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Hi, I posted this below in another board and was asked to post here.

There are a lot of "Myths" out there regarding credit scores. I'm in the mortgage biz and see credit scores everyday and here are a couple points of interest:

1. #1 factor that affects your score are late payments. Pay your bills on time and you can really throw out all the other factors such as utilization ratio, age of credit card history, and inquiries.

1a. Medical bills seem to go into collections very much faster than say 5 years ago. Don't ignore a medical bill even if you believe your insurance carrier is responsible for it. I've seen numerous times where a $40 medical bill drops someone's credit by 40 points.

2. I've seen people with no derogatory credit but credit score is not optimal. Digging in I've noticed that people with deferred student loans, start getting dinged when the current loan balance exceeds the original loan amount.

3. There are no quick fixes to improving credit scores. Many borrowers in my line of work, will think if they immediately do items I recommend, that credit score will rise within weeks. It takes months and sometimes years (depending on the nature of the credit issue) to get someones score back up to an optimal level.

4. Late pays and collections stay on your credit report for 7 years. Foreclosure, bankruptcies, and judgement stay on for 10 years.

5. If you have a Chase account, their Credit Journey is really good free source. Credit Karma is also a website I'd refer clients to but seems like Chase's Credit Journey has really evolved.

5a. Please note however; that the credit scores you see on these free sources are not the actual credit scores you may see when you go obtain mortgage financing or other financing. There are actual hundreds of different credit modeling formulas the three credit bureaus offer to financing arms. In the mortgage world, they use an older modeling formula. For example, whereas the Credit karma and Chase Journey will show Equifax's VantageScore, in mortgage world they do not use Vantage Score from Equifax but an older formula. One big difference is these new models such as Vantage Score use less of a weighting on collections. You therefore may see the free credit score showing higher than what a lender will tell you.

5b. In mortgage world, we use the middle score from the three credit bureaus. In other financing: credit cards, auto loans, unsecured loans, etc; companies typically contract one credit bureau. This could affect your rate if the company they use is reporting a lower score than the other two credit bureaus.
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Good advice. I have always been careful with making my payments, paying loans off quickly, etc. We had our credit pulled Saturday for a small car loan and our score was 849. Got a great rate (2.4%) with that!
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a small car loan

A loan for a small car or a small loan for a car?

Fuskie
Who notes you have his score beat but not by much...

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A small loan for a pick up (less than 25% of the price and it is a 2020 model, used with 1600 miles), need to hold on to my stocks for a year before selling for tax purposes.
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Credit scores are weird. They say mine is only in the 700s because I have no mortgage and no debts. So why on earth, if I have no mortgage and no debts am I in the 700s??????
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First, 700's is not bad. And not carrying an active debt balance does not count against you. But the reason is probably that the mortgage would have demonstrated the ability to make consistent and payments. Similarly, paying down an auto loan or having a credit card that gets used but paid off each month demonstrates responsible use of credit. That's what you want to have in your history.

Fuskie
Who notes you can have never taken on debt, had a mortgage or car loan, don't have credit cards and be worth a million dollars and have low credit scores because you haven't demonstrated a history (the longer the better) of responsible credit and debt management...

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Who notes you can have never taken on debt, had a mortgage or car loan, don't have credit cards and be worth a million dollars and have low credit scores because you haven't demonstrated a history (the longer the better) of responsible credit and debt management...

Years and years ago my parents only had a mortgage and paid things with money orders. No Checks. Just a paycheck and savings account - OH and the Christmas Club Account which I learned was really neat.

No such things as credit cards had been invented? Maybe they were, but not pushed to my parents.
They probably had a low credit score, if it had been invented in that day.

I wonder when this credit score was first invented? Probably locally and the when internet happened, more broadly?

nag
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I wonder when this credit score was first invented? Probably locally and the when internet happened, more broadly?

nag


First FICO score was in 1989.
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Of course, credit history tracking predated the credit score.

Fuskie
Who notes just paying off a mortgage on schedule helps build a good credit history...

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I wonder when this credit score was first invented? Probably locally and the when internet happened, more broadly?

Commercial credit scoring started in the 1800s, and the companies that would become Dun & Bradstreet started collecting information in 1841. Since many companies were sole proprietorships, they were basically collecting information on individuals, even though the 'aim' was to collect commercial credit information.

In 1956, Fair, Isaac and Company was founded and started providing credit scoring on individuals to lenders. In 1970, the Fair Credit Reporting Act (FCRA) was passed, limiting the information that could be collected and requiring the credit reporting agencies to expunge information on race, sexuality, and disability, which had all previously been used in the scoring models.

