your actual behavior. A person with similarly perfect behavior, and a lot more of it, should be intuitively seen as a lower risk.
I think it's more accurate to say it's a measure of risk , but it leads to the same result. Good, consistent repayment history means you are a known low risk. Without that consistent and recent history you are an unknown risk. Giving credit to low risk borrowers is where the profit is.
You're missing their point.
If you pay off a loan, your credit score will likely decrease. Why would someone who's able to pay off a loan be considered a higher risk than someone who pays $x a month to slowly pay down the same amount?
It's absolutely about potential profit over risk. In the latter situation, the bank makes way more money.
It's not just risk (negative income fot them), it is also the potential gain.
A guy that gets stuck in debt via overdraft all the time, but manages to scrounge just enough extra income to pay it off, is a gold-mine for them.
They are a higher risk because they no longer have an active demonstration of reoccurring on time payments.
There are many paths to earning profit for a credit issuer. Debt traps are one of the more predatory paths. Some credit issuers want to issue high rated bonds that provide low, but safe, income over a long period. Some don't get profit from interest at all, high-end reward cards, for example. I haven't paid a penny of credit card interest in decades yet I'm issued cards that provide me with over $20k in benefits every year, these companies make almost all of their money off swipe fees charged to the merchants and partnership deals.
It absolutely is "a measure of how likely are you to pay off your debt", because that is "a measure of how likely you are to earn creditors money."
It's not some grand conspiracy. It's a record of previous behavior to predict future behavior to determine if you fit their business model.
Your mix and your average age.
Same as if you close a credit card.
Paying off a credit card will massively increase your score. From having a lower overall balance, having more available credit, and a lower credit utilization.
The formula says you're lower risk if you use more types of credit responsibly.
And yet it says you're higher risk if you had more types of credit, but eliminated one by paying it off. Literally doing the thing you're meant to do.
And we all know that they can never alter the formula, so I guess that's that.
We're talking about why the formula is very stupid in certain cases, so "it's like that because the formula says so" isn't really an argument. Like... We know.
You've been saying the same bad advice up and down this thread.
If you reliably pay your credit card bills in full by the due date, your score climbs and climbs. Not instantly, over time. Reliability isn't a one-off.
If you cancel your credit card, you have less evidence that other institutions are happy to lend to you, and your score could go down.
If you apply for a new credit card, your score can go down because that's also what people who are running out of money do, not because your borrowing to limit percentage is low.
The highest credit scores are for people who have been loaned plenty of money, and who always make their payments.
Deliberately causing them to charge you interest just makes you poorer and does not show that you're a good risk to loan to. It's the front door for ballooning debt, and that's what they want none of - people who get declared bankrupt or have other debt interventions are a massive loss to them, and what they want to avoid like the plague.
That’s because the credit rating system is a Southern invention.
Your score does not drop when you fully pay off a credit card. If you pay your balance in full before the due date, not only are you not charged interest for that month, but your credit score is likely to go up due to making a payment on time. I used to carry a balance but have been paying it off monthly for many years now and my score is higher.
If you close an account, the total amount of credit you have decreases and your score may drop, however this is often transient. It's not useful to worry about your score week to week unless there's an obvious problem, follow it over the long term instead.
Credit utilization absolutely counts towards your score.
If you have a credit card with a $1000 limit, but you run an average balance of $100, go ahead and close that card and watch your score immediately increase.
Credit utilization definitely contributes to your score, however your example doesn't comport with that. In your example, if you close that card, your score is likely to go down, as the total credit available to you goes down. If you're paying off $100 each month on that card, your score will continually creep up. At some point, the credit card company will probably increase your limit to $2000, at which point your score will again go up. It's on you not to spend more than you can afford or fall into all the debt traps our society has set for us, but as long as you're paying it reliably your score will creep up
At some point, the credit card company will probably increase your limit to $2000, at which point your score will again go up.
Or not, because your credit utilization % would decrease. (Edit: Actually I guess maybe two things are happening: an increase to the general score for having more available credit, but also a (likely smaller) decrease to the score for now having a lower utilization %).
I've literally had this happen to me. It wasn't a large decrease, maybe something like 8-10 points, but it definitely happened.
I'm sure the algorithms that these agencies uses are much more complex than what we can get into here, so I'm sure the exact end results can vary wildly from person to person.
However, I can tell you from personal experience, that my score went down slightly after the bank increased my credit limit on one of my cards. This was years ago, maybe they tweaked things, I dunno...
edit:
re-read the other part of your comment:
In your example, if you close that card, your score is likely to go down, as the total credit available to you goes down
I think this is true as well... If i recall, it didn't seem to be a "total credit utilization" as in, add up all availabale credit from all sources (including student loans, etc.), and use that as the denominator so to speak, that was what hurt my score. But more like on a per-card/account basis. If that makes sense at all lol.
