People tweeting stuff. We allow tweets from anyone.
RULES:
It's not poorly implemented. It works exactly as designed. What most people fail to understand is it's not a rating of how likely you are to repay a loan, it's a rating of how profitable it is to loan to you.
So if you pay off your cards completely, you aren't paying interest, and you're not as profitable a customer as someone who has 10k in debt that they're paying interest on every month.
They also don't exactly have an 850 rating if they're $10k in credit card debt though.
Depends. There are plenty of stupid rich.
I worked oil and gas, coworkers bragged about only paying the principle interest. They both made over 6 figures out of college. Had another coworker in oil and gas that rented his vehicles, never owned them. Eventually covid happened and car prices went up. He also lost his job for incompetence. Didn't own his house nor his car.
Similarly, I knew a doctor/teacher combo that kept buying stuff. Like a boat, cars, bigger house for their stuff. They divorced as stuff isn't an answer for issues.
Those would be considered the profitable debters.
I've only ever encountered this particular scenario once. (I live in Canada. I don't know if it's prevalent any where else).
But I applied for a job once, and got an interview. In the interview, they wanted to see a copy of my credit score. I left the interview immediately. All I'm going to say is it was an American company hiring...
Your score does not drop when you pay off a card. It's drops when you pay off a loan.
And the reason is because your mix of credit changes. The formula says you're lower risk if you use more types of credit responsibly. Having a mortgage, a car loan, and some revolving credit is better than just two of the three.
I think it's important to mention why this is:
Your credit score is NOT a measure of just "how likely are you to pay off your debt".
It is a measure of how likely you are to earn creditors money rather than lose them money.
Successfully keeping up with 4 monthly payments indicates you're a likelier source of profit than only having one line of credit you pay each month. You likely have more expendable income, you're more likely to pay interest instead of paying down extra principle, you're clearly accustomed to carrying debt, etc.
This is a common misconception. Credit scores are actuarial risk, not profit utility. Having some debt load is a portion of that equation because it basically prevents dividing by zero. This is very basic actuarial science - you cannot produce a risk/utility metric without actually having priors, and within those priors there's a concept of Fisher Information, which measures the likelihood that some sample of a random variable reflects true information about an unknown parameter. Simply put, the more information you have, the stronger the model. So the more debt you manage the more information about your debt management practices is available to the actuary. Up until the point that you have too much debt that it becomes very certain that you are high risk. If you have little credit history, but that history is perfect, you will still usually be in the lowest risk tier, but that might be like 780 instead of 850, or whatever, and that's merely a reflection of certainly within the model, not your actual behavior. A person with similarly perfect behavior, and a lot more of it, should be intuitively seen as a lower risk.
I realised it's all fake anyways when my back went out and I was unable to walk for 3 years while I was on the wait list for surgery (I'm ok now).
I went from high credit with a decent paying but physical job to unemployed and no longer able up work in my industry. My partner had a few months of unemployment at the same time and I wasn't able to pay my $11k credit card debt and he couldn't pay his $20k debt. We borrowed money from my younger brother to pay rent for a few months.
Spoke to a free financial councillor, she talked to the banks for us and they happily just waived both debts. She told us to ignore both of our zip and afterpay debts, and not to reply to their debt collectors. And just like that we were debt free after owing 40k between us.
Came out the other side better off financially even though our credit score has tanked. And even though I don't earn an income now or have any debt/credit, my credit score keeps rising?
Shits made up and the numbers don't matter.
I'm curious how any bank would "happily" waive a debt of tens of thousands of dollars, just by being asked. "Happily", yet they still send their debt collectors? I don't think I understand. 😅
The debt collectors were for zip and afterpay.
My partner's credit card debt was forgiven, I think the financial councillor was able to prove that he'd paid more over the lifetime of the debt in interest and repayments than the debt was worth, then proved our inability to make more repayments. She told me mine would have a bigger impact on our credit scores because it was written off by the bank rather than forgiven, but we don't plan on taking out any more debt, that doesn't really matter.
The "happily" was a little facetious, the bank I was with was actually quite rude and difficult to work with lol. I'd had issues with them being unprofessional and straight up lying to me in the past and closed all other accounts. The credit card was still open though because it was taking time to pay off.
Please ELI5 the terms "zip and afterpay" for those of us unfamiliar with them. I think I can guess the meaning from context, but would like to be sure. TIA
"buy now pay later" schemes. They are basically a credit card where you pay in instalments rather than a minimum monthly repayment like a credit card. Technically not lines of credit so they skirt around lending laws and can be given out to more people, but it also means they can't do much to recover the debt if it goes bad. Which is why the financial councillor told us we could just ignore them if we can't afford it anymore.
