Its a very complex system of math and rules, but it isn’t impossible to … raise your credit score.
Closing a loan or credit line actually often lowers your score because it lessens the total amount of credit you theoretically could be using, if you maxxed everything out.
Your ‘Credit Utilization’ is what % of your total maximum possible credit you are using.
So, when you finally pay off a huge loan of some kind… well, that account closes, and now your relative credit utilization probably goes up, because the system is now only looking at say your credit cards, instead of your credit cards + your big loan.
If CC Balance is 30k / 50k Max,
Big Loan is 5k / 500k Max…
You’re at 35/550, or 6.3%, very good.
Pay off Big Loan?
30/50, 60%, pretty bad.
Theres no like, reward mechanism that you get in the system, for paying off a large loan successfully, beyond all those payments toward it counting as on time payments.
So basically, you should actually never close down a credit account of any kind, after you fully pay it off, to the extent that you can do that.
Just… use it sparingly and make regular payments, or put the card in a safe, destroy it, who cares, as long as the account still exists.
(big asterisk on that: unless it has some kind of regular due payment just to even have the account, even if you’re not using it at all, have no balance on it at all.)
Thats also true because another big factor in credit scores is how long you’ve had the accounts you have.
It literally does just take time to build up that element of it, time of you making regular payments and never leaving a balance that rolls over into the next month.
I’m not trying to defend this system, its horseshit, truly evil, a mandatory labyrinthine scam that everyone is forced to participate in, which almost everyone loses.
I’m trying to summarize useful advice.
I was homeless for 2 years.
When I finally got a bit more stabilized, I had scores around 520, because yeah, I spent money I didn’t have so that I could eat, and not sleep outside in blizzards and heatwaves.
Its now been about 2 years since that point, and I’m up to between 670 and 710, the 3 agencies still considerably disagree as to which accounts I even had… as I got mugged and had my identity stolen multiple times, and I was only able to convince different agencies of different amounts and extents of that… and also crippled by those muggings…
But the point is, its not impossible to rebuild your credit, even while you’re living off of only SSDI as I now am.
Its exceedingly dfficult to do so, but not strictly impossible.
You can find real, in depth guides on how all this shit works, but it’d probably take most people a solid week or two of studying it to fully grasp it.
So what do you do when you pay off a CC to improve your utilization, and they close the card without warning, and your score drops?
No CC gets instantly closed when you pay it off. I pay my CCs off every single month.
If they close your card without warning, well, then you can’t really do much about that.
There’s probably some other factors that went into them deciding to do that, late or missed payments, something lile that.
So… I think Kikoff and Kovo both offer variations on this idea, but I’m familiar with the Kikoff one:
You pay them $10 bucks a month. For a year. At the end of that, you can eithet renew it, or l, they just give you $120 bucks, they give you your money back.
While for most people this is probably pointless, if you’ve missed a lot of payments, doing something like this can help chip away at improving your on time payment record.
Kikoff also has another thing where you can pay them various amounts of money a month, there are multiple tiers, the highest is $35… and they basically set up what appears to credit agencies as a credit card, but you can’t actually use it as a credit vard.
But, if you have very little existing credit lines, it can significantly increase that ‘total available credit’ number, and the various tiers also give you differing levels of access to challenging items on your credit record you think are fraudulent or wrong in some way, gives you access to something lile Aura or DeleteMe, where it periodically checks for and tries to delete your data from data brokers.
That also takes a while to complete, but the point is that you can do this setup too, and it boosts your total available credit, and of course also counts towards your count/percentage of on time payments.
Kovo apparently also has some similar types of things like this, but I have not used them myself.
EDIT: Oh right and Kikoff also just tells you your credit scores, updates maybe once or twice a month, forgot about that.
Most of these points are myths, but as long as it’s funny, right?
…or the OP believes the myths, isn’t trying to be funny, and is legitimately confused?
most of the comments on this thread are paranoid ramblings of ignorant people who think the credit system is a conspiracy against them.
Credit score = milkability score.
I follow the old-fashioned idea of buying things with money I have, debit instead of credit.
