Credit Scores are Bullshit

A couple years ago as I was getting a credit report from Experian (I was about to buy a new car and wondered where I stood credit-wise), I signed up for one of their monthly tracking features. I justified this waste of money because I'd had a credit card number stolen and wanted to watch my credit records for a while. Over the past year, I've watched my credit score start low and go lower, and I've come to the realization that it's complete bullshit.

My credit history is pretty ordinary: I got one of those credit cards that come with a free t-shirt and frisbee in college, mostly because I was amazed anyone would give me credit. The introductory $500 limit quickly went to $2k when I put some ski trips on the card, and I always carried credit at about 35-50% of the card's limit. After college I continued to use the card and watched my limit go to $5k and then $10k (as I carried more and more on it), and a few years after college the card's limit was at $20k. At the same time, finishing my Bachelor's degree and getting a Masters racked up about $25,000 in student loans (in 2011, 4 years of college only costing $25k is quaint!). I also owned a couple used cars with small car loans I paid off in time.

After I moved to Oregon in 2003, I finally got serious about my ~$30k in debt. My previous years of carrying thousands in credit and paying things off in time (but rarely getting ahead) ballooned my credit score into the low 800s. This was great when it was time to get my first home loan, and my second a couple years later. Once I settled into a long-term home, I started paying off my credit cards and school loans aggressively. By 2006, I had no balance on my credit cards and my wife and I finally paid off our school loans. I started closing my unused credit card accounts and shifted towards buying things with my bank's ATM/VISA card instead, so that I never carried a balance and the money came directly out of my checking account. I also followed the Get Rich Slowly mantra and focused heavily on building my retirement savings and over the years of maxing out my retirement with the help of an investment planner, I have a pretty good nest egg going.

You can imagine what all this fiscal responsibility did to my credit score the past few years. It dropped below 800 soon after I paid off all my cards and started closing accounts. For a few years I had no open credit cards and no open balances. I paid off two car loans and was paying ahead on my house loan, and each year I'd watch my credit score fall in the 700s. A couple months ago my credit score was barely above 700, and the main negative flag on my account was having no open credit card accounts, so before I took a recent trip I decided to finally sign up for one of those personal airline cards my frequent flier program has been pitching me and use the card on my vacation.

Today I learned that my credit score dropped into the high 600s and my risk just went from low to medium. The culprit? The credit card account I opened had "too low of a limit" (it started at $5k) and I had "too high of a balance" on it as I used it on vacation (I paid off the card as soon as I returned, two weeks before the first bill even showed up).

Financially, I'm in the best shape of my life right now. My house will be paid off in about 5 years at the rate I am going, I have a great retirement portfolio that I contribute aggressively towards and it continues to grow, and my business is doing well even as we've expanded with a new employee and several contractors. 

I had the highest credit score at a time in my life when I was leveraged to the hilt and I lived paycheck to paycheck. Now that I have my own business, a healthy retirement, and can pay for everything I need/want, I have a low score and I'm dubbed a higher risk even though my ability to pay is very high. I used to think a credit score was all about your ability to pay, but it's clear now it's more about how profitable you will be to banks.

61 Comments

  • Error #1 – closing credit card accounts. I still have that old college credit card for no other reason but keeping it around keeps my credit score up. No annual fee, only use it once or twice a year when the place I’m at doesn’t accept American Express (and even that will come to an end shortly as I’ll get a Visa airline card).
    Credit scores aren’t necessarily about profitability of customers. I’m in no way profitable to CC companies (I pay my bill off each month, never pay interest or an annual fee, and still earn hundreds of dollars in annual rewards) but have an 800+ credit score. Its all about playing their game.

  • Andrew Sullivan touched on this very topic a couple of weeks ago.
    http://andrewsullivan.thedailybeast.com/2011/08/cred.html

  • hansonconelley@hotmail.com

    Anthony, yes, you are profitable in that banks get paid a percentage of every transaction. So even though you pay off your balance, you are still generating money for them every time you swipe your card.

