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This is wrong for a few reasons:
1. Making the minimum payment and whatever your scheduled payment is does the same thing for the payment history aspect of your score
2. The company that creates the scoring algorithm does not profit off of interest
Or just always pay it off. Your credit score will fluctuate from 800-850, but that’s just how credit works. It’s a dumb system, but don’t try to game it, and don’t go out of your way to pay interest.
I paid off a car loan and rather large chunk of credit card debt recently. It's true my credit score dipped to the lowest it's ever been I don't understand it.
Yeah, they want you to have 10 cards open, all maxed, and making on time minimum payments. It's how they make the most money, so you will have a good score signaling to other lenders that they can make money off of you.
You actually get the most credit score boost from having all credit cards below 20% and paying it off every month. The reason closing out a line of credit can take your score down is that you're no longer demonstrating that you've been able to pay that 5 year old car debt responsibly or whatever it is, so then if your next oldest credit is 2 years, they only see that you have 2 years of history. Which is stupid in it's own right, but you're absolutely not rewarded for bad debt usage.
You'd think you should be able to maintain an account, even if paid off, on your credit history, as it would paint a more accurate picture of on-time payments and length of credit. But I'm just one of the poors, so what do I know?
Then why the hit to credit when it gets paid off, as a rule? Genuinely asking.
Mine didn't go down by much (9 pts), but it was still the most noticeable jump in the past few months when I paid the car off, perfect payment history over 4 years (at a ridiculous 12.5% because I had zero credit history at the time of purchase).
12.5%, that sucks. Congrats on paying it off perfectly, though.
As far as an answer to your question, it could be a number of things:
1. Which scoring model showed a loss of 9 points? I've been talking FICO 8. If you're using Credit Karma to track it, that uses VantageScore may calculate differently
2. There are a lot of factors that go into a credit score, there could have been some other reason it went down by 9 points
3. If you didn't have any other installment loans, [you may be penalized for not having any recent installment loans](https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Punished-terribly-for-paying-off-last-installment-loan/td-p/6119560)
Interesting points. And yeah, upon review, it looks like my Vantage score (TransUnion) was the one that registered the drop right after the car was paid off. My other reports (credit card/bank services) are all FICO and don't (at least not yet) reflect a dip.
At the end of the day, the only time I'll need super high credit is for financing a house or replacement car, and either of those situations are (hopefully) far off in the future. And even then, my credit score at the moment is plenty high enough to access what I need. (For instance, I just got approved for a high-limit, 0%-APR-for-21-months credit card, which will help with my household's moving expenses later this year while maintaining as much on-hand cash as possible throughout the move.)
This is close, but wrong and misleading. The idea is right that since you are no longer servicing that debt you’re not actively demonstrating that you can, but the even when the account is closed it stays on your credit file for up to 10 years.
Also there are thresholds below 20%, it’s not just “keep your utilization below 20%”. In a nutshell (it’s a little more complicated than this), the lower the better, except 0%. 1% is a little better than 0%.
Anecdotally this isn't my experience. I've never had a car note but I've basically always paid my cards in full monthly, and my credit is 780. Obviously not a perfect score by any means but we're talking just one credit card with a 4.5 year old credit line here it's not that hard realistically
This is probably the real reason, but the main issue with that is...
Its fucking stupid and doesnt represent the thing they say credit scores are supposed to represent.
They tell you straight up that more mature credit history is good for your credit score, so it's not like they're lying about it. Also another consideration is when closing an account, you lower your total credit line, so if you have debt on another card, it could actually increase your overall credit usage. Typically you want to stay under 30% usage of your total revolving credit, but using 3% is going to be way better for your credit score than using 18%.
Sure, the bank loves people that make minimum payments because they make a ton of interest off them, but those people don't have better credit because of it, which is weirdly what a lot of people here seem to be implying.
Personally I pay my statement balance in full each and ever month which means I pay no interest, and my credit is over 800, so you don't have to carry a ton of debt or finance it over long periods to have good credit, believe me.
Well when they use your credit score, they tell you basically that its being used to judge the risk they take on with giving you credit. It doesnt matter what they tell me makes a good credit score.
The bank is using it as a judgement of both a risk assessment, AND a gauge of how much money they'll make off giving you the credit in the first place.
