Credit

[Ironic Mustache]

It is amazing to me how many people don't know how this system works. The amazing part isn't so much the apathy of the American people (which I'm sure is a factor), as it is the secretiveness of the conspiracy.

Exhibit A: You're allowed one free credit report per year.
Yes one free credit report that does not involve a credit score, which is arguably the most important tool in a modern consumer's arsenal.

Exhibit B: The formula...
NO ONE KNOWS HOW YOUR CREDIT SCORE IS FORMULATED. Myself and Mr. Tooth both have extensive experience in this arena and I guarantee neither of us can offer you an exact answer. Kremlin and FC aren't going to help you either. Anyone who finds a formula gets reps for life. Go ahead and try.

Exhibit C: Credit Limits
It's possible that in the 30 pages of small print that 99% of us skip over, they do warn us of the adverse effects of nearing the credit limit, but I doubt it. Can any of you honestly say you've read it all and understand it completely? The fact is, if you hover around your credit limit excessively, you're perceived as a risk. In the creditors' eyes, obviously you can't manage your funds appropriately, otherwise you'd hover around an "appropriate" amount of debt. In my experience, notwithstanding additional factors, your credit score will stay within +/- 5 points (give or take), if your debt remains around 50% of your total credit limit. Your credit score will slowly increase if you keep it less than around 33%. I don't know why 1/3 is the figure, but I've heard it from several sources.

Payments
No real secret here, just pay your fucking bills on time. Most companies offer a grace period, but as soon as you get hit with a penalty, depending on the company, there's a chance your credit took a hit. The only difference is with you're mortgage. In the secret credit formula, this variable has an exponent attached. You can be assessed penalties on this payment and not take a hit, as long as you don't go past 30 days late. Here is what a perfect credit report looks like (whether it's credit cards, mortgage, or whatever):

111111111111111111111111

That means 24 perfect payments. If you miss one payment by 30 days, and then recover the next month and get on track, it might look like this:

111111121111111111111111

Not really a big deal, but your credit will take a small hit. If on the other hand, you miss a payment and keep paying on time but never pay the back payment, it looks like this:

111111122222222222222222

That not only drops your credit rating every single month there's a 2, but also makes your eligibility for a mortgage loan drop exponentially. The difference in interest rate between the second example and third example can be extreme as a 6% and a 7.5%. That can be multiple hundreds of dollars per month.

Exhibit D: Credit Inquiries
Don't get your credit pulled if you can avoid it. Getting it done a few times to shop mortgage brokers isn't bad, because creditors view it as shopping a deal, which is intelligent. Getting it pulled several times to see if you qualify for a Macy's card, is seen as stupid. It's someone looking to acquire more non-asset debt. Mortgage credit pulls register differently than consumer credit cards. Even still, don't let brokers pull your credit a ton of times either. Acquiring asset debt can be done stupidly too.

Exhibit D: Advice
First I should offer my credentials. I'm the youngest person I've ever seen to have a +800 credit score in all three bureaus and I've seen on a modest estimate, more than 1,500 different peoples' credit. I started with a high score of around 580 in 2003. That kind of growth isn't typical, but I had some factors that helped facilitate the growth. That being said, the same things can work for you:

Have about 3 (and no more than 3) open and active credit cards. It doesn't matter if they're gas cards or Walmart cards, or whatever. Just use them every month. Then, pay the balance off every month. This will probably mean not using cash much anymore, at all. That's fine, I almost never do anymore and am 2/3 of the way towards my 3rd free cruise from it. Find credit cards with reward points and low interest rates, they're awesome. Keep $30-$50 in your wallet for random non-cash nonsense.

Definitely keep your limit below 33%. This is the biggest differences I've noticed.
Ideally you're paying your cards off, but I recognize that it's hard out here for a pimp. Just make sure your charges don't go over 33% of your limit.

Buy a house. This might ding your credit initially, but ultimately could be its salvation. Once it's on your credit though, don't fuck it up. It can make or break you.

I hope this has been helpful. I will take additional questions if needed.

[f3lix]

Isn't the credit score increase supposed to get you to a good rate for when you buy a house, since house is the biggest debt most people should take on in their lifetime?

[Ironic Mustache]

Buying a house does eventually increase your score, but initially a massive debt at 80%+ of the value of collateral is a negative. Two years of solid payments usually offsets this. Also because after two years of payment that 80% starts slowly decreasing.

Another ugly fact: The first two years of payments almost all go toward interest. Your principal doesn't really start noticeably going down until after ten.

[f3lix]

What is the true point of increasing your credit score?

[THEINCREDIBLEdork]

So you can get more credit and be more in debt.

[DDTempest]

Originally Posted by f3lix

What is the true point of increasing your credit score?

Simplicity in dealing with money.