Like "credit cards" is just one of many sections that factor into the total score. You could be doing great with your student loans, car loans, mortgage, etc. and that will give you a good score.
But then if credit card aspect (module?) only has 1 card open with a $5,000 limit, and you keep the balance at $0-$200 or whatever, then that's going to negatively affect the overall score.
Man I hope that made sense at all, I'm a bit stoned at the moment lol. Made sense to me haha... I think I remember creditkarma explaining this to me years ago when my credit was in the shitter. I do know that paying attention to credit card utilization % did quite a bit to help me get my credit back up.
Utilization at a low percentage on your cards is what increases your score. Keeping it below 10% gives you an excellent rating for that card. These card companies make money by skimming pennies off every transaction you make. Sure interest makes money but it makes it at a higher risk, they want low risk consistent income you keeping a low Utilization tells them that according to the risk profile. You can literally open a card never use it and keep it open and your score will go up over time from "on time payments" a higher total credit limit with low Utilization and a longer credit age as that card ages.
Credit score isn't done measure of how good you are with money. As soon as you understand it's a measure of your profitability to lenders, its reason for existence and methods are obvious - it's not "poorly implemented", you just made a category error.
It's a measure of your risk to lenders, not profitability.
Risky to lend to = lower score. That's it.
It's weird how they calculate risk, but that's all it is.
You are wrong in your assumptions. My wife and I both have 800+ credit scores at all 3 credit reporting agencies, we have a paid for home and no car loans, we pay off our credit cards every month, yet when we decided to buy a condo and sell our current house one of the negatives was that we haven't had a mortgage or loan history. We don't pay anyone interest and that is being held against us. The fact that the mortgage we're trying to get will probably be paid off as soon as we sell our house is also a negative. If you're not going to make them money they aren't happy, and don't get me started on the extra fees they try to slip in, I feel like I'm at the car dealership.
Well yes that makes sense based on the comment you're responding to. They don't have data on how well you pay a loan because you don't have that in your history. That makes you more of a risk because they don't have data to say you're not a risk.
The biggest 1-day drop I ever had in my score was when I successfully challenged a derogatory mark from a debt collector regarding a card I'd paid off 14 years before they sent me to collections.
Apparently your credit score plummets when you prove you don't actually owe a debt.
I've had something similar happen but it was because that debt was being sold to someone else. So I had 2 hits for the exact same debt and nothing to erase it. Then the next month both debts were gone and my score shot back up.
I disagree with this, because your score is more impacted over time by reliably paying your bills as agreed upon than by how much money you're making for lenders. Someone who carries a balance month-to-month on a credit card (paying let's say $75 interest) and someone who pays their balance in entirety each month (paying $0 interest) will both have the same positive impact to their credit score. This is a measure of reliability and not profitability.
There are other factors though, like the balance on the card when the bill is issued (higher than usual can knock your score a couple points), how old your accounts are (older is better), and how much credit you have available to you (more available credit is better, even if you never use it)
Just paid off a car. Didn't see this coming..
My credit scores tanked when I said of my truck.
this is not true and it keeps people paying interest they don't have to so i'm pretty sure it was spread on purpose precisely for this purpose by the banks.
paying off and cancelling a card lowers your credit score not because you paid it off but because you're down one line of credit. by far the number of lines of credit has the biggest impact on your score (aside from major shit like bankruptcy or loan defaults.)
paying off your credit card balance before it generates interest every month does not affect your score at all aside from increased age (a good thing). your utilization rate is not calculated from your end of month balance but by how much you use the line of credit regardless whether you pay it off or let it sit and charge you interest.
so do not let debt sit in your credit card balance because you think paying it off makes your score go down if you have the means to pay it off. always pay it off if you can, and never charge more to it than you can immediately pay off except emergencies.
Yeah, this. I have 850 credit, and I've never carried a balance on any of my cards, not even once. As long as you make your payments on time, even if it's more than the minimum, your credit will slowly creep up. The annoying thing that lowers credit is paying off a loan. Wrapped up your student loans? Credit dip. Pay off the ol' car? Credit dip. Really annoying.
I realised it's all fake anyways when my back went out and I was unable to walk for 3 years while I was on the wait list for surgery (I'm ok now).
I went from high credit with a decent paying but physical job to unemployed and no longer able up work in my industry. My partner had a few months of unemployment at the same time and I wasn't able to pay my $11k credit card debt and he couldn't pay his $20k debt. We borrowed money from my younger brother to pay rent for a few months.
Spoke to a free financial councillor, she talked to the banks for us and they happily just waived both debts. She told us to ignore both of our zip and afterpay debts, and not to reply to their debt collectors. And just like that we were debt free after owing 40k between us.
