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Interesting Observation Regarding My Credit Score

 4:55 am on Nov 28, 2009 (gmt 0)

A couple of years ago I decided to shed debt. Paid off my house. No car payments. Other than two credit cards, the balance of which I pay off each month, I have no debt showing on any of the three reporting agencies.

I assumed once debt was paid off I would peg the excellent rating. To my surprise, not only did my credit score not rise, it actually fell from the excellent range to the good range. Not that I care since I no longer borrow money, but who can explain the seemingly counter-intuitive drop in my credit score at all three agencies?

BTW I checked to see what would happen to my scores if I showed zero balance on my credit cards. Up marginally at two agencies and stay the same at the third. Almost makes me feel like they think I'm untrustworthy unless I have a significant amount of long-term debt.



 6:04 am on Nov 28, 2009 (gmt 0)

They have nothing to base your score on?

When I first went into business the accountant advised to me to run up a little debt and don;t pay it off too quickly just to get the score up so I if wanted to borrow money down the road they'd have history.

A few years back my brother was telling me about a guy that he worked with that had great job, house paid for, new car and truck in the driveway also paid for, no debt,no unpaid bills, big bank account, 50 years old and they didn't want to give him a cell phone because he had no credit history.


 7:37 am on Nov 28, 2009 (gmt 0)

Higher credit scores are for those more likely to provide years of juicy interest payments.

People who are up to their eyeballs are maxed out & more likely to go bankrupt. Bad for the CC company. Lower score.

People who pay off their balance every month are just costing overhead & aren't letting the CC company milk them for interest. Lower score.

People in the middle range = best.


 11:08 am on Nov 28, 2009 (gmt 0)

When I worked for a major UK bank many years ago we started introducing credit scoring. When it came to personal finance we were required to be like "Caesar's Wife". Result - the bank only employed people who its own systems didn't think credit worthy.


 6:22 pm on Nov 28, 2009 (gmt 0)

They can't give you a higher credit score because you are not an active credit user. The scoring agencies don't have records of your assets, they merely can see how much credit you have used, and how you pay it off. If you are using $3000 in credit cards each month and paying them off, then they can see that you are good for $3000. If you are using many credit cards, have several house payments, a few car loans and a couple of other charge accounts and pay them ontime, then they can see that you are good for a lot more credit.

In my past I did a lot of sales on credit and quickly found that the guys near to being overloaded were always easy to get approved. Counter intuitive but real.


 6:27 pm on Nov 28, 2009 (gmt 0)

They can look back over the several years of my credit history they have on file. Makes me wonder how much guess work is in a credit score.


 9:46 pm on Nov 28, 2009 (gmt 0)

They can't give you a higher credit score because you are not an active credit user.

Reported credit activity + meeting terms = higher score.

Little or no credit activity = minimal information on which to base score = bad news.

I am not aware of a downgrade for paying off balances regularly.

Being maxed out on available credit is a flag.

People who pay off their balance every month are just costing overhead & aren't letting the CC company milk them for interest. Lower score.

Though true that CC issuers call customers that pay off balances deadbeats, I am not aware that this affects score. Documentation source?

With no mortgage and vehicles paid for in cash, I keep a high credit score by using CCs for almost everything that I buy and pay off monthly. I keep a couple of thousand in cash stashed for emergencies and carry maybe $100 'just in case'. Sometimes I have to spend it before it turns to dust. LOL Three major CCs only. No 'store' cards. One for business only. Two for personal use.

The last personal report was run by my bank when I made a change with merchant account. My rep shared the details of the report. 809 out of a max 850, so my system seems to work. I have no debt, but I churn available credit. She said that she rarely sees scores over 800 and having that is like a golden key.


 10:25 pm on Nov 28, 2009 (gmt 0)

FYI - The credit card industry has a name for customers that pay off their bill every month. They call them deadbeats!


 11:10 pm on Nov 28, 2009 (gmt 0)

I guess I'm a deadbeat then. I pay off my balance every month. If they didn't charge criminal interest rates maybe I'd carry a balance sometimes. Why should they care anyway, they charge the merchants a fee for accepting CCs.

It's more like a convenience card than credit card for me. I can pay for stuff online in different countries easily using the card. I can't do that with my chequing account.


 11:27 pm on Nov 28, 2009 (gmt 0)

This is an OPINION post... in other words, pure conjecture! :)

The CC companies are hardly losing money on people that pay off the balance in full every month.

The just are not collecting interest, over limit, etc fees from those users. Even if they don't charge an annual fee they still can't claim to not be making money off these customers.


Because every time we use our cards the merchant gets charged a fee.