My credit score is nearly 800 and I’ve given credit card companies $0.00 but they reward me with cashback for using them. Its basically debit with rewards and more protections but you do you king
Cashback and protections paid out of higher transaction fees, merchant raises prices to cover those costs. It’s not just a magic money machine; the consumer is subsiding significant card company profits. If we all just agreed to forgo the rewards and protection there would be fewer middlemen to pay, but I don’t blame you for acting greedily (I do the same).
I understand that you can benefit if you play it correctly, but can you deny that it’s designed to fuck people over that don’t? Idk at least to me thats why i don’t even want to be part of it, even if i am doing fine with money and would net benefit, probably. I just don’t want to be part of that predatory system.
Edit: of course i am also talking as someone who grew up not exposed to credit scores at all and only ever paying debit.
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You know my favorite fact about credit scores? Paying your utility bills on time for your whole life will not raise your credit score one point. Forty years on time every month nobody cares. However missing enough payments on your utility bill that it gets sent to collections will lower your credit score. Kind of makes you want to burn down some buildings doesn’t it?
Careful, that’ll lower your score
You can use Kikoff or CreditKarma or things like that to regularly report your paid on time bills, and that does, slowly, incrementally, increase your credit score.
Yeah its still total bullshit that that isn’t just like a pre-baked in part of the credit system, but you can do this.
Absolutely. I could candidate some buildings in particular. They have some sort of pedo brand.
That one actually makes sense to me. A utility bill isn’t credit, it’s a different debt, so paying it when you’re supposed to doesn’t demonstrate responsible use of credit. On the other hand, if you can’t pay off any sort of debt on time, you probably aren’t a good risk for loaning money to.
Also, it’s the kind of payment you cannot miss. I’m fucking off my CC bills ATM because I’m unemployed, cannot pay. I have to scrounge the power, roof and water bills.
There’s some that have now adapted their policies to include bill payments
And rent. My last rental had a special offer though: pay an extra fee every month and they’ll report your rent to the credit bureaus, raising your score through the roof.
You can report your own rent to the credit bureaus. Hell I report the rent I paided to family in cash and they accepted it and it rose my credit score. You just have to show reoccurring costs and bank statements.
Shitty deal, but yeah, moves like this will save you money.
Dad: “You know how when you and your gf want to learn how something works and you get books at the library and learn about it? (90s, OK?) You can learn how money works.”
Lemmy: NOAAWW! Want money want credit! No learn!
Reminds me of a coworker telling me overtime is bullshit because they charge you more taxes and you actually make less money.
Oh honey. That’s why you’ll never have more money.
If you don’t pay me extra money, I’ll make your life hard. Sounds like extortion to me.
Paying your utility bills on time for your whole life will not raise your credit score one point.
FICO Credit scores measure exactly one thing: How good are you at regularly paying on debt over time? Thats it.
Utility bills are generated and cleared every month (assuming you pay). If you got in a financial jam, you could probably lower how much HVAC you use or lower your water usage while times were tight. You can’t do that on installment loans. The full loan payment is due every month. Utility bills are not a great measure of the ability to regularly pay on debt over time, which is what FICO scores measure.
AI, not a joke
USA’s very own social credit system
Did this credit card score in the US come from a Black Mirror episode or something? Sure we have companies (in the EU) doing some customer scoring checks beforehand (for some utilities or services), but they operate mostly by accessing shared black lists from past collections systems or something, and I’m ok with that. But this US system looks scary!
Credit scores are used to tell companies how much they can earn on lending you money.
Paying back quickly reduces the amount they can earn, lowering your credit score.
Not paying it back obviously lowers the score.
The way I understand it, to raise your credit score you need to slowly pay back your loans, so you pay back maximum interest.
Note however that I am just a cynical IT guy in Sweden with zero actual exposure to US/UK style credit scores, and that I may be talking out of my ass.
