Debit vs. Credit Cards

[goeduck]

I would love someone explain to me the algorithm they use for your credit rating.

I use to have a 849 Fica score. I'm down to a 775 now and have I have no clue as to why.

Soft credit checks (you checking) do not generally impact your score.

Hard checks (you applied for a loan, etc) generally do negatively impact your score.

 

[Sigarms]

Soft credit checks (you checking) do not generally impact your score.

Hard checks (you applied for a loan, etc) generally do negatively impact your score.

The only loan (and debt) I'm paying on at all is the loan for the renovations. That said, my (and my wife's) assets vastly outweigh the loan the amount. I took out that loan because I actually thought it would help our credit rating to put us back on the radar so to speak.

That said, I did take the loan out as a single individual. I know my wife's score wasn't hit.

 

[Sigarms]

The only time that number could matter is if you want to take out a loan...

End of day you're correct. I just scratch my head over it.

 

[Sigarms]

Sometimes lack of credit effects your rating.

If you don't have a mortgage.....may look worse than. Having a 500k mortgage that you only owe 10k on.

The first.....they have no idea if you have zero equity in anything, or have 5 million in assets paid. The latter, they at least know you have $490k in equity

As mentioned, exactly why I took out that small loan.

 

[JethroB]

That reminds me of opening a savings account to get a toaster.

Remember those days?

At the local Federal Savings & Loan. My grandma got my toaster. I still have my little red pocket sized passbook somewhere. My dad opened the account for me when I was about 12.

 

[two_bit_score]

As mentioned, exactly why I took out that small loan.

As you probably know, you can get a free credit report from each of the 3 main credit bureaus every year and a credit score is included along with an explanation.

The banks we use include a running monthly credit score available online. Wells Fargo is the best.

 

[Skagit]

... Wells Fargo is the best.

... mmkay...

They're constantly being sued for fraud but you know, what's a little bank fraud between friends?

Wells Fargo scandals: The complete list

Here's an overview of Wells Fargo's most notable scandals and missteps as CEO Tim Sloan testifies before the House Financial Services Committee.

finance.yahoo.com

And then the latest one

Wells Fargo Risks Shutdown Over $3.7 Billion Fraud Scandal

 

[Torvy]

End of day you're correct. I just scratch my head over it.

Actually, lots of companies use credit scores. Insurance, apartments and utilities just off the top of my head.

Some banks just use FICO, but most combine FICO with additional info gather by credit bureaus and provided by the applicants.

How are FICO Scores Calculated? | myFICO

 

[Shenandoah MF1760]

I would love someone explain to me the algorithm they use for your credit rating.

I use to have a 849 Fica score. I'm down to a 775 now and have I have no clue as to why.

There are many ways they bring your score up or down.

My wife's score just took a hit because she had a card she hadn't used except once when she got it. And only then because getting the card gave a 20% discount on her initial purchase. She paid the card off and never thought about it again.

Since the card was not in use they informed her by mail that they were dropping her spending limit from $1000.00 to $500.00. So what, who cares?

Well... Transunion, Equifax, and Experion (The Greedae: Three Sisters Of Financial Fate) see that and your credit score goes down a few points because you are no longer able to go as deep into debt as you used to be able to.

So just having credit isn't enough, you have to be actively using it. This gives them data to work with and sell.

Oddly enough the term deadbeat is now used by financial people to refer to folks who payoff their credit cards monthly because they don't make any money off them.

 

[Sigarms]

Oddly enough the term deadbeat is now used by financial people to refer to folks who payoff their credit cards monthly because they don't make any money off them.

I have no doubt given the general population of our country, the credit card people are still making money on interest

 

[two_bit_score]

There are many ways they bring your score up or down.

My wife's score just took a hit because she had a card she hadn't used except once when she got it. And only then because getting the card gave a 20% discount on her initial purchase. She paid the card off and never thought about it again.

Since the card was not in use they informed her by mail that they were dropping her spending limit from $1000.00 to $500.00. So what, who cares?

Well... Transunion, Equifax, and Experion (The Greedae: Three Sisters Of Financial Fate) see that and your credit score goes down a few points because you are no longer able to go as deep into debt as you used to be able to.

So just having credit isn't enough, you have to be actively using it. This gives them data to work with and sell.

Oddly enough the term deadbeat is now used by financial people to refer to folks who payoff their credit cards monthly because they don't make any money off them.

And here all along I thought I was just a frugal country boy and now you tell me I’m one of those “deadbeats”.

 

[Torvy]

And here all along I thought I was just a frugal country boy and now you tell me I’m one of those “deadbeats”.