  • Dave Ramsey calls credit scores an “I love credit score.” Ramsey is no nonsense — he thinks all credit is stupid. A strong stance, but his logic is sound and there are people swear by him.
    The eye opener to me is a little bit of his schtick from his show – some caller will ask him what his credit score is, and he says – zero. And he’s right! He has no credit cards, has no homes which are not paid off, he has no student loans, he owes nobody any money. He also is a millionaire. So his score really is zero. This goofy illustration really showed me that FICO really is not about personal wealth, reliability or trustworthiness, it’s a measure of how much you’ve bought into indebtedness.

  • Dave Ramsey (http://www.daveramsey.com/) calls it an “I Love Debt Score.” We only have one credit card between my wife and me (and it’s in her name), and the only thing we owe on is our home mortgage. I’m convinced the only reason our credit score has remained so high is that we keep that one credit card and we have refinanced our home a couple of times in the last 5 years to get a lower rate.

  • You’re looking at a credit score the wrong way round. You’re imagining it says how good you are with money and trust-worthy.
    It’s not.
    It’s how much of a good idea it is for a company to lend you money. Ideally they want to be able to charge you a high rate, for you to only pay a little above the minimum but to never miss a payment. i.e. low-risk, high-profit.
    [)amien

  • I’m more or less in the same boat, or at least will be as my wife and I continue to pay our mortgage on time every month.
    But, as you imply, a credit score a matter of perspective: the credit industry’s.
    A credit score is a measure of creditworthiness; creditworthiness, in turn, is the credit industry’s definition of who will make the industry the most money for the least risk. So the highest credit ratings go to people who:
    1) use multiple but not many credit cards — they can be counted upon to spend money but not go bankrupt;
    and
    2) carry a modest balance — that is, they pay interest with little risk of not being able to pay that interest.
    Credit scores are bullshit for cutomers…they tell you nothing about yourself. And that’s because credit scores were created for lenders. They’re not bullshit for them: it’s how they systematically identify the most profitable customers.

  • What is their “game?”

  • I think “The Onion” does a pretty good job explaining credit card companies http://www.theonion.com/video/fbi-uncovers-largest-credit-card-scam-in-history-a,21178/

  • Basically, the game is length of time accounts have been opened and the percentage of credit used. The longer you have had a line of credit, the more it contributes to your score.
    The second aspect is what Matt ran into on his vacation. If you ever, even briefly, go above 50% of your overall credit limit for a single account or your overall credit availability from all accounts, you take a credit hit even if it is immediately paid off.
    Does this make credit scores bullshit, yeah kind of. I don’t believe they offer any kind of good indicator of ability/likelihood for repayment, but that being said they are not a profit grab, just outdated and inaccurate.

  • This is all well and good; however, I’m more interested in seeing the benefits of a high credit score, rather than spending my time discussing what it does or doesn’t mean. If you tell me credit scores are bullshit because they don’t reflect The Real You, that’s one thing; however, if you tell me they’re bullshit because they don’t get you a lower interest rate or insurance premium (because you’re perceived as a lower risk), that’s something else entirely.
    In other words, please think twice before trashing your credit score. You can keep it reasonably high without carrying debt, and it can come in handy if you ever want a mortgage or a new insurance policy.

  • I tried to make it clear I think credit scores are bullshit because Experian told me to get a credit card account to increase my score, so I followed their advice and my credit score went lower.
    I understand the benefits of a high score and realize the system isn’t going away anytime soon, I’m just frustrated that my score was highest when I could barely pay the bills and now that I have a nest egg and emergency fund and rarely use credit, I get dinged for being good with financial planning.

  • Actually, credit scores don’t take profitability into account at all. I actually work with credit bureau data and develop credit scores for a major mortgage company. FICO score is a predictive model based on your credit history. Remember they don’t have access to ANY income information. We are blind to it when creating these models. I believe the FICO score tries to predict the probabilty you will go 90+ days delinquent on any credit obligation in the next 24 months. So Matt may be better able to pay now but that has to do with a variable(income, closely tied with age) that we either don’t have access to or can’t legally take into account. When you look at the people who are closing accounts they are riskier than people with several accounts who have no problem paying them off. It’s obviously not perfect but they are one piece of the puzzle.

