Posted on 04/22/2008 5:11:17 PM PDT by shrinkermd
As Lenders Tighten Standards, Potential Borrowers Focus On Ways to Raise Their Ratings; Joining the '700 Club'
...So when Mr. Sheldon was shopping for an auto loan last fall, he first compared rates online. Then, he allowed only two lenders to pull his credit report because he knew that lots of inquiries could drag down his score. Now, he's making extra payments so he can pay off the five-year auto loan in 3½ or four years. He figures the lower debt level will boost his score, which already is near the upper end of the 300-to-850 range of the FICO score, the widely used measure of consumer creditworthiness.
"It's a game you have to play," Mr. Sheldon says. Once every few months, he charges something on one of his lesser-used credit cards because he fears that issuers will close inactive accounts, reducing his total available credit and damaging his score.
The behavior of credit-score strivers can appear bizarre to the uninitiated. Many rejoice over joining the "700 club," feverishly apply for new credit cards they don't need, keep drawers full of old credit cards they barely use and fight for the removal of the smallest blemish on their credit reports.
Even consumers with good credit, like Mr. Sheldon, are pushing to improve their FICO scores -- and with good reason. Whereas just a year or so ago a score of roughly 680 to 720 would qualify for the best rates from many lenders, that bar has now been raised to 720 to 750, credit experts say.
Many lenders are demanding higher scores because they've been burned by rising delinquency rates. In the fourth quarter, consumer credit delinquencies hit their highest level since 1992, according to the American Bankers Association.
"The rules have definitely changed," says John Ulzheimer, president
(Excerpt) Read more at online.wsj.com ...
Try and have someone explain how you get to 725-750 and nobody will tell you. Nobody even will tell you how they rate people.
I have equifax and I really don’t have the faintest idea how they judge. I have yet to miss a payment on my card, I keep a fairly low balance, but when I say charge 200 buckso n my 1300 dollar card, my score drops twenty points, even if I pay it off within a few weeks.
Should I start opening more damned cards so I have a bigger limit to work with?
There is more to the Credit Score game than meets the eye. We have a new industry, where one’s loan payment record are collected the sold to the lenders, so higher interest rates can be justified. Hell you can’t rent a car without a credit check and they won’t take a cash deposit for more than the cost of the rental. What gives?
I recommend striving for the 800 club myself.
“Should I start opening more damned cards so I have a bigger limit to work with?”
NO- They’ll just rip you off more.
As best I ave been able to determine, it’s based on how much the credit issuer stands to make from you.
If you have a good score, they will lend you large sums of money at decent rates. Obviously the larger the amount and the longer the term the more they stand to make from you.
Since you pay off your card balance every month, then they aren’t making a lot of money from you.
IT seems that if you carry a large balance and maek the minimum payment or even a little more than that then your score goes up.
A mix of debt, income, willingness to carry balances, and ability to pay.
Just seems like the more $$ that the banks can make from you the better your FICO score.
Bookmark.
The scoring methods don’t make sense really. It’s all in their favor and has nothing to do with any individuals credit history. Not only that, if you are late on one credit card, other cards can change their interest rate on you.....go figure that one out.
Bottom line is that if you keep excessive balances, utilize all your available credit, pay bills late, or your used credit exceeds what your income can support, you will have a lower score. I don't know the exact metrics of how they score credit, but the negatives are pretty obvious IMHO.
How about not using credit at all? Howz that for a concept???
So, you basically have to be in a tenuous middle ground to keep a good credit score: Just as bad as having a lot of delinquent credit card accounts is having a lot of zero-balance credit card accounts.
Besides, credit card customers with zero balance in their accounts are more likely to close these, so that’s less money for the credit card customers.
Ah, the wonderful world of revolving credit.
FICO score ping!
Am I the only one thinks putting a score on ones worth to buy and sell is “unamerican”?
They make the rules behind closed doors and cant not be open and truthful about how they apply the score.
FICO's *NEW* credit scoring system for 2008...
FICO Speeds Rollout of New Product to Meet Lender Demands
The credit scoring system is being tweaked again as Fair Isaac Corporation, developer of the FICO credit score rolls out a new model dubbed FICO 08.
