I just used their tool. I found out my credit isn’t as great as I think it should be. The reason? I paid off all my credit cards a long time ago and operate on a cash basis now so my credit utilization ratio which is an important factor is bad. That is a good thing to know and easy to fix. I basically just have to use all of them for a couple of months and pay them back right away before any interest accrues. That is also a minor pain in the ass. I can buy new vehicles or even a house with cash but it would shoot my credit to hell over time. I am sure their models have some predictive reason for this penalty but it doesn’t seem quite right. In the near future, I hope to have enough cash on hand that I can have terrible or non-existent credit and just buy anything I want just by doing it the old fashioned way and paying for it outright. I probably wouldn’t be able to get a job in the financial industry though because they look at your credit score too when hiring which really doesn’t seem right.
That is not my experience.
I retired at 45, and I’m just living off my savings, which are considerable.
A couple or three years ago, I was buying something on Amazon, and I got a screen informing me that it would ship for free if I applied for an instant-approval Amazon credit card of some kind. I figured what the hell, and clicked on it.
To my amazement, I was turned down. I called the contact number to find out why, and the young lady said it was because I had no income. I told her that I had a million bucks in assets, and she said they don’t have a record of bank balances, just income and credit history.
My credit history is impeccable — I’ve only had a couple of credit cards for the last few decades, and the balance on them is automatically paid each month.
So it must be the income.
That isn’t the same as income being part of your credit score however. Credit card companies do look at your income as well as your credit score (which is just a score summarizing or your payment and debt habits no matter how large or small). It is up to individual companies to request information that they may use but income doesn’t go into the credit score itself. It makes sense. Lots of high income people get themselves into huge debts and/or don’t pay their bills on time. You may very well have a credit score higher than Bill Gates or Mark Zuckerberg but credit card companies may still give them a card with an insanely limit that normal people can’t get because they take other factors into account sometimes. Credit scores are used for lots of things however. A person with a bad credit score can be declined a job offer in most states due to that alone especially in jobs where handling money is involved so it is good in general not to have a bad one. You don’t need to keep it as high as possible at all times though because it only comes into play sometimes and it isn’t a contest.
Shagnasty,
You discuss utilization as an element of your credit score.
The way you’re discussing it leaves me with some question as to whether or not you understand how it is used in scoring.
In particular, what you’re suggesting wouldn’t work unless I’m not understanding how you describe it.
Utilization is calculated by taking a snapshot of all of your reported available credit and used credit, as of the dates last reported by your creditors to the credit reporting agency (CRA.)
The best utilization number for scoring is quite low, perhaps 5-10%[1].
You seem to outline the following plan: I basically just have to use all of them for a couple of months and pay them back right away before any interest accrues.
You can EITHER have a non-zero utilization ratio OR you can have no interest accruing.
You cannot do both.
You can load all of your cards up to 5%, then make payments and continue charging to keep yourself at 5%. That works fine to keep utilization at 5%, but you’re paying interest.
You can load all of your cards up to 5% for the grace period, then pay them off at the last minute before interest shows up [assuming you have a grace period]. That might get them to report once or twice at the 5% utilization level. Unfortunately, the next month or so, once you paid your balance off, they’ll report your utilization level as being back at 0%.
Separately, you suggest that the financial industry looks at your credit scores.
I might submit that they aren’t looking for the presence of very good scores, they’re making sure that very bad scores are absent.
People with lots of collection and otherwise derogatory items on their report are felt to have two problems:
1- Poor planning and foresight
AND
2- Greater temptation towards embezzlement and general shenanigans.
Neither of those problems is something you want the guy managing your money to have.
Being the kind of guy that doesn’t borrow and makes his money work for him is EXACTLY what banks want to see in their employees, ESPECIALLY management.
In short, they pull credit reports to help them judge your character and judgement.
If you’re doing the kind of stuff that nets you a score of 392, you’re usually making more mistakes in life than they want you to make.
They’re not looking to hire a guy with an 820 over a guy with a 660, though. They look AT your report, not just the score.
Some credit reports tell a story that includes irresponsibility, others tell different stories.
Good luck!
As Shag shared with you, the credit reporting agencies don’t know how much money you make. No one ever tells them.
Unless you’re earning no interest on any of your assets, you DO have income.
It’s interest income, but it’s income.
Different loan products are open to people with different annual incomes.
I recall a few years back, the minimum annual income to get an Amex card was something like $28,000. Their products weren’t for folks with less than that much income.
Another note is that different products have different credit limits based on your income. Some credit card products might have a $10,000 maximum limit, but also be issued with limits not to exceed a certain percentage of your annual income.
If there’s no income reported, the lender would have no idea how high to set your limit, and also no idea if you have the kind of income needed to service any debt whatsoever.
Best wishes to you. I sincerely hope you’re making at least a few tens of thousands per year off of your $1M+ in assets.
You know more about this stuff than I do but I try to keep informed myself. Here is the situation. I have about $50,000 total for my credit card limits spread over 6 cards. They are all sitting at a zero balance and have been that way for a long time. That is supposedly bad from a credit reporting standpoint. It sounds like all I would have to do to fix this if I ever needed credit is to just go out and charge about $2500 worth of stuff spread across all of them and let it sit there for a month before paying it back. That puts my credit utilization into the ideal range based on what you say. Would that work? My credit isn’t bad at all but it is below 720 and that was the only big reason I could see why. I could cancel some cards that I never use but two of them are my oldest ones and one is a frequent flyer card that I may use for a large purchase some time just get get a free plane ticket.