In 1989, to standardize credit reporting, Fair, Isaac started offering FICO scores. (Fair, Isaac renamed themselves to FICO a few years ago.) Vantage scores were added by the credit bureaus in the 2000's, but have only recently started to become more common. Here's a history of credit scoring from FICO: https://www.myfico.com/credit-education/blog/history-of-the-... It doesn't really mention Vantage scores, other than pointing out that there are other scoring models.

AJ
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Credit scores are weird.

They are but they are also personal. Be sure you are happy with your credit history and would be if you were single. If you don't have much credit in your own name, it may be time to get some.
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Thanks Fuskie. I understand what you said.
But the advice I got from Experian was to get at least three more credit cards! Using one and paying it off doesn't work.....they are itching for me to go into debt to get a better credit score!
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they are itching for me to go into debt to get a better credit score!

This is not true. You seem to be intent on misconstruing it.
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If you are receiving advice that you can improve your credit score by carrying debt, then you are receiving bad advice. The opposite will happen. People who carry non-promotional debt are demonstrating that they purchase more than they can afford, rather than being able to control their card usage to what they can afford on a regular basis.

Now it is true that if you can successfully manage 2-3 credit card accounts, that demonstrates more credit discipline than a single credit card account. That may be where you are getting confused - the motivation for the advice.

Fuskie
Who notes the whole point is to earn credit (pardon the pun) for the responsible use of credit; there is no credit for taking on debt...

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But the advice I got from Experian was to get at least three more credit cards! Using one and paying it off doesn't work.....they are itching for me to go into debt to get a better credit score!

Sorry, you are misinterpreting the advice. The advice is NOT to go into debt. The advice is to get more credit and use it responsibly by using the additional accounts the same way you are using your current account - use them regularly and pay them off.

AJ
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they are itching for me to go into debt to get a better credit score!

For the additional cards, setting up autopay for a reoccurring bill then paying it off each month keeps the card active without incurring additional expenses or debt.
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For the additional cards, setting up autopay for a reoccurring bill then paying it off each month keeps the card active without incurring additional expenses or debt.

Which is exactly what I am doing with two of my cards, in order to keep them active. They both have significant credit limits and regularly offer 0% balance transfers, so I want to keep them in case I need to borrow to fund my next car purchase*. One has my audible subscription (£7.99/month); the other pays my monthly iCloud subscription (£2.49/month).

- Pip




* Not certain if I ever mentioned how I purchased my current car in 2013. My day-to-day credit card gives cashback, so I purchased the car in full on that then balanced transferred it to a 0% card for 2 years. It was considerably cheaper than getting a car loan. Once the fee was taken into account, it cost 1.5% per annum. Plus I'd got my cashback to enjoy.
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...the advice I got from Experian was to get at least three more credit cards...

Funny, I have 4 active credit cards. My FICO has been at about 832 for years. FICO says one reason it's not higher is that I have "Too many accounts with balances ... Generally, people who limit the number of accounts they have with balances appear less risky to lenders."

Well, nothing I can do about it. My four cards are for:
1. Primary. I use this for almost everything.
2. Back-up, if for some reason there's a problem with the primary card. I also use this for recurring charges (newspapers, magazines, and charities mostly).
3. Things I buy for Dad. I pay this card from his account. (I handle all of Dad's finances.)
4. Things my sister buys for Dad. I pay this card from his account. It's easiest to just give her my card to use, than for her to use a card of her own and submit expense reports.

Of course, I pay off all cards in full each month.

I also get dinged for
"Lack of recent installment loan information
FICO® Scores consider recent non-mortgage installment loan (such as auto or student loans) information on a person’s credit report. Your score was impacted because your credit report shows no recent non-mortgage installment loans or insufficient recent information about your loans.
KEEP IN MIND: In general, people who purchase with an installment loan and pay back the loan on time tend to demonstrate the ability to manage a variety of credit types. However, a new account opening, and to a lesser extent the credit inquiry associated with applying for a new account, may demonstrate higher risk in the short term."


Nothing I'm inclined to do about that, either.

I don't think, going forward, I'll have any problem getting a mortgage and/or car loan if I want one. Credit scores are also used by prospective landlords and prospective employers, but I've had no problems finding great rental houses. With a nice 1099-R in hand, landlords haven't even checked our credit.

So I'm not going to worry about it. Credit scoring factors aren't perfect, but they're good enough, in my case anyway.
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