You are entirely incorrect. The credit card company makes most of their money from the fees paid by the merchant. They make money when you, the customer, spend money because the merchant gives a chunk of it to them, usually with an additional flat fee. (Different merchants and card processors have different payment structures. A grocery store is more likely to pay a much higher fixed daily fee to avoid unpredictable transaction fees on small purchases)
They don’t lower your score if you pay back early. People get confused because they see their score drop after going from $10k credit card limit with $800 in monthly usage paid on time every time and a $500 balance on a $25k car loan that’s been paid on time every month to just the credit card. The reason it went down is that the number of regular timely payments went down, which means fewer trust signals, and credit utilization went up. (3% to 8%). It doesn’t however snap down as though you hadn’t just made a bunch of good payments, it just doesn’t boost when you’re done.
The credit card company makes the most money when you make a huge number of modest purchases and then immediately pay them back. When you have credit card debt their money is sitting in the merchants account. They want to minimize the time they don’t have their money so they charge you based on the risk that you never pay them back, after a grace period. (You have usually a month before any interest acrues).
It’s why as you get better credit scores the credit card company starts offering you increasing incentives to buy things. Bonus cash back on purchases at places that tend to be frequent, smaller purchases without bulk processing rates and so one. They’ll refund you on purchases in a dispute with the merchant and then figure out the merchant dispute independently (usually by just dropping it because they don’t care about $124.99 in potentially substandard curtains or whatever they just want the customer to keep buying curtains and the merchant to keep thinking it’s a net positive). You’re a walking $0.25 + 3.0% per purchase. Making you regret spending money is the last thing they want.Your ass is speaking truth
There must be something else to it. I’ve never paid any interest on my credit cards and I paid off my mortgage early; by your logic I should have a low credit score, but it’s actually in the “Excellent” range.
You have great interest paying potential because of your reliable handling of finances, so your score is high to make it easy for you to take on a lot of debt down the road.
In another comment, someone mentioned that it’s not just repayment of interest that profits credit card companies.
Even if you pay all debts monthly before interest can compound, the CC companies still charge processing fees to merchants on a per-transaction basis (which merchants either pass directly to consumers or indirectly through higher prices). They still get their cut, even if you don’t see it on a line item.Recently I had house work done. The contractor offered to charge me 5% less if I paid with cash or check instead of credit card.
There must be something else to it.
Massive understatement—it’d be more accurate to say they’re completely wrong, lol.
Yeah paying back early doesn’t affect it as far as I can tell. Lenders just want to know if you’ll leave them in the lurch or not. If you pay back early that just means they can reinvest the cash sooner.
Well the back need some safe bets as a baseline.
Hmm, I don’t think so. I’m in my 60s and I’ve always paid my credit cards in full each month when they’re due. Until very recently, I did have a mortgage and paid the regular payment (with occasional extra payments for principle), do they did make money off of me there. My credit rating has pretty much always been at or near the highest it can be.
I always pay my loans back on time and every now and then the bank rise my credit limit. I think it’s because I also have a bank account with them and they can see I have the money ready to go. I don’t make much money for them, but I do make a consistent amount and the banks like that too.
The way I understand it, to raise your credit score you need to slowly pay back your loans, so you pay back maximum interest.
I got an 800 credit score by just using credit cards and paying the balance each month. Lenders made literally no money on me.
Paying back a loan quickly will not lower your credit score. If you have a line of credit that closes as soon as you pay off a loan (eg a car loan) your score can go down if it changes your utilization rate (how much you could take out in loans vs. how much you have taken out) but paying off a loan early won’t impact your score.
You can look up what things are factored into a consumer credit score. You can see for yourself that early payments are not part of the formula.
100% spot on.
It’s absolutely a scam designed to extract even more wealth from the poors.
No joke, I’ve had a car dealership tell me they can’t sell me the car I want because my credit score was nonexistent (no credit history in 7 years). I was paying in full, in cash, literally in an envelope in my hand.
Grand total of 8k, all in 100s, super easy to count.
But no, I didn’t have a “good enough credit score” so I couldn’t buy that car from them, despite having the money to do so.
Mental gymnastics on that one.
I think you just got a shitty dealership. “Legal tender for all debts public and private” means just that, they aren’t allowed legally to refuse dollars. My cousin also successfully did what you are describing.
They can easily refuse cash. It’s not a debit until you owe them money. If they decide not to sell you a car then there’s no debt. You aren’t obligated to see someone a car if the manner of the sale isn’t to your liking.
