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Credit Scores Are A Joke

January 1st, 2009 · 6 Comments

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.

Tags: Banking · Credit Cards · Money · mortgages

6 responses so far ↓

  • 1 Jeremy Bettis // Jan 1, 2009 at 11:18 am

    I don’t think FICO scores were meant to be a measure of risk, but a measure of how much money the bank will make off of you. The only way to have the highest FICO score is to pay lots of interest and always pay it on time.

    If you don’t carry balances the banks don’t like you. It’s not because you are not safe, it is because you are not profitable to them.

  • 2 mhutter // Jan 1, 2009 at 1:43 pm

    I do agree with you, Jeremy, that if you don’t carry balances banks don’t like you. It was funny…when I canceled my credit cards in the past year my bank gave me no resistance at all…because they hadn’t made a dime off me!

  • 3 ishah // Feb 25, 2010 at 7:17 pm

    Credit in this country is a joke.
    When we came to the US 8 years ago, we had plenty of money.
    When applying for an appartment they needed to see our creditscore. There wasn’t any, because we never built it.
    The fact that we had a good income did not matter much.
    But we were suggested to open up one or two credit card accounts. We were always turned down. Reason: No credit history. But you need to use credit in order to built up credit history, se we were in a loop. We did get the appartment when I presented a money order for one year’s rent and a fat paystub, they then understood that we could pay the rent. After that we were able to have credit cards. Once you’re in, you are in!
    Few years ago we bought a home, no problem with the mortgage. But we never pay late fees, no interest, nothing financed, cars are ours, so our credit score was low.
    Creditrating means nothing to me. I won’t borrow any money from any one and the banks won’t make a single dime on me. Banks don’t like me but that’s ok, they will never be your friends anyway. So I may live a very unamerican way with my money, but I strongly recommend to be debt free to anyone.

  • 4 HD // Jan 7, 2013 at 12:42 pm

    I just got to see my credit scores from a credit monitoring service then applied for a loan and was given my credit score. Both companies pulled my TransUnion score but the score differed by 82 points from one to the other. They explained it with garble about algorithms. I understand that TransUnion uses different algorithms than Experian, than Equafax so the scores differ some. But both of these companies claimed to have gotten the score from the same bureau and it was drastically different!

    The explination from each company was that they use different algorithms. Sounds like, to me, your credit score can be anything depending on the algorithm…

    How is it an accurate representation of how well you pay your bills?

  • 5 fred // Mar 29, 2014 at 11:43 am

    i too experienced the same thing then i realized with equifax if you keep a higher utilization your score will go up but with transunion if you keep a low utilization your score will go up the trick to a higher credit score is to keep your utilization on a credit card about but no less than 65 percent when your scores are different the banks take an average of the 2 scores and that is what they go by

  • 6 fred // Mar 29, 2014 at 11:48 am

    i also figured this out because i to had a credit score of 680 on equifax and a 701 on trans union when the retailer showed me my credit score it said 691 on it i too have both credit monitoring services trans union and equifax it is a silly system because one would think if equifax says 661 that is what your score should say when you apply for a loan from a retailer

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