As to number of cards:
The ideal number of cards, last time I checked, is 1 or 2 very old ones.
If you closed all but the oldest card, you’d be down to 1, which would be great.
The problem is that, let’s say, if they just closed that account out because they dropped the product or didn’t like you for some weird reason, you’d have zero cards.
If I had 5 cards, I’d cancel at least two. I’d keep the one with the best rewards (for major purchases where I could get a few thousand in rewards for nothing from) and the oldest one (it helps my score the most). I might keep one more for safety, but probably I’d just keep two.
As to helping your credit by utilizing your tradelines, frankly, I’d rather not pay any interest and accept having, for instance, a 670 with 0% utilization instead of the 690 I might get if I ran 5-10% utilization.
The upwards bump from ‘No balance’ to ‘Some balance’ isn’t all that big.
It’s nowhere near the bump you’d get upwards if you went from ‘Almost completely maxed out’ to ‘less than 50% utilized’.
The only reason to consider changing your behavior to better your credit score is if you’re on the verge of taking out a large loan of some kind.
You ask a question:
- It sounds like all I would have to do to fix this if I ever needed credit is to just go out and charge about $2500 worth of stuff spread across all of them and let it sit there for a month before paying it back.*
I’ll answer literally here.
Some companies report to the CRAs once a month. Some report quarterly, ESPECIALLY on accounts in good standing.
What you’re doing with your plan is running up a 5% balance, then hoping that your account will be reported [updated, really] to the agencies before you pay it off.
The snapshot for a given card might have just occurred tonight. If it did, it might not snapshot for another 30 days. You could charge your account up to 5% tomorrow morning, get the bill in a week or two, pay off the card, and then when 30 days from today had passed…
You’d be back at 0% utilization.
That’s one risk.
The other outright certainty is that your plan is very temporary. Even if the above scenario DID work nicely, and you set everything to 5% utilization, by the end of 90 days after that, it’s probably all going to go away because ALL of your creditors have reported your pay-off to the CRAs.
If you’re trying to buy a house, business or auto loan, then this might be worth pursuing.
Otherwise, all you’re going to wind up doing is wasting your time or handing free money to a financial institution that could probably do without your help.
FYI, if you ARE working hard to get your credit ship-shape for some real estate you’re trying to buy, DO NOTHING to alter your credit report without first consulting your prospective lender. They can tell you which products have which rules that you need to comply with.
You could do things that would raise your credit score, but in theory make you ineligible for a certain loan product. Finance is a strange world.
It is bad advice to suggest to add any dispute statement to your credit report. It negatively affects your credit score and it may be impossible to refinance a home or get a mortgage until that verbage is removed (which is a pain in the ass in itself). I just went through this when trying to refinance my house.
What if you pay regular expenses with a credit card but pay the bill in full each month? That’s what I do; $1000/month in groceries/gas/utilities/etc goes on a credit card. I then pay the bill in full each month on its due date (25 days later), so no interest is charged. So I end up with a balance cycling between $1000 and $2000, shouldn’t this count towards my utilization?
Yes, it can be a timing thing. However: We have one credit card that we use for our day-to-day stuff, and ALWAYS pay on time. Whenever I’ve pulled a credit report, our balance appears (so it shows nonzero utilization).
Even if your account shows zero utilization because of timing, that “pays as agree” will appear on it and that counts for something.
Also the length the accounts are open - so if you’ve got cards you never use, trot them out for a 10 dollar purchase every couple months so the carrier doesn’t cancel them.
And, where paying interest really would help: take out a formal loan for something. Even just to put the cash in the bank. Pay it on time. Maybe pay it off early, but the point is you want to have an installment loan on your record, showing “pays as agreed”. This suggestion is because part of the FICO scoring model is that you’ve shown responsible use with a variety of different types of credit.
A funny aside: I had a Visa that gave me rewards. We charged most of our routine stuff through it.
Then, out of the blue, the company decided that nope, the new rewards would be a Mastercard. They sent me the new mastercard, the Visa was deactivated.
Since they did this without any rhyme or reason, and it was frankly a pain in the ass to switch all our automatically-billed stuff, I never used the new card. In fact, I never even ACTIVATED the damn thing.
We switched to another card we had. Which, as it happened, was from the same megabank, but a different rewards program (and frankly one we could get more use out of).
So every few weeks, I log in to check up on the second Visa (the one we switched to) - and there is the old Mastercard, active, with no transactions. They’ve even sent us a replacement card when the old unused one expired.
So my advice above about “use it every few months to keep it active”… well, there’s at least one bank that doesn’t automatically cancel unused accounts!!
TransUnion won’t give me my report. I’ve tried a couple of times, it’s unavailable through the annualcreditreport website and when requested via phone, they send a letter saying the annual free credit report has already been issued and if I want it, I’ll have to buy another. I give up. It doesn’t seem to matter anyway. I’m convinced my credit is beyond repair.
Not to argue, because I know nothing about this, but I just tried Credit Karma because some posts in this thread recommended it, and I came out with a good score. There was a tab to break it down into categories that are graded like a report card (A-F), and I got A’s in everything except the number of active credit accounts, where I got an F.
I have two active credit cards and three old cancelled ones, for a total of five. The report suggested that more was better, because it proves that people are willing to extend credit to you. IIRC the optimal number was around 25.
Sounds dumb to me, but that’s what it said.