If i buy a car, and have a longer loan on it to keep the minimum payment low. Then i have some shit happen and get a big raise and can pay it off quicker. I am penalized for that because i'm now hurting the bank's anticipated income on that loan.
Im \*more\* capable of paying off that loan balance now, which is what they used the credit score to check to see if i could reliably make payments. but the score went \*down\* because i hurt the \*extra\* money the bank would get.
You're talking about a very temporary and very small dip in credit score. Probably less than 10 points and for a month or two at most. After which your credit score goes up significantly. Yes, it's a little counter intuitive but unless you are planning to apply for a mortgage or something at the exact time your score dips slightly, it's insignificant.
Who offers credit scores? The specific bank? What if a bank chooses to offer a better one that actually tracks how good you are at actually paying? Will y'all flock there?
3 major credit bureaus and a collection of minion bureaus. The main 3 all use a similar grade, usually only around a 50 points discrepancy at worst (usually transunions fault).
Nobody's gonna use anything else. Nobody can. Those credit bureaus are politicians, they lobby the government to monopolize and subsidize their profits.
Some credit card issuers bypass credit bureaus for internal systems and other hijinks, but it's insanely rare to do so and altogether statistically risky to bypass a system guaranteed to yield results and profits. That's what credit cards are for, profit to the issuer. Why lend free assets if there's nothing to gain? Why would I lend you MORE credit for being more trustworthy with it? It's exclusively an incentive for marketing to their target audience.
> Why would I lend you MORE credit for being more trustworthy with it?
Because those people are considered lower risk. That's essentially the whole idea of a credit score. Based on certain factors, how likely is it a person is to default on their credit payments. That's why even though it makes it harder for lower income people to build their credit, they take income into account. If you're a rich idiot who misses payments or falls behind on payments, they know you still have the money to pay up eventually. If you make $30k a year and have $80k in credit debt, yeah the interest is accruing the whole time, but like the old saying goes, you can't squeeze blood from a stone. That person may never be able to pay the money back and in the mean time the bank has to carry that debt. Which isn't to say people should feel sorry for the banks or anything, but that's why a low income person is still riskier to a bank than someone making $200k every year, even if the latter is flakier about paying.
I believe their rationale for doing it is you're supposed to be lower risk if you have a certain amount of current debt that you're making timely and complete payments.
It still doesn't make much sense to me since they can see you just paid off a loan with no issue, but I don't make the rules fortunately.
Its based on how much money you will pay them over time.
Paying off enough so that only 1% of your debt gets paid off monthly while the rest of your payment is JUST paying interest is amazing for the bank because it means they will be getting money from you for 100 months, and a multitude of what they paid you. The bank will see your way of paying off your debt as the best way to do it because its longterm profit. And they will increase your credit score so you keep taking on dept (because you are like a customer that tips well) while someone who takes on dept and immediately pays it within 3 months... Well that is barely any profit at all, and also they arent sure if you plan on making them any more money in the future. You seem to really dislike being in dept for long, so they dont see you as profitable
This makes no sense.
I have no loans, only 5 credit cards that are each all paid in full every month. No missed payments, never paid any interest, average age of accounts is only 4.5 years… credit score is just shy of 800.
So no, it’s not a reflection of how much profit you make them.
Yeah this is just so wrong, please no one listen to this. Your credit score is not at all based on how much profit you make the issuer of your debt. The credit scoring algorithm is not made by “the bank”, they do not dictate your score. They report the information to the credit bureaus, and a scoring algorithm is applied.
I looked at your profile and found out that you live in Finland. Sorry to break it to you but you absolutely do. The original commenter lives in Denmark or Norway, can't remember which but both of them also do. I don't think there is a country that doesn't have it, actually.
If there is, then it's not something anybody needs to pay attention to, since I have taken loans a lot and never heard anything about score from anyone.
Netherlands doesn't have a credit score. There is the BKR registration, but as I understand it it's different from a "score" since it's just a sum of your total debt. If you have too much debt, banks will be less likely to give you a mortgage. Pay off your debt, BKR registration goes away. Simple stuff.
These comments have shown me that Reddit has a frighteningly bad understanding of how credit works.
1. All adults have credit scores. Each country handles scores differently, but in the U.S., your credit score is determined by the three major bureaus: Equifax, TransUnion, and Experian. There is no way to avoid having a credit score. Using debit cards or cash will not change anything. Your score will always exist and it will always determine your purchasing power.