The new product was originally announced back in June but was not due to be finalized for a while. A demand by users in the wake of both rising mortgage defaults and consumer credit delinquencies for a better way of analyzing risk has pushed FICO into speeding up the release. It is expected that FICO 08 will begin to roll out by late spring.
Last year the three major credit bureaus announced credit score packages of their own, probably having seen the success FICO was having in charging consumers for information on their credit scores. FICO, however, remains the product used by most lenders not only to grant credit but to set interest rates and other loan terms. FICO scores are also factored into credit decisions by insurance underwriters, cell phone, and utility companies and are sometimes used by employers to evaluate prospective employees.
FICO predicts that the new scoring system will help lenders reduce default rates on consumer loans between 5 and 15 percent. FICO 08 will supposedly go easier on consumers who make the occasional slip while coming down harder on those with multiple offenses. For example, it will give a slightly higher score than previously to a borrower who is late on one obligation but current on multiple other accounts. Those with several delinquent accounts could find their credit score has dropped.
Scores will still range from 300 to 850 and will take into account the same factors as the old version such as timely payment history, length of credit history, amount of debt, ratio of debt to available credit, type of debt (credit cards good, finance companies not so good), and any excessive amount of recent new credit. There will also be a premium placed on the debt mix; that is a consumer with revolving and installment credit will fare better than one with nothing but (revolving) credit card debt.
Among the big changes FICO is in the area of evaluating "authorized users." An authorized user is one who is not responsible for paying a credit card, but that card's history is reported on the user's credit as well as on the owner's credit. Parents have for years made children authorized users of their cards in order to help them build credit and many spouses derive all of their credit histories from being authorized users of their husband's or wife's card.
This form of credit improvement, commonly called "piggy-backing," however, became an article of commerce. As we reported in June, a whole industry had grown up to broker improved credit through authorized user status. Credit card owners with healthy FICO scores could make significant income by renting authorized user status to those seeking to improve their scores. The broker would manage the rental transaction (in which the renter would never have access to the actual account) paying the owner a fee of perhaps $150. Since the transaction has an almost immediate effect on the renters score the broker can fairly quickly remove that name from the account and recycle it to another renter, generating another $150 for the owner. The new credit information remains on the first renter's credit report forever.
Lenders became alarmed about this practice as it seemed to undermine their attempts to contain risk so FICO 08 will eliminate any impact of being an authorized user. This will not only affect the authorized user for a fee but also the college student hoping to build his credit on the foundation of his parents'.
A number of websites have sprung up in an effort to prevent FICO from implementing FICO 08 but most of the complaints are those that have long been leveled against credit scoring and credit reporting agencies. Critics have long questioned whether scores are valid measures of risk, complained about a lack of transparency about how scores are calculated, and postulated that minorities are unfairly penalized by the systems. The new version of FICO has prompted anger over the elimination of the authorized user category claiming that it will unduly penalize women who are more likely to have that status on their husbands' card than vice versa.
One website recommends that authorized users of spouses accounts open a few new ones either jointly with the spouse or in their own names and advises persons who are about to be married to retain their own credit cards even as they are added as an authorized user to the spouses credit lines.
As much as it would be nice to live in a world where people lived within their means, the lending and credit card industries has made it next to impossible.
When people check your credit score to get a job in the first place, and paying for all your expenses cash puts you in the same place as the 9/11 terrorists and the Unabomber, using credit is almost a societal duty.
Sad as it is, it’s reality.
It’s the opposite of what you think
The worst your credit score the more they can gouge you.
Sorry doesn’t work ... prospective employers check credit now ... and you can’t rent a car or even get DTV or DISH cause they check credit. If you don’t use credit your score will be VERY low. People like that are known as “ghosts” in the industry
We pay cash for everything, with the added bonus that the powers that be have no clue about our buying habits or history. I despise those VISA commercials which portray a well-oiled cafe consisting of swiping VISA cardholders, and then along comes the evil cash user to screw everything up. There is something vaguely fascistic about those ads. I don't want the government or industry knowing what, when, or where I buy things.
There is a danger in AGING your credit. Whatever last account you open, they use that date to determine how old your credit history is. If it is not old enough then they penalize you some points.
It necessary doesn’t always hurt. I have 30+ cards and charge different ones all the time. I pay them off almost all every month. Sometimes in couple of months. My score is pretty good so I am guessing charging and paying off helps for sure.
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