A (Very) Watchful Eye on Credit Card Spending

Yahoo News ^ | Jan. 30, 2009 | Ron Lieber

[D-fendr]

I should have added the effect of credit inquiries (negative factor) to the score.

And there’s still more factors and inter-reactions; it can get really complex.

There are a few real experts in analyzing this for people - it can become quite important on major purchases, for investors, etc. The formulas are a trade secret of Fair Issac & Co., they’re not published. FICO gives general information, but that often doesn’t match up to individual cases in the real world. And there’s a ton of wrong information out there.

The experts I trust got their expertise from rapid rescoring, which allows a sort of controlled experiment with the black box of the FICO model. They do this with huge amounts of money involved in their success. I feel very comfortable having seen them work, but a lot is over my head, and it is often counterintuitive.

One of these guys describes his feel of it this way: FICO most rewards those who are very experienced in the credit game, who have played it a lot, a lot of different ways, have played it recently, are playing it now and have done all this perfectly.

He says you can put most or all of the scoring factors into this idea.

An example: Take a multi-billionaire with a million dollar a month income, owes no one, never owed anyone, paid cash for everything all his life, no credit cards, car loan, mortgage ever. What’s his credit risk based solely according to his FICO scores, high or low?

Low score, high risk.

[meyer]

Helps a good deal in clarifying at least part of what the credit rating is about. I will add that your rating also looks at paying non-credit bills on time (utilities, for certain) and it looks at your timliness on other types of credit besides cards. If you're occasionally late on your car or house payment, this will drag your score down.

The two cards I cancelled in the last year - well, actually, 2 years now that I think about it - involved one that had migrated from one company to another until it ended up being the same lender where I held my other card. I don't like having both cards with one entity so I closed it.

The other card was a glorified employer travel card which amounted to being a credit card in my name that I could only use for employer purposes. Useless. When they switched from B of A to Citi, I let it expire and opened another card at another company.

My thought on closing out a card is to open another first, then close the previous one. It helps a great deal if you haven't used it in a while. I closed several idle accounts a few years ago since I wasn't using them. Penney's, Discover, and a couple of others - I hadn't used them in a number of years and yet they were shown to be open accounts on my credit report.

Speaking of credit reports, we are all entitled to get one free credit report from each of the 3 major credit rating agencies each years. You don't get the actual credit score for free, but you get to see how you stand with each acount that you have or have used in the past few years. Great resource - I would check one every 4 months so that you can utilize all 3 without fee and without having a long time span between checks.

[D-fendr]

Excellent points, meyer.

To emphasize on credit scores and non-credit bills: Some report to the bureaus, some don’t. Folks that are really hard up and have to make choices, should take into consideration who reports and who doesn’t when they prioritize their payments.

Which brings up your point about the free credit report. Very good recommendation.

As you said, you don’t get your score but you see what is reporting on what bureaus - and tackle errors early.

If someone wants to be serious about monitoring their credit and their scores, I recommend myfico.com. It’s run by FICO and gives you the FICO score. Which brings up another point: there’s lots of “credit scores” out there. Each bureau has their own version. But what the vast majority of lenders use is FICO. Folks should look for that.

appreciate your post..