  • Matt – how long has it been since you opened the account? Sometimes after getting new credit your score will go down but after 6 – 12 months it should start trending up again.

  • I have a robust 305 for my credit score. Most of my credit cards are max out, but I never miss a payment. How can I improve my score?

  • It’s only been a couple months.
    Another thing that has bugged me is that I’ve had several credit cards that I used for my business, not all of them even had the business name on them, but they don’t seem to be associated with my credit accounts (one I use to pay for server hosting, which runs over $30k per year on the card, always paid off in full every month for the past five years).

  • Can someone please explain to me why American college students carry *credit card* debt, which has to be the most expensive form of credit there is?! Is it because they can’t get Sallie Mae or other personal lines of credit?

  • That one is simple: pay down the cards. A good chunk of the credit is based on what percentage of your current credit you are using. So if you are using >90% of the credit you have available, it’s going to greatly affect your credit score.

  • Well, your credit score was lowered after you went over 50% on that line of credit, which isn’t a surprise to anyone. Lenders aren’t able to see the other aspects of your sound financials.
    My question is that if you are good with financial planning, what difference does it make to put all of your expenses on a credit card and have it paid off in full via autopay each month? It would get you a significant amount of miles / points with no interest etc

  • It’s because they don’t learn about money as children, so when they get flung off into the real world, and someone presents them with a plastic card that to them means “free money” they go wild.
    Then, $20k later, they realize that it wasn’t free money and they’re going to be paying back those trips to the bar and late night pizzas for the next 5-10 years (If they’re smart) or the next 30 years if they’re an average american college graduate.

  • If you think a high credit score represents your financial status, you don’t understand the system.
    A high credit score, like a point system for anything else like sports matches or best girlfriend, has nothing to do with the intrinsic value of that being measured. It has everything to do with the capability, measured in historical terms, of that something being able to do that which is being scored.
    So, you’ve got two teams on the field. One has a score of 75 and the other has a score of 45. Which team is better at scoring? (The team that does the most work, that carries the ball the most, that runs up and down the field the fastest, that, probably, has more high-paid players (expenses) than the other team.) Does it mean that the high-scoring team is capable of continuing to win games, run fast, carry the ball the most, pay its players top dollar over the long term? Not necessarily. All of those things take money, energy, time, etc. And as we all know these things are not available to one team for an infinite length of time. But, as long as that team can continue to score the highest points in a game, they will have a high rating in their league.
    But the fact remains that a team with a good history of scoring points doesn’t mean anything more than that team has a history of working its ass off to get good scores. For all we know the team can be bankrupt on the back side.
    Ok, now look at yourself. You have a great credit score. A great score that says you are a good credit risk. A score that in no way reflects on your financial status. A score that only indicates, in a somewhat arbitrary fashion, that you have had credit/loans in the past, that you have credit/loans now, and that you are current on the debts you owe. Using your credit score lenders can get a clue about whether you have the discipline to repay a debt. So, if it’s all good, they send you offer after offer for new loans or revolving lines of credit or credit cards. But, it’s up to you to decide if you can afford them, not the bank’s decision.
    This is how the American economy has been built over the last 100+ years…on credit. And lack of personal discipline is why many Americans are totally underwater and why our government (run by people who can’t comprehend this simple credit score concept) is also underwater.
    So, basically, if you are a multibillionare, always pay cash, live within your means, have no credit cards or don’t use the ones you have, you will have a low credit score. The lowest, actually. Because without a credit history you cannot have a credit score. It’s pretty simple once you understand it.

