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New way to look at credit

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Money Talk > Credit & Loans

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fast
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quote:
Originally posted by criss7
Nothing we can do to change how credit scores are calculated but one trick that seems to work is to not pay everything off right away. Just pay on time.

It costs more for that particular balance but it raises your score to pay off say $500 in 5 months time rather than getting rid of that $500 as soon as it hits your bill.


A better way may be to immediately pay a big chunk of the $500 and then drag out the small remaining balance over the five month term. As far as FICO score modeling goes, a credit utilization of zero is inferior to a credit utilization that is both above zero and less than ten. That's the only somewhat good reason I can think of for not paying it completely off.

Notice how true yet misleading it would be for an experienced lender to say what you said. Paying late is rarely ever a good idea, and although paying on time is part of what goes into making a good score good, carrying the full balance as much as possible by merely paying on time is hardly the reason for the higher score. It's the credit utilization.

Consider the following groups (I made):

A: Credit utilization of 0%
B: Credit utilization of .01% to 9.99%
C: Credit utilization of 10% to 24.99%
D: Credit utilization of 25% to 49.99%
F: Credit utilization of 50% on up.

D is better than F. C is better than D. B is better than C. This is where the interesting part comes in: B is also better than A. In fact, B is better than every other group. That's not to say it's financially wiser to carry a balance. Unless we're talking minimal change (a few dollars), we should always strive to do what makes financial sense for us--not for what makes credit score sense.

Let's suppose you had three credit cards. I'd keep two of them at A and one at B. I might switch up every now and then only to keep the cards active. None of this is to say you will pay interest, for it's possible to have a credit utilization above zero show on your credit report and not pay interest if one pays at the right time.
Post Thu Mar 29, 2012 12:29 pm
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dannylisaj
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Well to further muddy this post. My "credit" is fine. I have paid everything I have gotten credit for off. There are a few times that the payments have been late, but; they have been paid off regardless. Does this not actually matter? I compare this to others that appear to get credit and the majority have not had good credt (i.e. even paying off) so why does this penalize me? Hundreds of thousands paid off and a credit score of below what I need or am being told I need. Credit revamping? I think so.
Post Thu Mar 29, 2012 2:35 pm
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littleroc02us
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quote:
Originally posted by fast
quote:
Originally posted by littleroc02us
Also, what happens if this person with the debt and a good credit score loses his job, most likely they will resort to their cc to get them through the rough spot.
If the spot is truly a rough one, I think I'd rather have the means to do something about it.


That's what an emergency fund is for , for emergencies, but most likely someone who keeps borrowing money and is in debt doesn't have one which is why I stated they would resort to a cc.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Mar 29, 2012 2:59 pm
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fast
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quote:
Originally posted by dannylisaj
Well to further muddy this post. My "credit" is fine. I have paid everything I have gotten credit for off. There are a few times that the payments have been late, but; they have been paid off regardless. Does this not actually matter?
It matters, but it may not matter to the extent you might like it to. How you did pay when you were paying often means more than whether or not what you paid was paid off. What I'm talking about is your payment history--not whatever or whenever anything was paid off.

quote:
I compare this to others that appear to get credit and the majority have not had good credt (i.e. even paying off) so why does this penalize me?
In terms of the FICO scoring model, comparing your credit report to credit reports of others is not a simple task because of the many variable included in the credit scoring model. If we're going to compare, then we must compare apples to apples and oranges to oranges (as they say), but trying to compare your credit report to the credit report of others is like trying to compare just the right shape, size, and weight of your particular fruit to that of another.

There are a significant number of questions you would need to answer before you could intelligently appraise the unexplained difference between the different credit scores of reports that seem similar to (yet still different than) yours.

If you haven't already, you may want to review the credit education section at www.myfico.com.
Post Thu Mar 29, 2012 3:00 pm
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fast
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quote:
Originally posted by littleroc02us
quote:
Originally posted by fast
quote:
Originally posted by littleroc02us
Also, what happens if this person with the debt and a good credit score loses his job, most likely they will resort to their cc to get them through the rough spot.
If the spot is truly a rough one, I think I'd rather have the means to do something about it.


That's what an emergency fund is for , for emergencies, but most likely someone who keeps borrowing money and is in debt doesn't have one which is why I stated they would resort to a cc.
Yes, I agree with you on that, especially since you said, “most likely,” yet as you can personally attest, you are an example of the exception—seeing that you do borrow money. Clearly, you’re not in the same boat as those that abuse credit. You borrow to stay in the game, and it’s being in the game that affords you certain advantages, one example of which is the increased probability of securing a mortgage.