You are correct. What they can’t do though is only allow you to buy the car with one method of payment, which is what is being described here.
Why on earth do you think that’s the case? They’re selling something, they’re not in one of the limited industries where you have limited rights to refuse, and method of payment isn’t one of the reasons you can’t refuse to do business with someone. A handful of places prohibit not accepting cash, but it’s not enough that I would assume that’s where they were, particularly if a business opted to just casually refuse.
That’s not really relevant here yet. GP doesnt have a “debt” before the transaction takes place. Nothing about that statement forces a business to do business with you. They are perfectly within their rights to only agree to do business with you if you pay in chickens.
That isn’t how holding a business license works.
Sure everybody has the right to refuse service, but they can’t offer service only through one means of pay.
https://www.federalreserve.gov/faqs/currency_12772.htm
Is it legal for a business in the United States to refuse cash as a form of payment?
There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law that says otherwise.
A few states have introduced bills to require taking cash (Idaho, Mississippi and North Dakota), but as far as I’m aware none have ever actually passed into law.
I think you would be surprised how many states already have laws like that on the books. Mine does.
Not necessarily a shitty dealership, just one with low margins.
Cars are generally sold by sellers with incredibly low margins (talking like a few hundred dollars, max). They make their money through the financing. They probably didn’t want to sell the car in cash, because some other chud will come along and buy it on credit and get them a higher margin.
Pro tip - always get your own financing when purchasing a car, don’t get it through the dealer. But don’t let them know that, look over their finance package when signing the paperwork, try to negotiate out any origination charges, etc. then simply pay the loan off immediately with your private financing.
Here in Sweden, that would also have been rejected, most stores won’t accept cash at all.
I had to pay for my car using a wire transfer a few days before I picked it up.
I do think that it would have been funny to just use tap to pay, but apparently that would have increased the cost by a lot.
Just imagine paying for a car with something like an SJ credit card and get the motherload of priopoäng!
(For the non-Swedes, SJ is a train company with a version of a frequent flyer miles point system, and they like most of those have a credit card where every SEK spent earns you 1 point. A trip from Malmö to Stockholm (600km, ~4,5h) can be bought for some 12-16000 points. A new car costs anywhere from 300000 sek up to a million and beyond.)
I think there has been some EU-wide regulation that you can’t pay more than 10k€ in cash or sth, it’s to prevent money laundering.
That’s insane to me.
I have money to buy something, and I’m being refused the sale despite this money being legal tender.
In the US, it is legal tender to pay off all debts. But merchants can refuse to give you debt if you are paying cash. Thus have no obligation to accept it.
I get what you mean, and agree to some extent, but the reality is that handling cash is expensive and dangerous.
Back in the early 2000s, there was a large wave of high profile armours car robberies in Sweden.
Some even completely blew up the armoured car.
This lead to a debate and a deliberate effort to reduce the ammount of cash used in Sweden.
I remember reading something about 97% of all transactions inside Sweden are now done electronically.
This has lead to banks having offices that don’t handle cash, and that banks are looking at cash deposits with suspicion, since you can’t trace cash.
This, as usual, only really affects normal poeple, and criminals have ways around it.
No joke, I’ve had a car dealership tell me they can’t sell me the car I want because my credit score was nonexistent (no credit history in 7 years). I was paying in full, in cash, literally in an envelope in my hand.
The dealership wanted you to finance so that you’ll pay them interest, because they make more money that way. If they completely refused, what’s most likely is that the car was being sold at a price that gives them zero/negative profit margin, so without financing, they’d literally take a loss selling it for straight cash.
No joke, I’ve had a car dealership tell me they can’t sell me the car I want because my credit score was nonexistent (no credit history in 7 years). I was paying in full, in cash, literally in an envelope in my hand.
There are car dealers (especially at the low end of used cars) that don’t make money selling cars. They make money with horrible debt and payment terms trying to trap vulnerable people. The worst of these dealers may end up “selling” the car 2 or 3 times repoing it each time when the buyer can’t pay.
So its first possible that this dealer didn’t want to sell you a car for cash because its against their business model.
Grand total of 8k, all in 100s, super easy to count.