  • I know this feeling all to well. You’re screwed no matter what you do. The credit industry (and the FICO rating system) is a sham, scam and as you put it BS. I was at one time near bankruptcy with an almost 800 FICO score, making near nothing annually. Now I have a great income and little debt and I barely qualified for a new car loan.
    Never closed the cards but I get dinged for not using them.

  • You have answered your own question.

  • And in response to Michael, way to paint with a broad brush. As someone who started working full time at low wage entry-level jobs at 17, paid his own way through college, didn’t qualify for grants because his parents made “too much” money (about $30K with 5 kids in 1986), and couldn’t get a student loan because he had to not be listed as a dependent by his parents for 2 years before he was even eligible … I say BS.
    I ran up 10K in credit card debt by the time I was 24. I wasn’t partying, and the late night pizza was, at best, a $4 large cheese pizza special from Jerry’s so I’d have something to eat that day. Mostly, that debt was from having to take cash advances at Sears on my Discover card so I could pay my portion of the rent on my roach-filled group apartment, because the absolute POS used car that was all I could afford had blown up again and wiped out my next few paychecks in repairs.
    I guess I could have found a cheaper place to live … oh, wait, my apartment was already bottom of the barrel, way less than living on campus. I guess I could have not had a car … hmmm, hard to make it to a job and go to class on the same day without one. (Tried to use public transportation for a year, but the 4 hours I spent in transit every day started to affect my grades, work, and health). Guess I could have eaten more modestly … perhaps catching and eating the roaches would have saved money on ramen noodles. Guess I could have found a better job … oh, wait, we were entering a recession, and jobs were pretty damned scarce. Guess I should have tried to better educate myself so I could get a better job … ah, damn, I was already doing that.
    Or maybe, just maybe, I was doing all an inexperienced young person on his own could do, and I was still coming up short. Nah, that couldn’t be the reason. I must have been an irresponsible piker!

  • Yep, that was exactly what I was intending to do, and what I did. I put a few thousand on the card during a vacation knowing I would pay it off immediately. if that went well, I’d move all my daily purchases to it, auto-pay that off monthly and start racking up the miles.
    I honestly had no idea you weren’t supposed to go over 50% of a card’s credit line. I’ve never seen that written online but then I don’t really pay attention to credit card/score rules too closely since I avoid most all credit.

  • Matt, has anyone explained to you that the score you were getting from Experian isn’t really your true credit score and that it’s just an “educational” score that isn’t even commercially available to lenders (called the PLUS score)? So, any advice they would give you to improve that score would be a waste of your time. They’re being sued, class action, because of that score. So, really what you meant to say was the score you were buying from Experian that no lender uses is bullshit.
    Further, don’t listen to those Dave Ramsey zombies. Learn about credit scores and leverage them to your benefit.

  • Uh, no you don’t have a 305 for a credit score.

  • No you don’t. Not using cards isn’t a factor in your FICO score. Stop complaining and start learning.

  • No, this is wrong… “The longer you have had a line of credit, the more it contributes to your score.” As long as it’s on the credit file AND the file meets the minimum scoring criteria the account “counts” in your score. It doesn’t count more or less as time passes.

  • Credit scores aren’t bullshit. You needing to know your credit score is bullshit. All you need to know is whether or not someone is going to lend you money (for a house, car, etc). If they aren’t, you need to know why. Nowhere in that very simple equation does it say you need to know a particular number.
    But credit scores aren’t bullshit because the person lending you money needs a method for quantifying whether or not to lend you money. His cutoff point may be different from someone else’s cutoff point, but having a particular number isn’t going to force someone to lend you money if he doesn’t want to. Thus, knowing the number is futile.

  • No, this is wrong. Ramsey’s score is not 0, you can’t have a 0 credit score when its range is 300-850. His PR people emailed me a screen capture from the myFICO website where it clearly shows that his file didn’t meet the minimum scoring criteria YEARS AGO and thus couldn’t be scored. Stop being a Ramsey Zombie and learn this stuff on your own.

