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New way to look at credit

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dannylisaj
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New way to look at credit  Reply with quote  

I am curious to know if anyone knows of any considerations for revamping the credit system. The reason I ask is per my credit score I am a bad risk. When I speak to those individuals that actually look at my credit I am told they see where I have paid off thousands more than the "bad" side shows. Any thoughts?
Post Mon Mar 26, 2012 4:50 pm
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oldguy
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quote:
considerations for revamping the credit system


IMO the current credit scoring system is doing a very good job of sorting the poor credit risks from the good credit risks, and making that information available to potential lenders.

The breakdown appears to be later in the chain - ie, what the lenders do with the credit info. Eg, if mortgage writers decide to give mortgages to almost anyone no matter what their credit scores are (500?), then you get a 2006 bubble. Conversely, if lenders are spooked and are afraid to loan money to anyone who doesn't have a >800 score, then you get a credit crunch.
Post Mon Mar 26, 2012 5:11 pm
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dannylisaj
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I understand where you are coming from, however; I have seen the system as it apppears now and see it as broken. I have been for years trying to impove my credit score. I have questions as to why if you are not getting loans as to why every inquiry counts against the score. I can understand if you are acquiring debt where you should pay for that debt. My score seems to be based on the amounts of inquiry. Where is that at any time fair?
Post Mon Mar 26, 2012 7:17 pm
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oldguy
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The point of the credit score is to warn lenders of bad risks, and inform them about good risks. If you are going from lender to lender in a short time period, hoping to hit the jackpot, that is not the behavior of a good borrower. So the scoring system considers that to be a negtive. But it has a safety feature - eg, if you go to 5 or 10 dealerships while shopping for a new car, that is considered 'normal' behavior.

You say that you have tried to improve your score for yrs - what actions have you taken? Personally I don't pay any attention to my score, IMO it takes care of itself if you simply pay bills on time, you don't really have to do anything.
Post Mon Mar 26, 2012 9:26 pm
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fast
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Re: New way to look at credit  Reply with quote  

quote:
Originally posted by dannylisaj
I am curious to know if anyone knows of any considerations for revamping the credit system. The reason I ask is per my credit score I am a bad risk. When I speak to those individuals that actually look at my credit I am told they see where I have paid off thousands more than the "bad" side shows. Any thoughts?


I'd like for the positive effects of good history to weigh more heavily than it does. Under the current system, a person that has proven himself worthy of credit (more than once and over a period of time) must prove his worth repeatedly unless he either continuously lives in debt or plays with revolving accounts.

I'm not so sure that I'd be inclined to agree that a person who has proven himself worthy of credit in the past is therefore as risky as a person with a credit file that reflects no credit history in the past ten years.

A lack of recent credit history being the justification for the high rates is one thing when we're talking about a person with little to no positive credit history, but when we're talking about a person that has repeatedly proven himself worthy of credit but simply hasn't done so recently is another thing entirely, and under the current system, the two are treated the same.
Post Mon Mar 26, 2012 11:00 pm
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eastmn
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Monitor your reports for correctness and dispute anything which is incorrect (by certified US mail). Credit bureau must verify within 30 days, or remove the item from your report (hint).

...
Post Tue Mar 27, 2012 1:02 pm
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littleroc02us
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I believe the credit score works for those who borrow lots of money and pay it back on time for a long period of time, but who it doesn't work for is those who chose not to have a credit card or borrow money for anything except a home. The biggest problem is that you could be a millionaire, have no debt, no credit cards and they give you a credit score of zero and won't lend you money to get a mortgage. There should be some type of score for those who chose not to use cc's or borrow money for other items except a home. That is where the system is deeply flawed. So basically with the current FICO scoring system, I could pay all of my utilities, my rent on time make great money have no debt and I cannot get a loan unless I go to a bank that does manual underwriting. That's where the system is a joke IMO.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Mar 27, 2012 2:30 pm
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dannylisaj
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quote:
Originally posted by littleroc02us
I believe the credit score works for those who borrow lots of money and pay it back on time for a long period of time, but who it doesn't work for is those who chose not to have a credit card or borrow money for anything except a home. The biggest problem is that you could be a millionaire, have no debt, no credit cards and they give you a credit score of zero and won't lend you money to get a mortgage. There should be some type of score for those who chose not to use cc's or borrow money for other items except a home. That is where the system is deeply flawed. So basically with the current FICO scoring system, I could pay all of my utilities, my rent on time make great money have no debt and I cannot get a loan unless I go to a bank that does manual underwriting. That's where the system is a joke IMO.


Exactly That is what I am talking about.
Post Tue Mar 27, 2012 3:45 pm
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quote:
Originally posted by littleroc02us
I believe the credit score works for those who borrow lots of money and pay it back on time for a long period of time, but who it doesn't work for is those who chose not to have a credit card or borrow money for anything except a home. The biggest problem is that you could be a millionaire, have no debt, no credit cards and they give you a credit score of zero and won't lend you money to get a mortgage. There should be some type of score for those who chose not to use cc's or borrow money for other items except a home. That is where the system is deeply flawed. So basically with the current FICO scoring system, I could pay all of my utilities, my rent on time make great money have no debt and I cannot get a loan unless I go to a bank that does manual underwriting. That's where the system is a joke IMO.


Yes, there needs to be a way for people to demonstrate their credit worthiness without having to suffer the financial ill-effects that accompany repeated use of credit. As it stands, the primary way to justify granting credit to consumers with low interest rates is for consumers to repeatedly borrow and repay money. Although credit usage is a major component that goes into assessing credit risk, an assessment of credit risk need not exclude non credit usage factors, in my opinion. After all, a person who demonstrates that he can repeatedly pay his rent and utilities on time without bouncing checks is a positive indication that he can manage his money better than those that often fail to do so. Such a person would seem (to me) a better candidate for loaning money to.