$8k in cash is super sketchy for a single purchase. Its untraceable and that sets off fraud alarm bells. The dealership also may not be set up to deal in large sums of cash like that lacking the security to do so. Lastly there are laws at the state and federal level called KYC (Know your Customer) for some transactions that require the seller to verify the money is legit. With cash, thats nearly impossible.
You might have had more luck showing up with an $8k cashiers check or offering an $8k wire transfer from your bank. Both of these are exempt from lots of regulations (because there’s a paper trail) where cash would not have that luxury.
But no, I didn’t have a “good enough credit score” so I couldn’t buy that car from them, despite having the money to do so. Mental gymnastics on that one.
I’m guessing that was just an excuse to not sell to you because either they’re the sketchy dealer (that likes to sell loans not cars) or they thought you were super sketchy as a buyer.
Credit scores are used to tell companies how much they can earn on lending you money.
This is demonstrably bullshit.
Someone who maxes out a credit card, and then only pays minimum payments, and always makes them late, is, via interest accruing and late payment fees, making the lender basically the maximum amount of profit possible. And yet doing this will result in a garbage credit score, because using every penny of your credit limit is very detrimental to your credit score, and not making payments on time is extremely detrimental to your credit score.
Meanwhile, take me, someone who never pays a cent of interest, because he pays off his card every statement cycle (and on time, naturally), and because of card rewards, I’m the one profiting, the lender is literally the one paying me, and ‘yet’, my credit score is in the 800s.
So how do you reconcile that with the assertion quoted above? It’s very hard to understand how anyone can arrive at the conclusion you did, while also knowing, at least (as I assume you do), that late payments simultaneously hurt your credit score and increase profit for the lender, just as one example.
Paying back quickly reduces the amount they can earn, lowering your credit score.
Straight-up
liefalse.The way I understand it, to raise your credit score you need to slowly pay back your loans, so you pay back maximum interest.
You don’t understand it.
There’s also an element of whether or not the lendee can reliably make payments. Always having late fees doesn’t show that you’re able to reliably make companies money. And when you’re making payments on time without fees, they still get money from the fees they charge the business. So using and paying back is still good for them. It’s still all about the money, because it always is in the US.
Paying back quickly reduces the amount they can earn, lowering your credit score.Straight-up lie.
No, it doesn’t fit the definition of a lie, I didn’t know any better, so it was ignorance, not a lie, it would be nice if you could edit and correct this line.
The way I understand it, to raise your credit score you need to slowly pay back your loans, so you pay back maximum interest.You don’t understand it.
I wholeheartedly agree with you there.
Overall you do seem to know the subject better than me, so I will mostly defere to your judgement (apart from the thing about me lying).
EDIT: Thanks for the edit! (:
I’m sure I’ll get down voted to holy hell for saying this, but I’ve always appreciated that the rules are pretty transparent and it was easy for me to rack up a great credit score even before I had a decent income. To me it always felt like an open book test.
Credit score just means how likely a lender will make money off you if they lend you money with low risk.
The cultists at Experian sacrifice a black goat and interpret the spatter patterns
I think it’s more likely that they reach out to the people buying their leaked data on the black market and request feedback on whose profiles they were able to use to gain access to credit or not. Those profiles obviously must have good credit so they bump up their scores.
Easy. It’s a scam to screw over anyone they feel like.
It stopped being a can the applicant afford their current outgoings and afford this loan type system a loooong time ago. Now it’s a noose round the neck of anyone that has ever lost a job and missed a couple of payments or got screwed over by a company changing billing software. The number means nothing, I’m sure on some kind of grading curve it averages out but so would throwing darts at a board and assigning scores that way.
The rich fail up and everyone else has to play by the rules or get fucked over.
/Rant over
The rich fail up and everyone else has to play by the rules or get fucked over.
You’re playing by their rules, and it only matters as long as we allow them to not play by the rules.
I bet they’d stop doing it if they got literally ripped into pieces by horses. Or a horse’s solar-powered motorized equivalent.
I bet they’d stop doing it if they got literally ripped into pieces by horses. Or a horse’s solar-powered motorized equivalent.
