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Posted by Elle on January 13, 2007, 9:55 am
I think this a nice caution to the little guys and gals of
our country, perhaps on the cusp of going into debt:
"[I]n today's strange alternative universe of credit card
banks, the term 'deadbeat' refers not to the improvident
borrower but to the solid citizen who prides himself on
paying off his balance every month."
--Today's NY Times Op-Ed page (free online for a week, w/no
hassle registration), article by a federal bankruptcy judge,
http://www.nytimes.com/2007/01/13/opinion/13lee.html
I have had the sense this was so for years. I think it's
easy to believe that a low FICO score makes someone a less
responsible citizen than someone with a high FICO score. Not
so. Generally speaking, it's credit card companies, out to
make a profit, trying to play with good folks' psyches.
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Posted by John A. Weeks III on January 13, 2007, 1:22 pm
> I have had the sense this was so for years. I think it's
> easy to believe that a low FICO score makes someone a less
> responsible citizen than someone with a high FICO score. Not
> so. Generally speaking, it's credit card companies, out to
> make a profit, trying to play with good folks' psyches.
That is the big misconcept that most folks have on credit
scores. The credit score is not a rating of how good of
a money manager you are, how financially savvy your are,
or how wealthy you are. Rather, the score shows how
profitable you are as a credit user, and what rates they
have to offer to entice you into taking on more credit.
If a person is wealthy and has no credit accounts, they
will either have no record, or a very low credit score.
That is the optimal place to be from a financial position.
So, lets all strive for a low FICO.
The problem is that some vendors are starting to use FICO
scores in places unrelated to credit. For example, insurance
companies are using it as a ratings tool, and some job
applicants are being screened on credit score. This means
that individuals who are the best money managers the most
savvy (or the most lucky) end up in the deadbeat basket
in these cases along with the bankrupt and money drunks.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
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Posted by joetaxpayer on January 13, 2007, 1:53 pm
John A. Weeks III wrote:
> That is the big misconcept that most folks have on credit
> scores. The credit score is not a rating of how good of
> a money manager you are, how financially savvy your are,
> or how wealthy you are. Rather, the score shows how
> profitable you are as a credit user, and what rates they
> have to offer to entice you into taking on more credit.
>
> If a person is wealthy and has no credit accounts, they
> will either have no record, or a very low credit score.
> That is the optimal place to be from a financial position.
> So, lets all strive for a low FICO.
> -john-
I recall a thread here some time back that there were factors that
created the score. From the PBS show Frontline's "Secret History of the
Credit Card" we have;
35% payment history
30% amounts owed
15% length of credit history
10% new credit
10% types of credit used
And from myfico.com, the implication that FICO directly impacts loan
rates, on a 15 yr equity loan;
760 APR= 5.83%
700 = 6.05%
etc.
Yes, income doesn't come into the equation, per se, but scores impact
one's ability to borrow. To some degree the score is a measure of
responsibility.
JOE
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Posted by joetaxpayer on February 11, 2008, 7:50 pm
joetaxpayer wrote:
> 35% payment history
> 30% amounts owed
> 15% length of credit history
> 10% new credit
> 10% types of credit used
A year back, we talked about FICO scoring and how different things can
impact it. I recently applied to have my HELOC rate drop (and credit
line increased). The approval came back within a few days, along with
FICO scores for the Mrs. Taxpayer and me. She is at 817 to my 766. We've
had the same accounts for our entire marriage except for a few store
cards she pays in full, and the 0% teaser card (in my name only) where I
took the $20K and put it in a 6 month 5% CD.
Now, from the above percentages, I take it that my stunt impacted amount
owed (of course), pulled down my average credit history (?), and added
new credit. So in the end I attribute 40-50 points hit due that one
move. Since FICO doesn't see positive assets such as our investment
accounts or CDs, they can't distinguish between what I did vs someone
spending the money on a trip, or any other purchase.
The report specifically says "too many inquiries" and "too many accounts
recently opened". Doesn't take much to trip those alerts I think.
I know some people go over the edge obsessing over their numbers. I
don't plan to go there, but if I did, I'm sure there are some simple
ways to gain back those 50 points.
JOE
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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Posted by Daniel T. on February 12, 2008, 7:44 am
> I recently applied to have my HELOC rate drop (and credit line
> increased). The approval came back within a few days, along with
> FICO scores for the Mrs. Taxpayer and me. She is at 817 to my 766.
> We've had the same accounts for our entire marriage except for a
> few store cards she pays in full, and the 0% teaser card (in my
> name only) where I took the $20K and put it in a 6 month 5% CD.
I used to work at a car dealership and saw a lot of credit reports and
scores over the years. The wife almost always had a better score, even
when the principles had both names on everything. The only time her
score was lower, it seemed, is if her credit was trashed before they got
married.
I think the sex of the individual has something to do with the score.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
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