Came out the other side better off financially even though our credit score has tanked. And even though I don't earn an income now or have any debt/credit, my credit score keeps rising?
Shits made up and the numbers don't matter.
I'm curious how any bank would "happily" waive a debt of tens of thousands of dollars, just by being asked. "Happily", yet they still send their debt collectors? I don't think I understand. 😅
The debt collectors were for zip and afterpay.
My partner's credit card debt was forgiven, I think the financial councillor was able to prove that he'd paid more over the lifetime of the debt in interest and repayments than the debt was worth, then proved our inability to make more repayments. She told me mine would have a bigger impact on our credit scores because it was written off by the bank rather than forgiven, but we don't plan on taking out any more debt, that doesn't really matter.
The "happily" was a little facetious, the bank I was with was actually quite rude and difficult to work with lol. I'd had issues with them being unprofessional and straight up lying to me in the past and closed all other accounts. The credit card was still open though because it was taking time to pay off.
Please ELI5 the terms "zip and afterpay" for those of us unfamiliar with them. I think I can guess the meaning from context, but would like to be sure. TIA
"buy now pay later" schemes. They are basically a credit card where you pay in instalments rather than a minimum monthly repayment like a credit card. Technically not lines of credit so they skirt around lending laws and can be given out to more people, but it also means they can't do much to recover the debt if it goes bad. Which is why the financial councillor told us we could just ignore them if we can't afford it anymore.
(I was in my early 20s when I racked up those debts lol)
TYVM for the explanation. I was not aware they weren't considered LoCs & people could just walk away from them. Seems kind of a risky business model in that case, so I wonder why there's been such an explosion of them over recent years. There must be some way they're able to protect themselves from that.
Ah, well - another rainy day research project to throw on the pile if I'm so inclined.
Thanks again for the reply!
There must be some way they're able to protect themselves from that.
Remember in 2008 when it was found out that banks were trading bad debts as 'good' but then It exploded in their face and caused a global recession, but the banks were 'too big to fail' so they were all bailed out by tax payers and only one guy saw any prison time, so they can claim being tough on crime?
Yeah... i dont know why they keep doing it.
Haha well, from what I've heard, you're not technically supposed to walk away from them but they don't have the same legal recourse as banks so they just sell to debt collectors as the default action when you don't pay.
Not OP - They provide installment plans for purchases, kind of like Klarna if you’ve ever heard of them.
Ah, TY - glad I asked, as that's not what I was guessing at all & that makes a LOT more sense.
Again, TYVM!
It's most likely some form of "buy now pay later" "credit but not credit" nonsense
And even though I don’t earn an income now or have any debt/credit, my credit score keeps rising?
Have you pulled your credit reports to see? It will tell you what's happening.
Here in Australia it's basically a myth.
There's two agencies that keep track of what debts you have, and whether you're behind on your payments or whatever.
The "score" is just an effort to reduce that information to a single number, but lenders are interested in the file, not the score.
For example, the file might show that your score is good, but if half a dozen lenders have requested your file in the last 2 weeks that indicates that you're desperate for finance, but 6 other lenders have found a reason not to give you any money.
Lenders are in the business of lending money. If you need to borrow $100k to buy a $500k house, any lender will be happy to give you the money.
Basically, your score doesnt matter just be sensible with your finances.
The fact that the formula for your credit score is unknown and managed by private companies is the real dumbest shit.
This is the part which drives me nuts. All this information about you is collected and distilled without your consent in the most opaque way possible. At least if it was a government managed thing, there would be basic public oversight. I know everyone dunks on China for the social credit score, but the issue with that is really the same - it's dystopian because it is opaque and (allegedly) an autocratic tool, not simply because it (allegedly) exists. In a proper democratic system, it could be a tool for encouraging pluralism as much as a tool for managing consumer debt.
imagine having a credit score
Turns out you might have one whether you imagine having one or not.
nah we don't do those. we just mark if there's any default on earlier loans and then evaluate on individual basis (in-person) if so.
We used to do that too. If you wanted any kind of credit, mortgage, car loan, personal loan, business loan, etc.: you'd go to your local bank branch and apply in person (or maybe get it at a car dealership or other business offering payments) and they would evaluate you on previous business, in theory.
What actually happened is if you walked in with the wrong skin color, went to the wrong church, didn't play golf with the right people, etc. you wouldn't get approved. Now we have an objective risk assessment formula; the development of which has been a great improvement for marginalized groups.
that sounds like a social issue, and social issues very seldom have technological solutions. we just computerised the old system and it just works. also helps that we've historically had very low societal stratification. working on the class question could help you.
I'm sorry, I don't think I'm following. Because it sounds like you're saying you have a computerized database that keeps track of the credit you have and whether or not you pay on time, but, despite that, you don't think you have a credit scoring system. Is it just because whatever system you have doesn't have a number attached (that you know of)? If so, do you think that's functionally different?