Examples:
Decent credit:
no deposit on phone contracts
no deposit on utilities
higher credit card limits

Good credit:
lower interest rates
easier loan application process

Some jobs are now checking your credit score as part of the application process.

[angry pancake]

IM, FICO scores were explained in a deposition a few years ago. It has more to do with the credit limits you have with how much of that limit is used. So in a backward way, the more credit you have with less debt creates your score. DTI and history play into it, but it really ties into it more than anything.

And yes, some individuals are treated differently as was always expected. Celebrities and politicians and their ilk are reported on differently.

I wouldn't be surprised if the FICO score system hasn't been tweaked since then.

Edit: the deposition was from the lawsuit Fair Isaac filed against the credit reporting bureaus about five or six years ago. Look the lawsuit up and you'll probably find the transcript. Also the above was AP's "summarizer" version.

Edit Edit: I believe the FCRA was amended in 2009 or so to provide a free copy of the score if a score was used alone or in conjunction with a report in the denial of credit. A copy of the report has long been available for free when it was used to deny.

[angry pancake]

Originally Posted by Mr. Mistoffelees

So you can get more credit and be more in debt.

AP does not live in the credit world and hasn't for some time. Have never once known what my score was. I'm not sure why some people obsess about their scores as if it were the size of their cock. --not a reference to IM, but many IRL people I come across. While we do some consumer BK at the firm. About 75% are extremely concerned about their credit. I just don't get it. That score is already trashed. Some to the point that that bankruptcy helped raise it.

I'll probably return to the credit world when I buy another Kawasaki for 10% off with no payments and interests for 18 months when I open an account. Until then there's no reason for me to pay Chase 10+% when they pay me < 1%. Not having a credit card hasn't bit me in the ass in years. It's only come up once in years at a rental car company in Las Vegas. And that wasn't a problem.

[f3lix]

I like the points, which my grinder ass turns into cash instead of trips. The downside is how much up-charge businesses have put on their products to account for the cost of credit card transactions.

[Fruitacious B]

Originally Posted by DDTempest

Some jobs are now checking your credit score as part of the application process.

Truth. I was turned down for a job that I all but had because of my credit score. I was pretty pissed, considering that the job would've been the first step in fixing said credit score.

And what the hell does my credit score have to do with whether or not I can be a decent enough phone-jockey to bother people enough to upgrade their dish network packages? Nothing.

[angry pancake]

Originally Posted by Fruitacious B

Truth. I was turned down for a job that I all but had because of my credit score. I was pretty pissed, considering that the job would've been the first step in fixing said credit score.

And what the hell does my credit score have to do with whether or not I can be a decent enough phone-jockey to bother people enough to upgrade their dish network packages? Nothing.

Who knew that people in Manilla have better credit scores?

[DJ FC]

If you buy a house with no mortgage does that help your credit score?

[DJ FC]

I just randomly checked my credit report and there is a medical bill listed as "derrogatory" from 2 years ago!

I remember the insurance company having an issue with the payment but I kind of forgot about it and I guess the damn $120 bill never got paid.

[f3lix]

Originally Posted by DJ FC

If you buy a house with no mortgage does that help your credit score?

No, that's what is stupid about the whole credit thing. You have to pay interest to a bank in order to raise your credit. When I bought my car, I found out my credit wasn't as high as I thought it would be, all because I hadn't made payments on a large purchase before, due to paying everything in cash. So all because I've never had debt, my credit score was in the low 700s.

Clearly to me, credit is just another way the banks have figured out how to force you into getting loans and paying the banks interest.

[Ironic Mustache]

Originally Posted by angry pancake

It has more to do with the credit limits you have with how much of that limit is used. So in a backward way, the more credit you have with less debt creates your score.

That's what I meant by this:

Definitely keep your limit below 33%. This is the biggest differences I've noticed.

I said it kind of confusing, but what I meant was keep your balance below 33% of your limit. If your limit is $10k, try not going over $3k.

DTI and history play into it, but it really ties into it more than anything.

Are you sure income has anything to do with FICO? After they ask you what your income is initially, they never check again. DTI counts huge for mortgage loans (which I acknowledge is a type of credit), but I don't think it actually affects your score.

Originally Posted by f3lix

No, that's what is stupid about the whole credit thing. You have to pay interest to a bank in order to raise your credit. When I bought my car, I found out my credit wasn't as high as I thought it would be, all because I hadn't made payments on a large purchase before, due to paying everything in cash. So all because I've never had debt, my credit score was in the low 700s.

Clearly to me, credit is just another way the banks have figured out how to force you into getting loans and paying the banks interest.

It's true that buying a house without a mortgage doesn't raise your credit score, but why would it? Credit reports are basically a way for lenders to see what your track record for paying bills on time is. Having a lot of money doesn't mean you pay on time. You can raise your score without paying interest by doing what I said above. Use your credit card for most purchases, and pay the balance in full every month. If you get a card with reward points, you get also get free shit (like cruises).