On a side (but related) note, let me ask you something. Both you and I know the difference between no credit and bad credit. Clearly, both good credit and no credit is better than bad credit. The question is, which is better, good credit or no credit? I seriously doubt that Dave Ramsey and I would agree on this issue, but I still believe (under the current system, that is) that good credit is better than no credit. My question is what do you think? Which is better? I have great credit, and by that, I mean I have high FICO scores. I think thatís a good thing, and I think Iím better off with good credit than no credit.
Post Wed Mar 28, 2012 1:35 am
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dannylisaj
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On a side (but related) note, let me ask you something. Both you and I know the difference between no credit and bad credit. Clearly, both good credit and no credit is better than bad credit. The question is, which is better, good credit or no credit? I seriously doubt that Dave Ramsey and I would agree on this issue, but I still believe (under the current system, that is) that good credit is better than no credit. My question is what do you think? Which is better? I have great credit, and by that, I mean I have high FICO scores. I think thatís a good thing, and I think Iím better off with good credit than no credit.[/quote]

I would have to agree that good credit is definitely better than no credit
Post Wed Mar 28, 2012 3:20 am
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quote:
Originally posted by dannylisaj
I would have to agree that good credit is definitely better than no credit
Yes, I would imagine you do, as I would suspect most people do (or at least from those that can distinguish between no credit and bad credit). Just for clarity's sake, I was asking littleroc02us. I'm glad you chimed in though. The reason I was asking him is because I suspect a strong similarity between his view and Dave Ramsey's view of credit and would like to know a wee bit more regarding the extent to which they differ (if they do) on this issue. I have a strong understanding of Dave Ramsey's view, but I've only gleaned minimal indications to littleroc02us's views from a few posts I've read.

I, like you, see the value in good credit, and he can see the dilemma in having no credit in the current (and what you call) credit system, but given the choice between A) building and maintaining good credit in the current system and B) choosing to not participate in the credit system by not borrowing money (except for a mortgage by those currently willing to write them), which (and feel free to answer yourself, of course), choice is the better choice for responsible adults?

Clearly (or at least I'd like to think it's clear), if one is not going to be responsible with credit, then such a person is probably better off staying away from it as much as a person should stay away from a chain saw if he isn't going to be responsible with it, but isn't it better to play with the snakes of the credit world, borrow little, and pay before interest accrues and build and maintain a good to great credit score in today's world--better that than forgoing the benefits that some are all too quick to downplay?

I'm certainly not in favor of going in debt, yet at the same time, I'm careful not to be an extremist and be so averse to credit as to regard it as a cancer--although, I must admit that I have characterized it as a cancer on our society, but that is because of how we crutch on it and abuse it ... and to the extent it has entrenched its way into both our personal and political lives.

I'm starting to ramble. Sad
Post Wed Mar 28, 2012 4:40 am
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littleroc02us
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quote:
Originally posted by dannylisaj
On a side (but related) note, let me ask you something. Both you and I know the difference between no credit and bad credit. Clearly, both good credit and no credit is better than bad credit. The question is, which is better, good credit or no credit? I seriously doubt that Dave Ramsey and I would agree on this issue, but I still believe (under the current system, that is) that good credit is better than no credit. My question is what do you think? Which is better? I have great credit, and by that, I mean I have high FICO scores. I think thatís a good thing, and I think Iím better off with good credit than no credit.


I would have to agree that good credit is definitely better than no credit[/quote]

It depends on the exact situation. I personally believe someone who has absolutely no debt, no cc's, no mortgage and makes good money is much better then someone who has good credit. Here is the number one reason why. Low Risk! If someone who has good credit but has debt is at a much higher risk then someone that is debt free and good saving habits. Let me ask you this question if the person who has no credit and all he's been doing for the past couple of years is investing and saving every cent he has if he were to lose his job there wouldn't be much of a problem. Someone who has good credit is someone who has potential for high risk, because first of all someone could steal their credit card number and run up a ton of debt and then you have to deal with the problem of resolving the identity theft. Also, lets say you forgot or worse your payment didn't show up on time, the cc company may charge you a late fee that you have to fight. 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. Although there are some who pay their card of each month but the risk is still there.
The last reason I think someone with no credit has a completely different mindset then someone with good credit, because often times they are very conservative and don't carry debt in their lives which in turn is low risk. 100% of foreclosures occur with someone who has a mortgage.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Mar 28, 2012 7:27 pm
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littleroc02us
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[quote="fast"]
quote:
Originally posted by dannylisaj
Just for clarity's sake, I was asking littleroc02us. I'm glad you chimed in though. The reason I was asking him is because I suspect a strong similarity between his view and Dave Ramsey's view of credit and would like to know a wee bit more regarding the extent to which they differ (if they do) on this issue. I have a strong understanding of Dave Ramsey's view, but I've only gleaned minimal indications to littleroc02us's views from a few posts I've read.

I Sad


Just so you understand where I'm coming from, my wife and I use one credit card and have a mortgage only for the purpose of playing the FICO score game. We have no debt besides the mortgage and all we use the cc for is gas which we pay off each month only so that they see this activity. My wife and I make just short of 100k, we invest around 20% of our income, we pay cash for cars, furniture and other. So basically the only reason I carry the stupid cc is because you have to, to get a stupid FICO score otherwise I'd drop it in a heartbeat.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Mar 28, 2012 7:35 pm
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criss7
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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.
Post Wed Mar 28, 2012 11:38 pm
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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.
Post Thu Mar 29, 2012 12:57 am
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