Hasn't this been debunked a temporary drop because your total credit changed drastixally and it briefly messes up the math?
I keep my credit cards paid off and last time I checked my credit score was like an 843 or something.
Edit: 846
It's all baloney, like all I'm doing is barely using them to pay my week to week expenses and then paying them off with my paycheck.
It’s just a measure of how safe you are to lend money to.
You have systematically proven you will pay them back. Hence your score is good.
It’s just a measure of how safe you are to lend money to.
Except that it now ends up getting (ab)used for things that have nothing to do with lending money, like vetting job applicants and apartment renters. It's slowly creeping its way toward a Chinese-style 'social credit score', except in some ways even worse -- your social score will only be affected by financial stability.
Just in america. You can’t just random credit check anyone here in norway if it dowsnt have to do with borrowing money.
They’ve been doing that for decades. I had a video store run my credit to be a manager over twenty years ago.
Oh, and my credit was garbage then and it didn’t matter. Apparently they were looking for high debt (higher chance to steal i guess).
They justify it for job applicants as an overall meaaure of responsibility. They justify it for renters as a measure for how likely you are to pay rent on time vs not paying any rent and needing to be evicted.
The credit score is how financial institutions measure how good of a source of money to extract from you are. It penalizes you for actually being responsible with your money, because you’re not as valuable to them if they’re not earning interest from you.
Pissed me off when my score went down after paying off my car in less than 2 years. That’s when I learned the reality or what it actually is.
Nah it’s all about risk. They dont make much money from me but my credit score is excellent. Sure it goes down if you pay a loan off but so what?
"poorly implemented" implies some of the biggest financial companies in the world designed a system carelessly.
It's functioning exactly as intended - to keep people on the debt treadmill as long as possible to maximize profitability.
Zero credit. Always.
I have never really had to involve a credit score with my life, except once when buying a house. I'm pretty sure any lender does their own checks.
I just keep my score at shit levels cos the amount of junk mail I get when it’s good is worse than having bad credit (subjectively)
I own my house outright. I'm completely debt free, and I intend to keep it that way. Absolutely no idea what my credit score is ... and I don't give a fuck to find out. Because I've escaped from the system. The credit score doesn't matter to me at all anymore.
Congrats
It's only because I got run over by an idiot in an SUV and got a decent lawsuit payout from it.
Best thing that ever happened to me, really.
I'm not sure where this myth comes from but it's not true.
I guess a tiny truth... Posting a $0 balance on all accounts can hit it a bit. But it goes away instantly and also you can and should post a balance, then pay it off. You won't pay any interest that way. If you're posting $0 on your cards you're either not using them (why have them?) or unnecessarily paying them off before statement date.
Your credit score is a measure of how long (time) lenders can expect to receive money from you
That doesnt sound correct but maybe its just cooked in america. I believe the way it works here is that making obligation payments improves credit score and failing to pay on time reduces it. You can dispute any failed payments to have them overturned and they go away after 2 years. You do not need to get into debt to build credit, stuff like utility bills and internet bills will build your credit up to almost perfect. It seems fair to me but there are still a lot of people who have chopped credit and it affects being able to rent. My flatmate has dogshit credit and refuses to do anything about it and I have to do so much extra work just to secure places to live.
That doesn't sound correct
That's because it's not. It's a commonly held belief of people who don't understand credit very well.
It doesn't sound correct because it's not. Financial literacy in the U.S. is awful and the ridiculous misconceptions about credit scores that propagate are one symptom of that.
Closing an account and paying off your credit card bill are not the same thing. When you close an account, you're decreasing the amount of credit you have available to you, which is part of the formula. Paying off your credit card bill every month demonstrates reliability and will often help your score creep up over time.
No one means that, ever. "Pay off" means to bring the account to zero. Not close.
Those people are dumb. And probably a greater credit risk.
Words mean things. That's kind of why they exist. Blue and red are different colors.
Yes, just like the word asshole means a person who refuses to engage with people unless they can be difficult and insulting on purpose
I only see one person in this thread like that.
Ok, but if you pay off the account and don't close it, it doesn't negatively impact your credit. So since "paying off" and "closing" are two different things with two very different impacts, maybe it would be useful to use the terms accurately in this discussion
When someone says "I've finally paid off my credit card," I take that to mean they got it to a $0 balance. In your mind, someone saying "I've finally paid off my credit card" means they've closed the account entirely? This confusion contributes to financial illiteracy and to people making bad decisions.
Paying off means the thing that is logical here.
If you could be mature enough to...at least admit it was unclear
C'mon, man.
But reliability is 100% the purpose of credit scores. You can pay down a credit card every month and never pay a cent in interest, and you can have the highest score. Having the credit available to you costs you nothing, why close it?