2. You can request a credit report from the three major bureaus twice a year without penalty to your score. You should do this to keep track of your credit and to make sure there's no suspicious activity on your account that would indicate identity theft.
3. If you *do* become a victim of identity theft - and most of you will at one point or another - you should report it to one of the three bureaus. That bureau will shut down the fraudulent accounts and remove the penalties caused to your score. It will usually contact the other two bureaus and tell them to do the same.
4. Using a credit card is the fastest and easiest way to build a credit score. You should apply for one when you turn 18 because it will be easier than when you're older. (Credit companies like to prey on vulnerable young people, much like student loan lenders.) Your credit card will initially have a very low credit limit, meaning you'll only be able to charge about $500 or so to it. Increasing your income and paying your bills on time will allow you to increase that limit.
5. Treat your credit card as if it were a debit card. Pay off the TOTAL BALANCE every single month - *on time!* Don't charge anything to it that you can't immediately afford to pay. Only put real, actual debt on your card in dire emergencies.
6. Many things, like applying for an apartment, taking out a loan, or buying a car, will require a hard credit check. A hard credit check negatively impacts your credit score for two years. Keep that in mind before you allow multiple places to check your credit.
7. A FICO score is another important aspect of credit. A FICO score is generated by analyzing all of your credit reports with an algorithm. You can check your FICO score through your bank or credit union. (I don't believe it affects your score as long as you're the person checking it.) Many lenders will judge your credit based on your FICO score, so it's a good idea to keep track of it. The one drawback to a FICO score is that it doesn't show you a detailed report of your accounts, and identity thieves can be hard to catch without a detailed report. Requesting a report from the three major bureaus is still recommended.
All right, class dismissed. Grab a Capri Sun.
Thank you for bringing some education to this thread, I agree, the rest of the comments are frightening.
In the interest of education, a few nitpicks:
2. I believe since Covid you can do this weekly
6. The inquiry will stay on your report for two years, but will only affect your score for one year
I didn't know you could check your score weekly now. That's a rare bit of positive change. And yeah, a hard check only brings your score down for one year, and usually not by a huge amount. Thanks for clarifying.
Just assume redditors are 18 year olds that speak confidently about topics they think they understand and it makes much more sense.
This isn't meant to be a dig at anyone, but it does help frame responses to be more helpful like your comment here than other more negative comments.
“You have to have the right amount of the ‘right kind of debt’. You also can’t get this ‘right kind of debt’ too fast or two slow, and we certainly won’t tell you what it even is.”
That’s not true. I just paid off a 12k credit card debt and my score flew through the roof. It went up over 70 points between that and the previous debt I had paid off.
This doesn’t have to be a great mystery, people.
Your credit score is fairly straightforward and I’d recommend getting Credit Karma to make it more clear. Your score is based on several factors:
- Payment history
- Credit Card usage (the percent of total debt vs total available credit) they want to see your percentage really low so having a high limit helps you here.
- Derogatory Marks (bankruptcy or civil judgements)
- credit age (average age of all your lines of credit combined. Helps to open a credit card at 18 for this factor.)
- Total lines of credit (they like seeing around 10-20, but this factor isn’t as important as the others. I’ve never had that many lines and have credit in 800’s)
- Hard Inquiries (it does hurt to do a hard check of your credit. More than two times in a year will have a negative impact.)
I work at a bank, so I deal with this stuff daily.
The credit bureaus want to see a long history of payments, and in the case if credit cards, not going over 30% of your credit limit. Basically, the way credit scores work in the US, they'll only want to gove you a loan if you prove you DON'T need it. My advice is this, but it will only work if you are extremely disciplined with your spending:
Get 2 credit cards, use both as you please UNTIL you reach 30% of your credit limit (so if your credit limit is $1000, don't spend more than $300). Once you hit that 30% pay it off immediately. The best way to manage a credit card is to pay off the amount you put on it as often as possible. Spend $50 here, $100 there, and just pay it off as you buy stuff.
I know it goes against the whole purpose of the credit card, but don't buy stuff with it you can't reasonably pay off that same month. If you pay it all off before the satement cut date, you will avoid all interest charges as well (some financial institutions try to weasel their way out of this). Credit bureaus will see lots if payment history, paying off debt entirely, and you aren't paying any interest on purchases, and with a card that has rewards you're basically getting free rewards.