If I lose my job and can’t find one and in the meantime exhaust my savings and emergency fund, then I, with good credit, will be in a better position than someone of a similar situation that has no credit. Plus, I can rent a car. There are advantages for the person who has good credit, and though it doesn’t come without risk, I’d like to think the advantages outweigh the disadvantages.
Post Thu Mar 29, 2012 3:20 pm
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littleroc02us
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[quote="fast"][quote="littleroc02us"][quote="fast"]
quote:
Originally posted by littleroc02us


If I lose my job and can’t find one and in the meantime exhaust my savings and emergency fund, then I, with good credit, will be in a better position than someone of a similar situation that has no credit. Plus, I can rent a car. There are advantages for the person who has good credit, and though it doesn’t come without risk, I’d like to think the advantages outweigh the disadvantages.


I just noticed you said you can rent a car only if you have a credit score. That isn't true, I rent cars, hotels, items off the web with my Visa Bank Card which is protected by the same Visa Zero Liability claim on stated on their website. If you lose you job you won't be able to get a loan or credit card, at least I hope not. Smile

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Mar 29, 2012 4:24 pm
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fast
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quote:
Originally posted by littleroc02us
I just noticed you said you can rent a car only if you have a credit score.
I have spent a considerable amount of time (several years) on a forum with members that would try to eat me alive if I were to misspeak. I still mess up, lol, but in this case, I didn't say what you say I said. It doesn't even imply it. It does suggest it, but that doesn't matter. I have been to a rental car company that would have refused me service had I not produced a credit card. That's not to say I couldn't have gone somewhere else, but it does highlight an advantage of having a credit card.

As to the issue of zero liability, well, I might not want the funds in my account held up while whatever issue is being resolved. We have some very bright people in this world, but they're not all that fast sometimes.

If I lose my source of income, my legal right to use my current credit cards are not taken away. Smile
Post Thu Mar 29, 2012 5:03 pm
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littleroc02us
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quote:
Originally posted by fast
quote:
Originally posted by littleroc02us
I just noticed you said you can rent a car only if you have a credit score.
I have spent a considerable amount of time (several years) on a forum with members that would try to eat me alive if I were to misspeak. I still mess up, lol, but in this case, I didn't say what you say I said. It doesn't even imply it. It does suggest it, but that doesn't matter. I have been to a rental car company that would have refused me service had I not produced a credit card. That's not to say I couldn't have gone somewhere else, but it does highlight an advantage of having a credit card.

As to the issue of zero liability, well, I might not want the funds in my account held up while whatever issue is being resolved. We have some very bright people in this world, but they're not all that fast sometimes.

If I lose my source of income, my legal right to use my current credit cards are not taken away. Smile


No prob, didn't mean to harp. Sorry, all you said was "Plus I can rent a car". Renting a car can be challenging with some rental places with a Bank Card, but I just don't do business with them, plus at most airports around the US there are a ton of choices. As for the credit cards for the zero liability, I don't keep enough cash in my bank card account for thieves to take, most of it sits in a savings account that way it doesn't matter. With a credit card when you get your identity stolen they cancel your card and you have to wait for them to mail you a new one. That happened with our Discover card once that we rarely use.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Apr 03, 2012 9:20 pm
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fast
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quote:
Originally posted by littleroc02us
Renting a car can be challenging with some rental places with a Bank Card, but I just don't do business with them, plus at most airports around the US there are a ton of choices.
I would not unnecessarily limit my available choices.

quote:
As for the credit cards for the zero liability, I don't keep enough cash in my bank card account for thieves to take, most of it sits in a savings account that way it doesn't matter.
That's a great idea.
Post Tue Apr 03, 2012 11:23 pm
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MikeH
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Our system lumps everyone into the same category. Meaning that everyone has the same opportunities. Well that would be nice and in a perfect world that is true, but in reality it couldn’t be further from the truth. Each individual has unique cirrcumstances that drive his or her lifestyle. We all have different occurances in our lives that directly impact our ability to pay our debts in a timely manner. Sometimes out intentions or our ability to do so changes due to reasons beyond our control. The credit reporting agencies do nothing to asure that the information they collect is accurate. These agencies anen’t monitored in any way.
Post Tue Oct 30, 2012 7:18 pm
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Tom Gorski
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I completely agree - people go through different situations, so it's impossible to judge them based on their credit score. I believe the future of finances online is based on social search and customization - there are already a number of successful companies who integrate these elements into their search algorithm. In the future, the importance of credit checking will be reduced thanks to these changes.

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Post Fri Sep 06, 2013 1:38 pm
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