Credit scores make no sense...

[V. Barbarino]

So I get a free FICO from trans union thru my Credit Card on their site. So at once, I paid off a credit card, it's has a zero balance for 11 months out of the year on avg just use it on purchases where I want the extra protection (IE car rental) and I paid off 1 of 2 remaining student loans, about 4 grand for this loan.

So I'm checking my Fico and I lost 20 points by paying off these things!!!!!!!!!!! WTF! How the fuck could paying off loans and keeping your CC balance at zero loose you points???? I haven't been late on any payment to anything in years, so it has zero to do with that.

I'm going to pull all 3 reports soon, and find out WTF is going on.

[endymion]

One of the factors that contributes to your score is how many accounts you have open. There is such a thing as too few and there is such a thing as too many. They look at how many credit/checking/savings/utility accounts you have open in total and how long each of them has been open. The more accounts in good standing that have been open for a long time the better.

Paying off debt doesn't help your credit as much as making regular payments to long-standing accounts, so that may be what happened there. They don't really want to see people pay off debt, they want to see people who make regular payments over the long term.

Also be warned that pulling the other reports can also lower your score across the board. There's a Heisenburg effect on credit scores so be careful how you go about pulling them.

[V. Barbarino]

I'll pull them thru the individual unions so it won't affect my score, but I've made payments on this loan for 7 or 8 years and now I just paid it off in one lump sum. I didn't close out my CC either, I just leave it at zero. I can't see how having less debt could hurt! In fact my CC company is hell bent on me spending money, twice a week they send me checks to use, I shred them and they keep raising my limit every few months. I don't want or need another CC, I don't use my current one, If I can't afford it now, I can't afford it later +20%..

I've been following this guys advice:
http://www.daveramsey.com/

Saw him on 60 minutes years ago and he made a lot of sense to me. So I want to be debt free, so I've been making lump sum payments to my student loans, now I'm only down to one, in which If I wanted to, I could pay off today, but I may buy a house in august so I want the extra cash around but how this is bad for my credit is beyond me!!

[endymion]

Originally Posted by V.

I can't see how having less debt could hurt!

Less debt does hurt. Less overall credit in your name, is how they see it. Paying off a loan in a lump sum is a great way to hurt your credit rating because they are evaluating your potential as a monthly revenue source. That's what a credit rating is, and if you're a notorious premature loan payer then you're less attractive to money lenders because that eats into their profits. Credit scores exist to help them find the people who will generate the most profits. If you go into the bank looking for a loan and you brag about how you managed to pay off your last loan early, they won't see that as a good thing.

It does very little to help your credit rating to pay off a debt, it does far more for your credit rating to keep making regular monthly payments as long as your debt load is not too high. The gain that you got from paying off the debt was less than the negative impact from now having fewer accounts with monthly payments that are in good standing over a long period.

I have always lived my life debt-free (except for mortgages) and it has hurt my credit score. My score is very high now but to get it there I had to take out loans for things when I didn't need to borrow the money. I'll take out a loan or a credit card to buy something and deposit enough cash to cover it into a money market account, and then make the payments on the loan from the money market account. That way you're not really in debt, you're just playing games with shuffling the money around in order to boost your credit rating. You'll make less interest on the money market account than you pay on the loan so you're literally paying money just to increase your credit rating. If you do that then you have to time it so that those are short loans that naturally end before you go shopping for a mortgage so that your overall debt relative to your income is not too high at the moment when they pull your credit at the mortgage company. But it does work. It will boost your rating.

[V. Barbarino]

I'm not too worried about it, I can get a mortgage with no problem, my score is just under 700. However because I stopped going out and saved money and paid off my student loans, my life in general is 10000000000% better! Just not my credit score which to me is ironic...

[coach]

Remember that if you are not carrying debt, then you are not making any money for the shylocks. So, paying off your debts early makes you a worse risk than someone who carries them to term.

[endymion]

Originally Posted by V.

Just not my credit score which to me is ironic...

Yeah I feel your pain, I think that's completely asinine. It only ever made sense to me when I realized that a credit score is really just an indicator that banks use to predict what kind of profit margin you're likely to bring them, it's not a measure of your trustworthiness like they want you to think.

[V. Barbarino]

Originally Posted by techjunkie

[quote author=V. Barbarino link=board=6;threadid=38619;start=0#msg432014 date=1175707313]
Just not my credit score which to me is ironic...

Yeah I feel your pain, I think that's completely asinine. It only ever made sense to me when I realized that a credit score is really just an indicator that banks use to predict what kind of profit margin you're likely to bring them, it's not a measure of your trustworthiness like they want you to think.
[/quote]

I agree, there is no way they can predict my future behavior based upon my behavior when I was in college... It's a dumb system... I'm going to keep doing what I am doing, living debt free, and not spending my hard earned money on interest... My old boss instead of calling it interest use to call it "buying money" for example, your CC interest rate is not 20%, you are "buying money at 20%", kind of makes you think.

[V. Barbarino]

I just pulled my free reports, and while this doesn't hurt me, look at what these ass clowns were up to, look how many times they pulled my credit. I've finally had enough of the credit and insurance offers, I opted out today, so in the next few months, no more of this shit.

CAPITAL ONE BANK
Address:
PO BOX 30281
SALT LAKE CITY UT 84130
No phone number available
01/25/2007, 01/21/2007, 12/18/2006, 12/16/2006, 12/05/2006, 11/21/2006, 11/06/2006, 10/11/2006, 08/21/2006, 08/10/2006, 07/13/2006, 06/19/2006, 06/15/2006, 06/08/2006, 05/21/2006, 05/11/2006, 04/18/2006, 03/09/2006, 02/13/2006, 02/07/2006, 01/25/2006, 01/17/2006, 01/16/2006, 12/14/2005, 12/07/2005, 11/17/2005, 11/10/2005, 10/20/2005, 10/11/2005, 09/22/2005, 09/14/2005, 08/22/2005, 08/11/2005, 07/11/2005, 06/12/2005, 05/08/2005, 04/11/2005, 03/08/2005

[endymion]

Wow what the hell. That probably did hurt your rating. They need your permission to do that right? You must have accidentally given it to them somehow because you were an existing customer of theirs?

The don't-ever-buy-on-credit strategy was my strategy until I factored in how much money I could save over the long term from getting better mortgage rates by having a higher credit score. You save thousands over the long term if you can boost your score a little at the right time.