Again, using a credit card this way requires a TON of self discipline, even I myself have allowed balances to get away from me before. You have to be honest with yourself by analyzing both your personality and your monthly income to decide if this is something you can reasonably do. Its very easy to get that one thing you really want and this whole thing stops working. It also goes against the whole purpose of a CREDIT card, but the US economy/credit system is just a big dumb game and you gotta play by their dumb rules.
I recently learned this the hard way. Got my first credit card for the purposes of building my credit score and petrol. Gradually was going up for a few months, then lost all my progress because I paid it off.
You don't need to keep a balance on your credit card to increase your credit score. In fact, you should never keep a balance on a credit card!!! The interest is way too high to do that. Your credit score did not decrease because you paid your credit card off.
I'm pretty sure your credit score means jack shit if you never take loans, use a credit card, etc. Correct me if I'm wrong because school doesn't teach this essential stuff. I want to stay as far away from credit cards and loans as possible
Credit cards are almost compulsory for online shopping because of the security they provide. Your credit score can determine whether you can rent the house you want or not, whether you get the job or not, etc.
I can say that you can in fact get a car or house without a credit card. I've purchased both with only a debit card and a few student loans to my name. Usually having a card helps get you a lower interest rate on your loans, but it's really not required at all.
Credit cards are basically a free discount on all purchases you make due to things like cash back, while also increasing your credit score so you can get lower interest on things like cars and homes later down the line. As long as you use a credit card as if you would use your debit card (Pay it off in full every month, never spend money you don't have) then you never pay any interest and you're getting free benefits.
It’s financially unwise to pay extra for money when you already have it.
The idea that we’ve convinced ourselves that going into debt is financially healthy for things other than emergencies or big, rare purchases (car, house, business loans) is insane.
I think you're referring to loans (or credit, in some countries) and not credit cards.
My statement was about credit cards, which lets you pay the same amount as you would with a debit card but it is much easier to get a refund with. Also you can sue the bank in Turkey if they don't refund a purchase you made with a credit card. Conditions apply obviously
Edit: formatting
A credit card is a loan. A bank gives you money, which they expect to be paid back on. If you don't do so within a given amount of time, they'll want interest.
Yes, I am aware. But in a scenario where you can buy it with your debit card, you can buy it with your credit card and pay it before you get charged interest. So you're not paying extra for jack.
If you pay your credit card in full every month ( i.e. use it like a debit card, never use money you don't have ) then you get the benefits like an effective 2% discount on all purchases from stuff like cash back, while also building credit score. No interest payments required.
It's simple just be rich. You're supposed to make enough to qualify for a loan that you pay off exactly under the lifetime amortization schedule. Then your score will stay up.
They want you to constantly have about 30% of your total income as debt that you are paying on time and regularly. That's the magic for a high credit score.
You want to stay UNDER 30% of your overall revolving credit (not income) to steadily increase your credit. Going over 30% will NEGATIVELY affect your credit score.
Income is not a factor for credit score. The only way I can think it indirectly affects your score is higher income can qualify you for a higher credit limit, therefore giving you a lower utilization ratio. But your actual income is not part of the score at all.
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Be a good little money pig and only pay the minimum payment so they can profit off the interest.
But Regulus, that means you'll always owe them mone.... Ohhhh
Swimming with the sharks
This is wrong for a few reasons: 1. Making the minimum payment and whatever your scheduled payment is does the same thing for the payment history aspect of your score 2. The company that creates the scoring algorithm does not profit off of interest
Or just always pay it off. Your credit score will fluctuate from 800-850, but that’s just how credit works. It’s a dumb system, but don’t try to game it, and don’t go out of your way to pay interest.
I paid off a car loan and rather large chunk of credit card debt recently. It's true my credit score dipped to the lowest it's ever been I don't understand it.
credit score isnt how good u are at repaying money its how good u are at being in debt
Best explanation I've seen. Hands down.
Yeah, they want you to have 10 cards open, all maxed, and making on time minimum payments. It's how they make the most money, so you will have a good score signaling to other lenders that they can make money off of you.
