Credit Score impacts

[jkelley9]

Can someone offer some explanation(s) for me?

One of the highest factors of a persons credit score is credit utilization. What I can't understand is why someone (yes, me in this instance) gets dinged for using what credit they have even if they (we) pay it all off in full every month.

My wife and I are young and therefor don't have decades of credit history. We have a few cards between the two of us (5 cards) and the credit bureaus take the number of accounts you have open, total time of credit on the card, and divide by the total (what a whackball way to do that...). Because of this, they don't give us higher limits, even though we have a higher average income than most for our age. We could ask for higher limits (which we have in the past, but they only give us like $1k at a time and our credit gets hard for the "limit increase request").

If I were a credit bureau I would be more worried about debt-to-income. But I don't think they look at that? We have a low debt-to-income (great! right?) and pay down our cards every month (perfect!), plus we take ADVANTAGE of using credit cards to get cash back and points (even awesomer!). It's free freaking money. YET, we get dinged for this... because of what I've stated above.

I feel like we're playing the game perfectly... yet the credit bureaus keep dinging us. 

Sure I could pay down the credit cards before the statements hit to avoid the utilization from showing up... but that's not my point. My point is why are the bureaus looking at it this way?

Granted we're not getting dinged a lot. But I feel like we have "excellent" credit control and habits but we're rated as "good." My wife and I will be buying a new car soon and I want to take advantage of the best interest rates possible so likely I'll be paying down our credit cards to some minuscule amount to hit the statement for like $50 or something which should effectively drop our "utilization" and increase our scores (but by how much and how long will it take? no idea) Which is ridiculous though, because we pay off the amount anyways... why can't they figure out that I'm paying it down every month...?

Sigh.

[Lihu]

The only thing I can think of is if they increase your limit. As your limit gets of some fraction of your income level, I've been told that that decreases your score.

Paying off monthly is a good thing.

[TN94z]

So are you saying you are getting dinged because you pay them off monthly? 

[David in FL]

5 minutes ago, Lihu said:

The only thing I can think of is if they increase your limit. As your limit gets of some fraction of your income level, I've been told that that decreases your score.

Pretty much this.

Although the actual algorithms used to calculate credit scores are closely held by the top reporting agencies, the amount of revolving debt you have available to your income is a significant factor.  Whether it's actually used, or not.

I'd also offer that even though our society is very credit oriented, (too much so in my opinion) 5 credit cards for 2 people is still a lot...

 

[TN94z]

7 minutes ago, David in FL said:

Pretty much this.

Although the actual algorithms used to calculate credit scores are closely held by the top reporting agencies, the amount of revolving debt you have available to your income is a significant factor.  Whether it's actually used, or not.

I'd also offer that even though our society is very credit oriented, (too much so in my opinion) 5 credit cards for 2 people is still a lot...

 

I have had banks tell me that having cards that weren't at a certain percentage of limit used, helped your score by having that "available" credit sitting our there...

If it weren't for vehicles, I really wouldn't care about credit.

[onkey]

Five cards between two people doesn't make much sense to me either.  If you never accumulate debt month to month, why would you have several credit cards?  If you can avoid financing, why does your credit score matter?

If you want to improve your credit, demonstrate that you are reliable at paying off an actual loan. The best way to build your credit score is by paying off things like mortgages, car loans, personal loans, etc.  If you want to build your credit score, take out a personal loan of $1K and pay it off dutifully every month.  Make sure every payment is on time.  Your score will go up.

[David in FL]

3 minutes ago, TN94z said:

I have had banks tell me that having cards that weren't at a certain percentage of limit used, helped your score by having that "available" credit sitting our there...

It's worth remembering that issuing credit cards is a big part of what most banks do....  

[TN94z]

1 minute ago, David in FL said:

It's worth remembering that issuing credit cards is a big part of what most banks do....  

I didn't mean that I believed them..haha. I was just saying that is a line I have been given before...I do not like credit cards. I got in trouble with one when I was a young one and learned my lesson early.

Edited April 21, 2017 by TN94z

[kpaulhus]

Credit scores are pointless. You can get a mortgage without one if you have the right financial position. A credit score is just a tool for the banks to determine how good you are at incurring debt. They want you to feel like you need more debt and higher limits and more cards so that your score gets higher, then they can lend you more debt. I get it, some things are necessary, but once I paid off all my debt my score started to plummet. Ive got history. Ive got cash. Im not worried about getting a loan at some point if needed.