  • Finally!! Sanity!! And you’re right…the performance definition of the generic FICO score is predicting the likelihood that you’ll pay any obligation 90 days past due or worse in the 24 months after the score is calculated.

  • My assumption is that if you’re legally obligated to pay, it should appear on your credit report. That is, if your business is a sole proprietorship or if you otherwise signed on the account not as an agent of a corporation. If the company goes bankrupt and you’re on the hook for it, it should probably be on your report. If it goes bankrupt and you don’t owe a dime, it shouldn’t. How would you feel if you had a $100k balance on your company credit card and had to pay it if your company went under? It would be unfair for it to hurt your credit if that happened, so it would be unreasonable to have it on your credit otherwise.

  • more importantly…who’s your investment planner? :)

  • The issue is that idiots (and by idiots I mean banks) use this score incorrectly. Most mortgage financiers flat won’t give you the bottom rate without a high FICO score. Your bank DOES have access to your income, and explicitly asks for it, along with statements from your accumulated savings. However, no matter your accumulated savings, if you don’t have the magic bulls**** score you’re considered higher risk.

  • So if credit scores are “BS” then there “ought” to be a great opportunity to actually assess the real credit risk of lending consumers money and performing this lending based on this superior risk assessment rather than the above described, obviously broken, credit scoring metric.
    You could snap up loads of super low-risk consumer debt with a good interest rate and get very rich, quite quickly. Successful investing is all about finding these mis-pricings. In a competitive market that is exactly what happens. The local “Buffet type” says, thanks that’s cheap, I’ll buy and the price of the low risk stuff goes up a bit (ie the interest rate for low risk loans goes down). Those lending with inferior risk assessment are relatively less profitable and left with the junk loans – forcing them to adopt the superior techniques or close down.
    So why hasn’t this happened? Is this market not competitive? (Genuine questions – not rhetorical).
    Who pays John Nulzheimer? What’s his argument here? How dare anyone complain about clearly and obviously broken metrics they have to learn how to game or be overcharged, rather than it being for lenders to do proper risk assessment? Should we pay Mr Nulzheimer to learn how to game the system? Are the credit card lenders already paying John? Credit bureaus? I don’t know. It seems like an odd thing to defend, indeed endorse, gaming a metric like this even if it were a good metric. (Maybe it is a good metric that just looks really bad?)
    The only relevant assessment for credit is the risk associated with the cashflows you have and will have to service and repay a given debt. Everything else is a way of trying to estimate those cash flows and their risk. To defend the metric one has to defend it as an unbiased estimator of those cashflows and defend the claim that it’s difficult to improve the metric. Looks like a really tough argument to make.

  • My name is the very common, “James Smith.”
    I have had so much garbage repeatedly dumped on my credit, with no connection to me other than the name, that I haven’t been able to use my credit — in any way whatsoever — for over a decade.
    Seasoned professionals have thrown their hands up over the utter unreliability, randomness, and craptastic data entry garbage that is the all-powerful backbone of our economic system, as evidenced in my credit report.
    Our financial system collapsed largely over inaccurate and unreliable credit ratings (alternating between too much weight given to them, followed by ignoring them since they were ridiculously untrustworthy and restrictive).
    And now, here we are, wallowing our way into yet another recession, while credit ratings themselves remain almost entirely unchanged. Could there be a slight connection?
    I humbly suggest that our unreliable credit rating system is more a source of problems for our economy than a benefit.

  • Don’t blame the mortgage lenders…blame Freddie and Fannie. The mortgage lenders didn’t choose to use FICO scores. They were forced to use FICO scores in DU and LP by the GSEs. They were very resistant but if they wanted that GSE money they had no choice. And yes, income is available but NOT on a credit report and therefore it’s not a part of your credit score.