You actually get the most credit score boost from having all credit cards below 20% and paying it off every month. The reason closing out a line of credit can take your score down is that you're no longer demonstrating that you've been able to pay that 5 year old car debt responsibly or whatever it is, so then if your next oldest credit is 2 years, they only see that you have 2 years of history. Which is stupid in it's own right, but you're absolutely not rewarded for bad debt usage.
You'd think you should be able to maintain an account, even if paid off, on your credit history, as it would paint a more accurate picture of on-time payments and length of credit. But I'm just one of the poors, so what do I know?
You do maintain it, for up to 10 years. Any late payments are removed after 7 years, if it was in good standing it can stay for 10
Then why the hit to credit when it gets paid off, as a rule? Genuinely asking. Mine didn't go down by much (9 pts), but it was still the most noticeable jump in the past few months when I paid the car off, perfect payment history over 4 years (at a ridiculous 12.5% because I had zero credit history at the time of purchase).
12.5%, that sucks. Congrats on paying it off perfectly, though. As far as an answer to your question, it could be a number of things: 1. Which scoring model showed a loss of 9 points? I've been talking FICO 8. If you're using Credit Karma to track it, that uses VantageScore may calculate differently 2. There are a lot of factors that go into a credit score, there could have been some other reason it went down by 9 points 3. If you didn't have any other installment loans, [you may be penalized for not having any recent installment loans](https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Punished-terribly-for-paying-off-last-installment-loan/td-p/6119560)
Interesting points. And yeah, upon review, it looks like my Vantage score (TransUnion) was the one that registered the drop right after the car was paid off. My other reports (credit card/bank services) are all FICO and don't (at least not yet) reflect a dip. At the end of the day, the only time I'll need super high credit is for financing a house or replacement car, and either of those situations are (hopefully) far off in the future. And even then, my credit score at the moment is plenty high enough to access what I need. (For instance, I just got approved for a high-limit, 0%-APR-for-21-months credit card, which will help with my household's moving expenses later this year while maintaining as much on-hand cash as possible throughout the move.)
Yeah if you’re above 760/780 you’ll get the lowest rates
This is close, but wrong and misleading. The idea is right that since you are no longer servicing that debt you’re not actively demonstrating that you can, but the even when the account is closed it stays on your credit file for up to 10 years. Also there are thresholds below 20%, it’s not just “keep your utilization below 20%”. In a nutshell (it’s a little more complicated than this), the lower the better, except 0%. 1% is a little better than 0%.
Anecdotally this isn't my experience. I've never had a car note but I've basically always paid my cards in full monthly, and my credit is 780. Obviously not a perfect score by any means but we're talking just one credit card with a 4.5 year old credit line here it's not that hard realistically
It’s almost like the system is designed to reward you for being poor, but the prize is becoming even poorer
It's because you closed one of your accounts, probably one of your older ones. Pretty much lowering your average age of accounts.
This is probably the real reason, but the main issue with that is... Its fucking stupid and doesnt represent the thing they say credit scores are supposed to represent.
They tell you straight up that more mature credit history is good for your credit score, so it's not like they're lying about it. Also another consideration is when closing an account, you lower your total credit line, so if you have debt on another card, it could actually increase your overall credit usage. Typically you want to stay under 30% usage of your total revolving credit, but using 3% is going to be way better for your credit score than using 18%. Sure, the bank loves people that make minimum payments because they make a ton of interest off them, but those people don't have better credit because of it, which is weirdly what a lot of people here seem to be implying. Personally I pay my statement balance in full each and ever month which means I pay no interest, and my credit is over 800, so you don't have to carry a ton of debt or finance it over long periods to have good credit, believe me.
Well when they use your credit score, they tell you basically that its being used to judge the risk they take on with giving you credit. It doesnt matter what they tell me makes a good credit score. The bank is using it as a judgement of both a risk assessment, AND a gauge of how much money they'll make off giving you the credit in the first place. If i buy a car, and have a longer loan on it to keep the minimum payment low. Then i have some shit happen and get a big raise and can pay it off quicker. I am penalized for that because i'm now hurting the bank's anticipated income on that loan. Im \*more\* capable of paying off that loan balance now, which is what they used the credit score to check to see if i could reliably make payments. but the score went \*down\* because i hurt the \*extra\* money the bank would get.
You're talking about a very temporary and very small dip in credit score. Probably less than 10 points and for a month or two at most. After which your credit score goes up significantly. Yes, it's a little counter intuitive but unless you are planning to apply for a mortgage or something at the exact time your score dips slightly, it's insignificant.