[TN94z]

13 minutes ago, kpaulhus said:

Credit scores are pointless. You can get a mortgage without one if you have the right financial position. A credit score is just a tool for the banks to determine how good you are at incurring debt. They want you to feel like you need more debt and higher limits and more cards so that your score gets higher, then they can lend you more debt. I get it, some things are necessary, but once I paid off all my debt my score started to plummet. Ive got history. Ive got cash. Im not worried about getting a loan at some point if needed.

Credit is only good if you use credit to obtain more debt.. I agree 100% with what you said.

[GolfLug]

You have to have large current loans (eg. house loan and vehicles) and you have to be regular.

Regularity on small debt like monthly expenses won't get you much, since it won't tell them how you will do on large loans. History helps a little (if good) but current is what matters.

Edited April 21, 2017 by GolfLug

[ghalfaire]

2 hours ago, onkey said:

Five cards between two people doesn't make much sense to me either.  If you never accumulate debt month to month, why would you have several credit cards?  If you can avoid financing, why does your credit score matter?

If you want to improve your credit, demonstrate that you are reliable at paying off an actual loan. The best way to build your credit score is by paying off things like mortgages, car loans, personal loans, etc.  If you want to build your credit score, take out a personal loan of $1K and pay it off dutifully every month.  Make sure every payment is on time.  Your score will go up.

The OP didn't answer but I assumed the OP intended to convey that they have maybe 3 different company's cards.  There is a good reason to carry more than one card and that is not every merchant will accept your preferred card.  For example American Express is not accepted everywhere nor is Discover.  Probably Visa is the most accepted card but even it is not accepted everywhere.

[dennyjones]

Credit scores affect the insurance rates in Michigan.   The higher the rating, the lower the insurance cost.   A person with a low credit score will pay considerably more for car insurance than a person with a high rating.   We have no-fault ...

[No Mulligans]

As an aside, it's a good idea to put a freeze on all three of the credit agencies and release the freeze only when needed.  For example, when buying a car ask the salesmen which credit agency the dealership uses, tell them to hold on a minute, login to that credit agency and release the freeze for just the amount of time needed for the dealership to do the credit check.

I have a freeze on all the credit agencies.

7% of all adults or about 15 million in the U.S. suffer from identity theft per year.

About 50 billion a year is lost to identity theft in the U.S.

Edited April 21, 2017 by No Mulligans

[jamo]

Maybe this is my own ignorance, but I'm curious why you keep asking for credit increases from your credit card companies when you've got five cards and you're just paying them off monthly. 

[Hacker James]

48 minutes ago, jamo said:

Maybe this is my own ignorance, but I'm curious why you keep asking for credit increases from your credit card companies when you've got five cards and you're just paying them off monthly. 

without reading the entire thread, according to an explanation offered by a couple of the agencies, having available (unused) credit helps improve your score. They like to see a 30/70 ratio of credit balance to available credit. If one is in the camp that believes that, then arguably asking for an increase will widen that margin. OTOH, it is my understanding that every time a report is pulled or hard inquiry made, it is detrimental. Best thing is to pay down debt, make your payments on time and as early as possible during the billing cycle on those accounts that utilize an average daily balance to compute your interest charges.

[No Mulligans]

10 hours ago, jkelley9 said:

If I were a credit bureau I would be more worried about debt-to-income. But I don't think they look at that? We have a low debt-to-income (great! right?) and pay down our cards every month (perfect!), plus we take ADVANTAGE of using credit cards to get cash back and points (even awesomer!). It's free freaking money. YET, we get dinged for this... because of what I've stated above.

I feel like we're playing the game perfectly... yet the credit bureaus keep dinging us. 

 

Each additional credit card you get will probably hurt your score as the amount of debt available to you increases.  An important customer of the credit agency are the credit card issuing companies.  Those companies use the credit agencies to manage and optimize risk vs. profit.  If I was one of those companies, I'd want heavy duty bonus hunting to result in lower credit scores.  Maybe you are not a very profitable customer to the issuing companies.

Edited April 22, 2017 by No Mulligans