For things like cars and houses, of course you have to pay interest. If you don't want to pay interest, save up and buy with cash. But then that has nothing to do with credit, and therefore won't and shouldn't raise your credit score.

[angry pancake]

Originally Posted by Ironic Mustache

That's what I meant by this:



I said it kind of confusing, but what I meant was keep your balance below 33% of your limit. If your limit is $10k, try not going over $3k.



Are you sure income has anything to do with FICO? After they ask you what your income is initially, they never check again. DTI counts huge for mortgage loans (which I acknowledge is a type of credit), but I don't think it actually affects your score.



It's true that buying a house without a mortgage doesn't raise your credit score, but why would it? Credit reports are basically a way for lenders to see what your track record for paying bills on time is. Having a lot of money doesn't mean you pay on time. You can raise your score without paying interest by doing what I said above. Use your credit card for most purchases, and pay the balance in full every month. If you get a card with reward points, you get also get free shit (like cruises).

For things like cars and houses, of course you have to pay interest. If you don't want to pay interest, save up and buy with cash. But then that has nothing to do with credit, and therefore won't and shouldn't raise your credit score.

Yeah, DTI is a part and they appear to guesstimate based on habits. It means jackshit to me. I'm pretty sure at some point credit becomes meaningless for a lot of people. I suspect DJFC will get his loan every time because he can walk away and pay cash.

[Mr. Blonde]

Pretty sure my credit score sucks balls, based on recent experiences with my CC companies.

I had some credit card debt in college that I was unwise about, it wasn't very much and I ended paying it off a couple years ago but I think that screwed me a bit.

I pay my student loans regularly.

Since then, I have two credit cards with a low limit that I try to use about once a month and pay it off on time, but ran into some skirmishes in March or April because even though they were both balanced, my credit card company charges an annual fee (does anybody elses companies do this? I understand if I got points or benefits but I don't think I do...) that I was unaware of. I didn't check my balance for a month so I got hit with a late fee too. I know, I know I should have checked, but 20/20 in hindsight, and as far as I knew I was being a good consumer.

I inquired for a credit limit just for kicks and was shot down over the phone, and they said they're sending an "explanation" in the mail (which I won't be able to read for a couple months). I believe under the Fair Credit Reporting Act that should be a credit report, but I'm not sure.


I haven't gotten a credit report for years, though. I am kinda bewildered it doesn't have your actual score on it. What's the point of a credit report then?

[DDTempest]

Originally Posted by Mr. Blonde

I haven't gotten a credit report for years, though. I am kinda bewildered it doesn't have your actual score on it. What's the point of a credit report then?

To verify there isn't a bunch of shit going down under your name that isn't actually you. IE identity theft.

TRUE FACTS: I had about seven credit cards opened and then paid off in full on my credit report, to this day I have no idea what they were or how they got there ... but I was told they boosted my score so I didn't dispute them.

[Mr. Blonde]

That seems very strange to me. What is the purpose of fraudulently opening a credit card in someone elses name if you're going to pay it off?

[DDTempest]

Originally Posted by Mr. Blonde

That seems very strange to me. What is the purpose of fraudulently opening a credit card in someone elses name if you're going to pay it off?

I had suspicions that one of my parents did it in a clutch but neither fessed up to it so I have no idea really.

[Ugly Bastard]

Blonde (and everyone), you should cancel the card with the annual fee unless you're using it a lot and getting benefits from it.

[thekremlin]

Originally Posted by DDTempest

To verify there isn't a bunch of shit going down under your name that isn't actually you. IE identity theft.

TRUE FACTS: I had about seven credit cards opened and then paid off in full on my credit report, to this day I have no idea what they were or how they got there ... but I was told they boosted my score so I didn't dispute them.

They could be stupid cards that you just don't remember. I had a bunch of these, like a "Banana Republic AmEx" that I must have signed up for once to save money on some clothes, paid off, and never used again.

[angry pancake]

Originally Posted by thekremlin

a "Banana Republic AmEx" that I must have signed up for once to save money on some clothes, paid off, and never used again.

These are the only time a credit card seems to make good sense. Need an incentive to use those bitches.

[DJ FC]

Ive done very well with my British Airways Amex. I get a shiteload of miles that I can use to book flights. Basically I can fly business class transatlantic for about half the price of an economy flight, plus a handful of very cheap european flights and upgrades per year. All for spending money on my credit card and paying the balance off every month.

[Beebs]

Originally Posted by DJ FC

If you buy a house with no mortgage does that help your credit score?

Not as much as you would think, since you aren't showing what they want to see: consistent timely payments over an extended time.