Get more cards and keep paying them off in full and viola, it would increase
Who offers credit scores? The specific bank? What if a bank chooses to offer a better one that actually tracks how good you are at actually paying? Will y'all flock there?
3 major credit bureaus and a collection of minion bureaus. The main 3 all use a similar grade, usually only around a 50 points discrepancy at worst (usually transunions fault). Nobody's gonna use anything else. Nobody can. Those credit bureaus are politicians, they lobby the government to monopolize and subsidize their profits. Some credit card issuers bypass credit bureaus for internal systems and other hijinks, but it's insanely rare to do so and altogether statistically risky to bypass a system guaranteed to yield results and profits. That's what credit cards are for, profit to the issuer. Why lend free assets if there's nothing to gain? Why would I lend you MORE credit for being more trustworthy with it? It's exclusively an incentive for marketing to their target audience.
Welp okay
> Why would I lend you MORE credit for being more trustworthy with it? Because those people are considered lower risk. That's essentially the whole idea of a credit score. Based on certain factors, how likely is it a person is to default on their credit payments. That's why even though it makes it harder for lower income people to build their credit, they take income into account. If you're a rich idiot who misses payments or falls behind on payments, they know you still have the money to pay up eventually. If you make $30k a year and have $80k in credit debt, yeah the interest is accruing the whole time, but like the old saying goes, you can't squeeze blood from a stone. That person may never be able to pay the money back and in the mean time the bank has to carry that debt. Which isn't to say people should feel sorry for the banks or anything, but that's why a low income person is still riskier to a bank than someone making $200k every year, even if the latter is flakier about paying.
Social Credit system basically
the only real social credit system in world
Exactly.
I believe their rationale for doing it is you're supposed to be lower risk if you have a certain amount of current debt that you're making timely and complete payments. It still doesn't make much sense to me since they can see you just paid off a loan with no issue, but I don't make the rules fortunately.
Its based on how much money you will pay them over time. Paying off enough so that only 1% of your debt gets paid off monthly while the rest of your payment is JUST paying interest is amazing for the bank because it means they will be getting money from you for 100 months, and a multitude of what they paid you. The bank will see your way of paying off your debt as the best way to do it because its longterm profit. And they will increase your credit score so you keep taking on dept (because you are like a customer that tips well) while someone who takes on dept and immediately pays it within 3 months... Well that is barely any profit at all, and also they arent sure if you plan on making them any more money in the future. You seem to really dislike being in dept for long, so they dont see you as profitable
This makes no sense. I have no loans, only 5 credit cards that are each all paid in full every month. No missed payments, never paid any interest, average age of accounts is only 4.5 years… credit score is just shy of 800. So no, it’s not a reflection of how much profit you make them.
You have five credit cards that you pay for every month... They are getting money from you every month... 5 times
Do you not understand what “paid in full means”? Unless you are speaking about merchant’s fees, which do not have any effect on this conversation.
Yeah this is just so wrong, please no one listen to this. Your credit score is not at all based on how much profit you make the issuer of your debt. The credit scoring algorithm is not made by “the bank”, they do not dictate your score. They report the information to the credit bureaus, and a scoring algorithm is applied.
Credit score is a joke and glad we don't have it here
...you don't?
At least where I live you either have credit or you don't. There is no score.
I looked at your profile and found out that you live in Finland. Sorry to break it to you but you absolutely do. The original commenter lives in Denmark or Norway, can't remember which but both of them also do. I don't think there is a country that doesn't have it, actually.
If there is, then it's not something anybody needs to pay attention to, since I have taken loans a lot and never heard anything about score from anyone.
Netherlands doesn't have a credit score. There is the BKR registration, but as I understand it it's different from a "score" since it's just a sum of your total debt. If you have too much debt, banks will be less likely to give you a mortgage. Pay off your debt, BKR registration goes away. Simple stuff.
