For quite sometime, my credit score had been tottering at around 785, vacillating between a high of 803 to a low of 777. Here’s the thing. I had do debt. No student loans, no auto loans, no credit card debt. I have no explanation for the wild swings.
But then the inevitable happened. Decided to call a place my own and took on some debt to buy a home. The debt help came in the form of a mortgage. Guess what? Soon after signing up for a mortgage, the credit score shot up to an all time high of 814!
So, me with the burden of debt is more creditworthy, than my former debt-free self!
That’s like saying BofA with a ton of debt, is more creditworthy than Apple which has virtually no debt and sits on a pile of cash!
I don’t care how many PhDs Fair Isaac has, if something eludes common sense, it is just plain wrong.
And if you think income plays a major role with credit scores, you are mistaken! It probably has little or no effect. How do I know? My other half decided to stay off the workplace for a while to take care of Jr. She constantly gets the uber-exclusive pre-approved Amex black card offers!
Some conventional wisdom on how credit scores are calculated and how it applies to me
The age of your credit card factors into your credit score. I don’t use my oldest credit card. Been a while since I last used it. The only reason I keep this card is because, I need that to get my free credit scores that my credit union sends periodically! If I did close this one, I suppose this could ding my score.
The provider of my most used card, stopped reporting the credit limit on my card to credit rating agencies. This is supposedly bad since it affects the total credit available needed to compute the credit score.
The reason they stopped reporting is because they removed the spending limit on my card. But I don’t think a credit agency would know that! I did chat with my card provider regarding this. They said they could report my previous limit if I insisted. I didn’t bother.
I don’t have too many cards. Once again, the combined credit limit plays a part in computing the credit score.
I don’t ‘time’ my payments! It is believed that if you have a low or no pending balance at the time a credit is pulled, it will reflect positively on your credit score! I don’t do that. In fact I keep the statement balance for the entire month, since my bank computes interest at the end of the month. All payments are made beginning of the next month.
I think a fairer system would be ratings based on grades rather than absolute numbers. And that’s what a lender looks at anyway. It doesn’t matter if I have 800 or 810 when applying for a loan. Lenders go by thresholds. Why not apply the same to credit scores?
And maybe have a special grade to indicate a bankruptcy.
Having debt shouldn’t be a pre-requisite for a better score and that’s my rant for today.
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