(I was in my early 20s when I racked up those debts lol)
This myth is the dumber cousin of ‘tax write offs generate income’.
this is not true and it keeps people paying interest they don't have to so i'm pretty sure it was spread on purpose precisely for this purpose by the banks.
paying off and cancelling a card lowers your credit score not because you paid it off but because you're down one line of credit. by far the number of lines of credit has the biggest impact on your score (aside from major shit like bankruptcy or loan defaults.)
paying off your credit card balance before it generates interest every month does not affect your score at all aside from increased age (a good thing). your utilization rate is not calculated from your end of month balance but by how much you use the line of credit regardless whether you pay it off or let it sit and charge you interest.
so do not let debt sit in your credit card balance because you think paying it off makes your score go down if you have the means to pay it off. always pay it off if you can, and never charge more to it than you can immediately pay off except emergencies.
Yeah, this. I have 850 credit, and I've never carried a balance on any of my cards, not even once. As long as you make your payments on time, even if it's more than the minimum, your credit will slowly creep up. The annoying thing that lowers credit is paying off a loan. Wrapped up your student loans? Credit dip. Pay off the ol' car? Credit dip. Really annoying.
That's bullshit I keep a zero balance on my cards and have a perfect credit score. Car is paid off,I don't own a house and only have a couple hundred dollars of student debt.
when you close your credit card your credit score goes down.
i called one of the three credit companies and asked, "Why?" They said because it makes me very hard to extend credit to without a credit card so that makes my score go down.
...
i'm also not a very good sea captain because i'm not a sea captain but it doesn't cost me imaginary money points on my insurance premiums.
Meanwhile people mock a fabricated Chinese social credit system that doesn't exist (I know -- I've lived there)
It amazes me that the western propaganda keeps talking about a Chinese social credit system that is an extension of existing social rankings and ratings in China which have existed for millennia, but no one blinks an eye to this American credit system that is horrendous. The Chinese system is mainly in place for business, not so much the individual, like in the US.
The US credit system is a way to make the poor, poorer with insane interest rates that are illegal in other parts of the world. The matrix for the credit system is unclear as it is managed by private companies. The whole thing is insane, but no let's point at evil China where the system has no impact on normal people, unlike in the US.
I think you're overstating it by pretending that no one is paying attention to credit score. Especially when you say this under a post that literally points it out, it rings untrue
Good job, comrade. Nutomic is proud. /s
Your score does not drop when you fully pay off a credit card. If you pay your balance in full before the due date, not only are you not charged interest for that month, but your credit score is likely to go up due to making a payment on time. I used to carry a balance but have been paying it off monthly for many years now and my score is higher.
If you close an account, the total amount of credit you have decreases and your score may drop, however this is often transient. It's not useful to worry about your score week to week unless there's an obvious problem, follow it over the long term instead.
The fact that the formula for your credit score is unknown and managed by private companies is the real dumbest shit.
Credit score isn't done measure of how good you are with money. As soon as you understand it's a measure of your profitability to lenders, its reason for existence and methods are obvious - it's not "poorly implemented", you just made a category error.
It's a measure of your risk to lenders, not profitability.
Risky to lend to = lower score. That's it.
It's weird how they calculate risk, but that's all it is.
Like others said, I'm calling bull on this. I'm young and haven't had my card for a long time, but I pay it off in full each month and I'm in the high 700s. The only things I can remember reducing my score are: 1. My credit history is too young, 2. I only have 1 line of credit rn, and 3. I had high revolving utilization one month. So now I try to keep my utilization around 30-35%.
If you don't pay off in full you are now paying interest on your card. I did take econ class in high school (basically US financial education, and if it's not federally required then it's a mandatory class in my state.) and while it left much to be desired, this was one of the few things we learned. Basically the biggest lesson from that class was interest sucks and you should avoid it at all costs in anything, wether it be a credit card, payment plan, loan, etc. Always try to pay outright if you can, and reduce your credit usage to what you can actually afford. We would literally do the math to show how much more money you spend over time.
A lot of people in here arguing about how this works. Short answer is it doesn't work that way. Period.
Right. We use credit cards exclusively. We pay them off every month, never carry a balance. Our score is always in the high 700s sometimes 800 ish. 🤷♂️
In my country you have to show 6 months of bank account history for all your accounts. You can have zero credit history and get a mortgage, they only really care what your income and regular expenses are. No credit score as such. If you've never applied for a loan, nobody but your own bank and possibly the government would know what your finances are up to.
Still not had a credit card and pretty sure I will be able to live my entire life without knowing or caring what my credit rating is.
I keep my credit cards paid off and last time I checked my credit score was like an 843 or something.
Edit: 846
It's all baloney, like all I'm doing is barely using them to pay my week to week expenses and then paying them off with my paycheck.
It’s just a measure of how safe you are to lend money to.
You have systematically proven you will pay them back. Hence your score is good.