  • First off, my last name is spelled Ulzheimer. If you care to take this discussion away from 8th grade name calling you’re welcome to ask me any of the questions you so deftly ask in your blog. I have no employer and $0 of W2 income. My primary source of $$ is expert witness work so the vast majority of income comes from insurance company’s paying me b/c most companies that are sued have liability insurance. So, despite your assertion…I am beholden to nobody..especially the credit bureaus. They hate me because I’m willing and able to say things like what you read above.
    Please point me to one study that proves “cashflow” is predictive of credit risk. Using your logic, which is incorrect by the way, doctors lawyers and professional athletes would all be the “best” borrowers and people who work for the minimum wage would be the “worst” borrowers.
    You’re welcome to verify any of my comments if you like.

  • I am currently trying to buy a house that is half of the value of what I was preapproved for. I have not missed any payments for at least the past ten years on any account. I have an auto loan, student loan and one credit card. My credit score was average 750 with very little difference between the scores. When it came time to finalize the mortagage on the new house I was told that I didn’t have enough history to qualify under the new laws because I only have three, not five, recurring payments on my report.
    I realize now that I was incorrect in believing that paying on time and having high credit scores was enough. I will be opening another credit card and taking out a personal loan for something I really do not need just to get the approval for a place to live.
    Something is broken.

  • Learn about credit scores and leverage them to your benefit.
    Why? I understand the “why” of Nulzheimer’s professional perspective, which is to say, “this is how credit kabuki works, and as a self-proclaimed expert, you ought to follow my advice on how to contort and potentially distort your financial existence to suit it.”
    My “why?” is broader: what is the value of those contortions? Do they create a healthier economy and bring people financial security? That they’re built upon esoterica doesn’t fill me with confidence.

  • I am self-employed and debt-free, but luckily my occasionally-used credits cards help keep my credit score pretty high, but I can definitely relate to this frustration. Lots of systems seem geared towards people who fit “normal” society, which means a biweekly paycheck, credit card payments, and a car loan.
    It’s one of the more frustrating aspects of self-employment that the standard is much higher for proving ability to pay e.g. a mortgage, rent, whatever, when they can’t fit you neatly into one of the usual patterns they evaluate.

  • credit score equations are the “secret sauce” developed by Fair Isaac and Co. (aka FICO). they aren’t “bullshit” because they are incredibly accurate across broad demographics – tens of thousands of people. there are of course case exceptions but there is a reason businesses pay tens of millions of dollars for access to FICO equations and scoring methodology.

  • If your debt is low, you’re score will go lower. Companies want to see that you can carry credit responsibly. That is, have debt and pay it off each month on time. If you’re responsible and pay off your cards each month, own a car outright, and only are paying off your mortgage, your score won’t reach the heights.

  • Nice article. The times in our personal financial lives when we’re living a very Keynesian (borrow and spend) lifestyle we have good credit scores. As we become more Hayakian (save) in our endeavors, our score goes down. Is it just me that sees the comparison? ;-)

  • I like what you’re laying down, but now you can afford to buy stuff with cash out of pocket. No more need to borrow to buy a car or house, so no need to have any credit rating. We buy everything cash, but run it through our credit card first (without going too high a % of the balance) that way we get the best of both worlds. When we bought our most recent car with cash, we were able to put 5k only on the credit card, we would have liked to charge the whole car to get some awesome rewards, but the dealership only allowed a 5k max. Oh well.

  • Credit scores are kind of a “most reliable sucker” thing, right? But if you open a new account and then max it out, that’s kind of a bad sign, statistically. They don’t have records of how much cash you’ve got in the bank, so you get lumped in with the crowd of people who lose their job and meet the gap on their card.
    Until I started looking at credit score guidelines, I didn’t realize “credit utilization” was a thing. Kind of annoying that you can be offered 5k in loans and penalized for meeting the terms of the contract, even if you pay it all off before a dime of interest is charged! But I guess the statisticians don’t optimize scoring rules for consumer transparency. I try to look at the record low rates and remind myself overall it’s been a good recession.

