With the economy in turmoil I decided to capitalize on plummeting interest rates. My wife and I refinanced a few days ago and thus we will have our house paid off at age 52 (at the latest, possibly earlier). Our lender was a traditional brick and mortar bank with very conservative lending requirements. As a result of their strict approval process, they did not get hammered during the 2008 financial meltdown across the U.S. This was our first home loan to be approved on only one income and we still sailed through the loan process. For the first time in our lives we were able to see our FICO credit score and although it was high, I was flabberghasted at the credentials for a high credit score. Our loan officer told us our score would have been higher if we had done the following:
- had more credit cards (we have none)
- had more balances on those credit cards (no cards = no balances)
- had any other consumer loans over the past recent years (we have none)
- had borrowed money more regularly
I completely understand how a FICO credit score works. The lender needs to see some kind of track record showing how good you are paying back your loans. Who wants to take a risk on an unknown quantity, right? I guess what really sunk in for me was how completely obsessed society is with debt. This credit score would have been higher had we swam with the sharks more often. This in itself is almost a paradox. Put more risk to your credit score by financing more purchases and it will go up assuming you pay them in full all the time. However, if you put more spending on credit your actual risk of paying it back is higher. So, by risking your credit score more it could go up…or down! Sounds like gambling to me and that’s why I continue to strive to reach a FICO score of zero.