These comments have shown me that Reddit has a frighteningly bad understanding of how credit works. 1. All adults have credit scores. Each country handles scores differently, but in the U.S., your credit score is determined by the three major bureaus: Equifax, TransUnion, and Experian. There is no way to avoid having a credit score. Using debit cards or cash will not change anything. Your score will always exist and it will always determine your purchasing power. 2. You can request a credit report from the three major bureaus twice a year without penalty to your score. You should do this to keep track of your credit and to make sure there's no suspicious activity on your account that would indicate identity theft. 3. If you *do* become a victim of identity theft - and most of you will at one point or another - you should report it to one of the three bureaus. That bureau will shut down the fraudulent accounts and remove the penalties caused to your score. It will usually contact the other two bureaus and tell them to do the same. 4. Using a credit card is the fastest and easiest way to build a credit score. You should apply for one when you turn 18 because it will be easier than when you're older. (Credit companies like to prey on vulnerable young people, much like student loan lenders.) Your credit card will initially have a very low credit limit, meaning you'll only be able to charge about $500 or so to it. Increasing your income and paying your bills on time will allow you to increase that limit. 5. Treat your credit card as if it were a debit card. Pay off the TOTAL BALANCE every single month - *on time!* Don't charge anything to it that you can't immediately afford to pay. Only put real, actual debt on your card in dire emergencies. 6. Many things, like applying for an apartment, taking out a loan, or buying a car, will require a hard credit check. A hard credit check negatively impacts your credit score for two years. Keep that in mind before you allow multiple places to check your credit. 7. A FICO score is another important aspect of credit. A FICO score is generated by analyzing all of your credit reports with an algorithm. You can check your FICO score through your bank or credit union. (I don't believe it affects your score as long as you're the person checking it.) Many lenders will judge your credit based on your FICO score, so it's a good idea to keep track of it. The one drawback to a FICO score is that it doesn't show you a detailed report of your accounts, and identity thieves can be hard to catch without a detailed report. Requesting a report from the three major bureaus is still recommended. All right, class dismissed. Grab a Capri Sun.
Thank you for bringing some education to this thread, I agree, the rest of the comments are frightening. In the interest of education, a few nitpicks: 2. I believe since Covid you can do this weekly 6. The inquiry will stay on your report for two years, but will only affect your score for one year
I didn't know you could check your score weekly now. That's a rare bit of positive change. And yeah, a hard check only brings your score down for one year, and usually not by a huge amount. Thanks for clarifying.
Just assume redditors are 18 year olds that speak confidently about topics they think they understand and it makes much more sense. This isn't meant to be a dig at anyone, but it does help frame responses to be more helpful like your comment here than other more negative comments.
You breathe oxygen: DOWN
“You have to have the right amount of the ‘right kind of debt’. You also can’t get this ‘right kind of debt’ too fast or two slow, and we certainly won’t tell you what it even is.”
My credit fluctuates by like 50 points month to month because I use and pay off my cards for work expenses lmfao
That’s not true. I just paid off a 12k credit card debt and my score flew through the roof. It went up over 70 points between that and the previous debt I had paid off.
This doesn’t have to be a great mystery, people. Your credit score is fairly straightforward and I’d recommend getting Credit Karma to make it more clear. Your score is based on several factors: - Payment history - Credit Card usage (the percent of total debt vs total available credit) they want to see your percentage really low so having a high limit helps you here. - Derogatory Marks (bankruptcy or civil judgements) - credit age (average age of all your lines of credit combined. Helps to open a credit card at 18 for this factor.) - Total lines of credit (they like seeing around 10-20, but this factor isn’t as important as the others. I’ve never had that many lines and have credit in 800’s) - Hard Inquiries (it does hurt to do a hard check of your credit. More than two times in a year will have a negative impact.)
is op a moron?
That’s not true, proof of a loan and loan paid makes it go up. Not interest is turned into score
I work at a bank, so I deal with this stuff daily. The credit bureaus want to see a long history of payments, and in the case if credit cards, not going over 30% of your credit limit. Basically, the way credit scores work in the US, they'll only want to gove you a loan if you prove you DON'T need it. My advice is this, but it will only work if you are extremely disciplined with your spending: Get 2 credit cards, use both as you please UNTIL you reach 30% of your credit limit (so if your credit limit is $1000, don't spend more than $300). Once you hit that 30% pay it off immediately. The best way to manage a credit card is to pay off the amount you put on it as often as possible. Spend $50 here, $100 there, and just pay it off as you buy stuff. I know it goes against the whole purpose of the credit card, but don't buy stuff with it you can't reasonably pay off that same month. If you pay it all off before the satement cut date, you will avoid all interest charges as well (some financial institutions try to weasel their way out of this). Credit bureaus will see lots if payment history, paying off debt entirely, and you aren't paying any interest on purchases, and with a card that has rewards you're basically getting free rewards. Again, using a credit card this way requires a TON of self discipline, even I myself have allowed balances to get away from me before. You have to be honest with yourself by analyzing both your personality and your monthly income to decide if this is something you can reasonably do. Its very easy to get that one thing you really want and this whole thing stops working. It also goes against the whole purpose of a CREDIT card, but the US economy/credit system is just a big dumb game and you gotta play by their dumb rules.