  • Credit scores are a historic measure of a borrower’s credit history. The formulas heavily favor people with jumbo mortgage payments and very expensive cars (at least before the credit bubble finally began to burst). Unfortunately, credit scores are important even if people pay cash for everything and never borrow a penny. For example, many states allow insurance companies to tier homeowner’s and even auto insurance rates based upon credit scores along with other, more obviously related factors. Many potential employers also screen job applicants for adverse credit information although I assume people with “no score” would not be disqualified.

  • My dad gave me the same advice. I almost closed a credit card account I got when I turned 18 from American Express. My dad stopped me and told me to hold on to it and now, I’m glad I did.
    I don’t even use that card anymore.

  • As a former underwriter for American Residential Mortgage/Chase Manhattan, I can attest to the fact that there was a time when 3 credit agencies gave 3 separate opinions of your ability to pay. There was also a time when a human being assessed this data to see if it made sense with employment history, income, cash reserves and various other factors. It was called credit underwriting.
    The FICO score and its prominence was the unholy spawn of the housing bubble when underwriting standards were all but abandoned and lenders were looking for a quick “catch all” number so they could give a quick yes or no to loan applications.
    I do not care what these credit score “experts” tell you here. The credit score is a lazy means of assessment and a cynical tool for financial institutions to gauge your ability to take on large amounts of debt and sustain large payments; i.e. how good are you as a profit generating machine.
    Case in point, when the bubble burst, a lot of you got letters from your credit card lenders saying your credit limit had been lowered. Nothing changed for you, but the lender made a business decision to extend less credit to you, regardless of your worthiness. (In my case, this happened on higher limit cards with low balances and usage; cards I kept for an emergency.) Well, your balance stays the same, but oops, now through no fault of your own your debt ratio was larger and yes, your FICO score went down. You lost because credit card debt was considered risky after the bubble burst; you were scored lower because the debt you held was now less desirable, not because you were more of a credit risk, and banks were beginning to take back extended credit that was dormant.
    To this Ulzheimer person: Lenders are not forced to use FICO. If they were then the FICO score could be directly blamed for the bad loans securitized, sent to the secondary market, and responsible for the housing crash. And yes, not using cards most certainly does reflect on your FICO score as demonstrated above. I do not know who you profess to be in this discussion but I can sum up by saying that this credit scoring “criteria” that you rely so heavily on to make your case, skews towards being arbitrary and punitive for the borrower and profit maximizing for the lender. Stop falling back on it as your argument.

  • Where is the science? Because if there is not a direct (math) formula, then the whole thing is made up by a human. Which means, it’s a human decision that varies by the whim of it’s master. It is merely a legal (protected) way to discriminate to me.

  • Great article. The others already mentioned the reason for the drop is from closing cards with a long history, but your point is valid- now your in a stronger financial position, less risk–but your score is lower. Clearly a flawed system. It ignores liquidity, net-worth and ability to pay off debt.

  • I agree wholeheartedly with the premise. And regardless of the true machinations behind our credit scores, what this frustration highlights is how powerless and meaningless the average consumer is to our financial industry. When our parents were growing up, they probably saw their parents get loans from a bank who looked at the merits of lending to them. Now, everyone thows up their hands, under the thumb of some unseen higher-up.
    Way back when we got our last car loan and maybe our home loan to we were cautioned against too many credit checks, that that would lower our score. So, shopping around our loan would lower our score. Aint that some bullshit?
    Also, I’m not sure what Ulzheimer’s wicket is but he seems a little tightly wound on this issue. And, dude, if you want people to get your name right, you should use a space and a capital letter between your names. It’s basic, eighth grade grammar.

  • When you buy things with a credit card, the proprietor has to pay approx 3% of the purchase price to the credit card company in fees.
    You are generating them profit, and you’re paying 3%, you just can’t see it.