Idk man, Luigi happened and look what that did to insurance overall (spoiler: nothing). Yes I know that’s insurance and not banking, but the idea is the same.
Luigi (who I am not convinced actually did it) only stopped at one.
I bet if we kept going, things would change pretty substantially.
It was never a system that existed to just verify the ability to get a loan. Banks were the ones who did that.
The credit score was always a measure of how individuals took on an paid off debt in a way that the creditors wanted for maximum profits. That’s why it wasn’t something individuals even had access to until they came up with a way to have people interested enough that they would pay for the privilege of being able to see their personal debt monkey score.
It has always been a shit system for the average person.
The credit score was always a measure of how individuals took on an paid off debt in a way that the creditors wanted for maximum profits.
This is demonstrably bullshit.
Someone who maxes out a credit card, and then only pays minimum payments, and always makes them late, is, via interest accruing and late payment fees, making the lender basically the maximum amount of profit possible. And yet doing this will result in a garbage credit score, because using every penny of your credit limit is very detrimental to your credit score, and not making payments on time is extremely detrimental to your credit score.
Meanwhile, take me, someone who never pays a cent of interest, because he pays off his card every statement cycle (and on time, naturally), and because of card rewards, I’m the one profiting, the lender is literally the one paying me, and ‘yet’, my credit score is in the 800s.
So how do you reconcile that with your assumed truth quoted above? It’s very hard to understand how anyone can arrive at the conclusion you did, while also knowing (as I assume you do) that late payments simultaneously hurt your credit score and increase profit for the lender, just as one example.
Yall are making this more complicated than you need to.
-Using credit does lower your score, yes, because if you already have loans you are less able to pay off additional loans. However, once you are done paying off those loans you will have a higher credit score than when you started
-Not using credit will only lower your credit score because it turns you into an unknown quantity
-Paying back late does lower your score, duh
-Paying back early does NOT lower your score. The only thing is if you take out a loan and then immediately pay it back they will recognize that you didn’t really need a loan in the first place. But Paying back mortgages/car finances quickly is a great way to build credit
-Simply checking or looking at your credit score does not affect it. However, making a “hard inquiry”-actually going to the bank or dealership and asking them if you can afford X thing-can lower your score because it’s a clear sign you’re about to take on more debt. That won’t actually hurt you for that particular inquiry though, it only hurts you if you walk away.
-Taking out loans does lower your score because you have burdened yourself with debt, duh
-Repaying loans does NOT lower your credit score, it raises it, unless you no longer have any debt at all and they no longer have a feel for how good you are at repaying.
Having an excellent credit score is not hard. Use a credit card and pay the full balance every month - thats a good idea anyway since the cash back is free money. Take out loans only when you need to and repay them as quickly as you can (also a good idea, since the guaranteed ROI of repaying debt is going to be better usually than when what you can make guaranteed by investing).
Now is America over-reliant on debt? Oh yeah absolutely. But avoid revolving credit card debt and don’t get in over your head with mortgages and car loans and you can easily “game the system” and take advantage of cheap credit.
Canada. No idea of the scores thing, despite being inundated by adverts about it most of my life.
However, I can’t fathom people who’ve never had a credit card – are you living the life of a monk, still in high school; what?
It perplexes me because I’ve had a credit card since entering the workforce and, while I’ve used it sparingly, it’s really saved my ass a few times. “Neither a borrower nor a lender be” is just adding challenges to your life you don’t need at a time when you need them least.
Never had the need for a credit card living in Sweden. I got a debit card and that’s it
Credit cards rarely work in a store here so hardly anyone uses it. I only have one in case something only works with a credit card.
Credit just isn’t my thing. It feels like a scam
Because it is. The rules are written so only the rich can navigate it intuitively
Not really. Credit can be an incredibly powerful tool in right hands. It’s just that a lot of people are greedy and get lured in by banks that do
GET ALL THE MONEY RIGHT NOW
pay twofold in a yearOn the other hand, banking system in general is very much a scam.
It’s an American and British affliction… This shit wasn’t even a thing in France and then I moved to the UK and people talk about “credit scores” and willingly going into debt to pay it off, huhhhhhh 🙄