I spent 20+ years in the credit card industry with some of the biggest banks in that field. No legitimate bank uses that term. That term is a business media creation meant to spice up articles, leading to clicks or subscriptions. Since the media is a self-serving entity, even otherwise legitimate outlets, like Investopedia, will 'define' terms based on how other media outlets misuse them.

PIF (payment in full) customers are the core of credit card portfolios. The bank makes lots of money from their high transaction volume and minimal risk. Unlike securitized credit, the bank has way more risk when real deadbeats fail to pay. In the 80s, banks started to evolve collection strategies toward credit rehabilitation. The cost of hardcore collection practices was not worth the fraction collected.

 

[Sigarms]

Since the media is a self-serving entity

Please, please, tell me that's not true!

So what you're saying is the credit card company makes their numbers by the transaction cost of using their card and not by people who rack up some big bills that takes a year or two to pay off? I just know some people I scratch my head over when they tell me what they're paying on their credit card to pay off some credit card debt.

 

[JethroB]

And here all along I thought I was just a frugal country boy and now you tell me I’m one of those “deadbeats”.

And I’m proud to be one.

 

[RSKY]

And here all along I thought I was just a frugal country boy and now you tell me I’m one of those “deadbeats”.

And I’m proud to be one.

And there is nothing wrong with being frugal.

My dad lost his dad when he was about four years old. There was no safety net back in the early twenties. I remember him telling that Grandma got all six kids together and showed them one silver dollar. After the crops were sold and the bills were paid that is all they had to get thru to the next year. My mother lost her father at age eight. They sold everything that wasn't stolen from them and her mother worked the fields plowing with a mule. Both parents grew up glad to get something to eat.

So I was raised to be frugal. It you don't just have to have it don't buy it. Get up at 4AM and drive to a job, get home at 5PM and get on the tractor and work until dark. That's the way both of them lived and worked until they retired.

I get being a scrooge, well being frugal, honestly!

RSKY

 

[Torvy]

Please, please, tell me that's not true!

So what you're saying is the credit card company makes their numbers by the transaction cost of using their card and not by people who rack up some big bills that takes a year or two to pay off? I just know some people I scratch my head over when they tell me what they're paying on their credit card to pay off some credit card debt.

It's a both-and, not an either-or. They make some money off of people who carry revolving balances, too. But, if they get to the point they cannot make their payments, it becomes a big loss for the bank. PIF customers regularly spend on the card. We are small potatoes and probably average about 4k a month that we charge and pay off. People who carry a balance tend to have lower credit lines (to a point) and do not charge much monthly because they don't have available credit. Those folks mostly charge big purchases and spend months or years paying them off.

Like a lot of things financial, the average person thinks about bank income by individual. Banks think about their income and risk in the aggregate. Think of us PIF customers as regular income. It is dependable and tends to remain relatively constant in good times and bad. If you imagine the bank as a retail store, these are your regulars who form the core of your sales. Customers who constantly revolve bring in income, but less consistently. Think of them as seasonal customers at a retail store. Retailers need both regulars and occasional customers to earn profit. Same with the banks.

 

[Creamer]

For most people, an ARM isn't the best choice, but sometimes it is. It's a matter of risk tolerance. I took out a ARM when I bought a Condo about 10 years ago. I didn't really expect to keep it this long, but I have and the rates went down a number of times before just starting to go back up. If it goes up more than I'm comfortable with, I have plenty of money in fixed return investments to pay off the loan.

I just purchased a house last spring and put an ARM on it. It was 2.75% versus the fixed at that time were all around 5%. Since it is fixed for seven years and I only plan to own the house five I figure I am good. (The house is close to work which is two hours from my home and in five years I will be retiring, i.e. very defined timing so I knew it was acceptable.)

 

[Creamer]

End of day you're correct. I just scratch my head over it.

What i scratch my head over are people with a very high debt to income ratio and they have a high credit rating because they pay their bills on time. A high debt to income ratio means you have less ability to repay the loans which should mean a lower credit rating.

 

[Torvy]

What i scratch my head over are people with a very high debt to income ratio and they have a high credit rating because they pay their bills on time. A high debt to income ratio means you have less ability to repay the loans which should mean a lower credit rating.

FICO doesn't really involve income, so no DTI. Banks, of course, use that info because it is required on your application. Another big factor that is not part of FICO is LTV (loan to value). Of course, this doesn't apply to cards, but any secured loan. The better your credit rating the more willing the bank will be to lend at or above LTV. Low credit score may only get you 80%, meaning you have to have 20% down payment (or get a really good price).