  • OK – warning, I am about to rant. But these things have been on my mind awhile and I am going to express it despite the fact that I already fear most will take my viewpoint as that of a hippie/wacko/whatever other label is often put on people.
    Really??? Nobody has just come right out and bluntly said how scandalous this entire system is? Of course I understand that it may have (although I have suspicion about even this) originally come about to protect companies from losing money due to cheaters…however, there is not a lot in place to protect PEOPLE from predatory companies! Many companies these days (even those in the medical, energy and other essential industries) are very quick to submit information to a collection agency, which in turn can make it difficult to even pay (once it’s turned over, you cannot just pay the original company, you must pay the collectors, who sometimes only send 1-2 notifications; this happened to my best friend who always tries his best to pay any and all debts).
    Allow me to ask this; does anyone truly think it’s fair for someone who simply doesn’t know a lot about the credit system/is forgetful and therefore late on payment (but still pays their debts – I know so many people like this)/is poor deserves to be at the mercy of their credit score? I think this is incredibly narrow-minded and flawed logic, especially in a society where corporations have so much control and your average joe has so little.
    Furthermore, I personally consider it slavery that your average person is even expected to spend their precious moments of life (which could end at any time) researching and learning how the system works, what their credit score is, how to improve their score, etc. I am not saying I know how to fix this, but I think awareness of that is very important. I know some here may think this is a moot point, but is it? Life is too short to spend it writhing around in such an endless and purposeless web. Just trying to give a bit of perspective instead of accepting this as a necessity. It’s not really. But companies want you to feel like it is because it makes it easier for them to make money. We have lost touch with so much….
    ;P

  • I take the part about no one calling this out back since I now see that Amanda has hinted at this in her comment.
    PS – It looks really out of place and weird, so I will mention that I actually wrote END RANT before the silly smiley on my last comment, but bc I put arrows around them it did not post that part…in case anyone was wondering why a smiley would be there randomly.

  • BTW, this rant was not aimed at the author of this at all, just to clarify. In fact, it just angries up my blood a bit to read that someone who tried to follow the credit system in an honest and earnest way still ends up getting the short end of the stick. My best to you, Matt! Obviously I agree whole-heartedly with the title of your article.

  • A couple years ago, I had a zero for one of my three scores. This was due to a lack of sufficient history on that particular bureau’s report, but the bank I was trying to get a mortgage through interpreted it as a zero score, not as “no score available”.
    Your other replies in this discussion lead me to believe you will chastise me (“Ramsey zombies”, “8th grader”…). Hopefully you don’t find that kind of response necessary here. It makes discussion with you quite unpleasant.

  • This point has probably already been made, but I’m not yet all the way through this discussion and can’t help but say:
    Stop being a shill.
    It’s people like you that justify the perverse universe that everyone else is supposed to learn to play. Except, the game is run by house rules, and the house always wins.
    [Also, note two things: 1) one can be a shill without greasy palms, and 2) if you're going to complain about people spelling your name incorrectly (name calling? really?), perhaps YOU should do a little very basic observation and realize that wouldn't happen if you used CamelCase. natch.]

  • Seems to me there’s a line between communal grouping for the benefit of individuals and homogenization of individuals into a faceless mass. Also seems like the industry which creates these credit scoring rules have crossed that line. Credit scoring reduces someone else’s estimation of my fiscal responsibility to a comparison of me and others in my demographic rather than seeing my individual fiscal worth and productivity.
    For example, when I go to a doctor, I expect medical care based in scientific evidence AND treatment options which suit me as an individual. Just because 2/3rds of the people in my demographic are at risk for a disease doesn’t automatically mean I will get that disease, after all.

  • Matt – Couple of points I would like to highlight here.
    You said:
    “I understand the benefits of a high score and realize the system isn’t going away anytime soon …”
    “I honestly had no idea you weren’t supposed to go over 50% of a card’s credit line……..then I don’t really pay attention to credit card/score rules too closely …”
    In lieu of the above two points, why not:
    1. Learn the system, since it has been there for a while and will be there for a while
    2. Screw the system, within the boundaries laid down by the system
    You surely can have best of both the worlds, i.e., a good FICO score AND a good real-world financial standing. No debt is probably the best thing, but if in order to have the best credit score, if you need to have some outstanding credit, why not keep that outstanding credit?

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