If we didn't use the cards, there wouldn't be any merchant fees, then (maybe) they could say our accounts were not profitable.

Now if the customer has a no annual fee rewards card and pays it off in full every month, and if the customer cashes in the rewards points, well good for the customer, maybe.

But wait.... there are those related services that the customer may be using. Lets see, does the customer have a savings account, checking account, money market account, CDs, etc, etc, with the same lender? Hmmm, think the lender might be making money off those services/accounts?

Back to the OP.... I'd guess a positive history is pretty short lived in the credit score world. Especially if significant credit use ends suddenly. But that's just a guess.


 2:46 am on Nov 29, 2009 (gmt 0)

This credit rating system is IMHO a big part of what put the world at large in an economic recession: it fails to take into account what one makes in a month, only what one paid back on credit in a recent history.
No matter how it does this, it will always allow one to get more credit than they can pay back. At least till it starts to learn to take into account what you make, not what you paid back.

Out here banks routinely refuse loans requiring a total of monthly loan payments of more than 1/3 of what you make in a month. Gives you a much higher chance of paying it back than to base it of of something as silly as a credit card running up credit (which none of my cards are set to do as a matter of principle).

Even credit cards that are unlimited (e.g. AmEx) profile us out here in Europe not based on such a credit rating, but do it on what we earn and have of other credit (you need to fill it out on your application).


 10:17 am on Nov 29, 2009 (gmt 0)

Correct, SWA66.

Other countries use a far better (IMHO and experience) system than the US. Australia has the most interesting system of verifying home buyers.

A lot goes into a credit report, more than what you as a civilian will see when you order a credit report. If you're someone who's very wealthy, say you can afford one of our homes, we don't look much at the credit report since you often pay your debts off every month. We and the international bank we're connected with look at your assets and what you've purchased in the past and compare them to your level of income. Of course most of your buyers pay a hefty portion of the price from their sold house or whatever they did. We follow this method because we do both national and international business. I don't remember when I last checked my personal credit score, but it was pretty good. I use my AmEx often, but I do place charges on my regular credit cards which are the special invite types. I just pay the minimum + 25% just to make them happy.

Going back to Oz, I only recall this from a conversation I had with a relative, and they look at your pay or tax stubs for 6 years or more to base if you can get the loan and pay it off. Don't take it as fact, but that's what I remember hearing.


 4:55 am on Dec 2, 2009 (gmt 0)

Haven't borrowed money in 20+ years and never for my business. Pay cash for cars. Home mortgage paid off quickly 15 years ago (with money I took out of the stock market before the tech bubble crash). CCs almost always paid off. (I just have two)

Despite what most of you have been told you can lead a wonderful life with NO debt. I understand that about half of the million-dollar homes are bought with cash.

Oh, I did look up my credit score a few years ago. Good, but no where near the top.

Like I care!


 5:24 am on Dec 2, 2009 (gmt 0)

Agree, and I have no debt either, but a lot of people are in the same situation, but in businesses that require credit (at least lines or letters of credit) and many businesses are getting crushed right now as banks cut back lines to make their new reserve levels.

Many businesses are debt free but struggling because they can't get the lines of credit required for the projects that they are bidding on. Sound companies, sound as they always were, but the banking situation is killing good companies that have to have those letters of credit to get the projects and lines are being slashed because the banks are having to get so much available credit off the books.

I had one of my personal CCs cut by $10,000. This is a huge bank. I have had this card for almost 15 years. No explanation whatsoever. I get my statement and see that my line is cut. Needless to say, I was not happy with the cut or the duplicitous handling. Part of the scam is that people that don't run up to their limits won't notice that it just plunged. I did get $2,000 restored and a complete BS answer as to why they slashed my line.

The truth is that I don't very often put big charges on that card and run it anywhere near the limit and I was prime candidate for cutting available credit to help the bank deal with their reserve issues.

I explained the true reason that my line was being cut and the rep didn't have much to say. I knew what I was talking about, she knew it, I recognized the BS explanation, she knew it - but it was what it was. None of it was a big surprise, but i asked for some honesty and integrity and didn't get very much. I'm surprised they threw me the $2,000 bone. That little bit didn't mean much to either of us; though I had suggested how much dust that card could collect if it weren't in my wallet. (They still like transaction fees.)


 5:37 am on Dec 2, 2009 (gmt 0)

Supposedly, according to Forbes, Warren Buffett has divulged his FICO credit score: a rather ordinary 718.

(Caveat: that info appears often on the web but has a ring of urban legend to it. I can't find an original source. Nothing from Forbes itself)

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