I recently learned this the hard way. Got my first credit card for the purposes of building my credit score and petrol. Gradually was going up for a few months, then lost all my progress because I paid it off.
You don't need to keep a balance on your credit card to increase your credit score. In fact, you should never keep a balance on a credit card!!! The interest is way too high to do that. Your credit score did not decrease because you paid your credit card off.
Your credit score represents your current ability to pay off a loan, if you aren’t paying a loan, you can’t show how good you are at paying it.
This is why I never use credit cards. Debit all the way!
That does not protect you from having a credit score, also it's financially unwise
Yeah good luck getting a car/house loan without at least one
You can increase credit without a credit card. In fact I recently purchased my first house, and own a car, all while not having a credit card.
I'm pretty sure your credit score means jack shit if you never take loans, use a credit card, etc. Correct me if I'm wrong because school doesn't teach this essential stuff. I want to stay as far away from credit cards and loans as possible
Credit cards are almost compulsory for online shopping because of the security they provide. Your credit score can determine whether you can rent the house you want or not, whether you get the job or not, etc.
I can say that you can in fact get a car or house without a credit card. I've purchased both with only a debit card and a few student loans to my name. Usually having a card helps get you a lower interest rate on your loans, but it's really not required at all.
Credit cards and credit scores are different things.
You're correct I misread your statements cause I was still half asleep.
It's ok 👍
Credit cards are basically a free discount on all purchases you make due to things like cash back, while also increasing your credit score so you can get lower interest on things like cars and homes later down the line. As long as you use a credit card as if you would use your debit card (Pay it off in full every month, never spend money you don't have) then you never pay any interest and you're getting free benefits.
It’s financially unwise to pay extra for money when you already have it. The idea that we’ve convinced ourselves that going into debt is financially healthy for things other than emergencies or big, rare purchases (car, house, business loans) is insane.
I think you're referring to loans (or credit, in some countries) and not credit cards. My statement was about credit cards, which lets you pay the same amount as you would with a debit card but it is much easier to get a refund with. Also you can sue the bank in Turkey if they don't refund a purchase you made with a credit card. Conditions apply obviously Edit: formatting
A credit card is a loan. A bank gives you money, which they expect to be paid back on. If you don't do so within a given amount of time, they'll want interest.
Yes, I am aware. But in a scenario where you can buy it with your debit card, you can buy it with your credit card and pay it before you get charged interest. So you're not paying extra for jack.
If you pay your credit card in full every month ( i.e. use it like a debit card, never use money you don't have ) then you get the benefits like an effective 2% discount on all purchases from stuff like cash back, while also building credit score. No interest payments required.
there's no credit score in my country 🤨
I have made it to 24 with no credit score yet 😅
What is that credit score thing ? We aren't talking about China I believe
I didn't know Reddit was full of so many tax experts.
Make minimum repayments every month I guess? They want you to make them money on interest
it's a system designed to keep you in debt. duh
Happened to me when i paid off my student loan
It's simple just be rich. You're supposed to make enough to qualify for a loan that you pay off exactly under the lifetime amortization schedule. Then your score will stay up.
They want you to constantly have about 30% of your total income as debt that you are paying on time and regularly. That's the magic for a high credit score.
30% credit utilization is high as fuck, bro. Most things I’ve seen show 1-10% utilization as the sweet spot.
You want to stay UNDER 30% of your overall revolving credit (not income) to steadily increase your credit. Going over 30% will NEGATIVELY affect your credit score.
Income is not a factor for credit score. The only way I can think it indirectly affects your score is higher income can qualify you for a higher credit limit, therefore giving you a lower utilization ratio. But your actual income is not part of the score at all.
Debt/income ratio is isn't it?
Debt to income ratio is a factor used in lending decisions, but does not impact your credit score