Credit Conundrum

For just about anything you want to get off your chest about credit cards.
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roadsterboy
 
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Credit Conundrum

Postby roadsterboy » Mon Feb 16, 2015 12:53 pm

So I am been reading these forums a lot lately. Most of this doesn't apply to me, but a sense of frustration over the mystery of credit algorithms is perplexing to many.

First, you can't get credit without credit, the infinite loop scenario, there is a process to fix this though. check
Second, the Payment History, totally valid evaluation process, no pay = no credit. check
Third, Age of Credit, a valuable metric accompanies payment history, check
Fourth, different types of credit, makes sense to prove you can handle types of credit, check.
Fifth, Utilization, Not enough use = BAD, too much use = VERY BAD
Sixth, closed accounts paid of or paying as agreed, a good metric of personal responsibility.

It's the Fifth that is problematic and smacks of extortion. Let me explain. First, the Lenders contact a Credit Reporting Agency who is paid by the Lenders for this info, not Borrowers. ZERO utilization means CC Companies get nothing from you to pay for this info. Carrying a balance is revenue to the CC cos, too much Utilization means lots of interest for CC Cos but they also feel risky with you so they come up with <30% as 'preferred' use.

Large credit lines lower Utilization and then the banks say "You have too much available credit" for mortgage considerations. "Too many accounts", "too many accounts with balances", "Too many inquiries", "heavy use of revolving credit", many have heard these before. Then there are people so obsessed with their scores or acquiring more credit/cards. Hard Pull/Soft Pull, the whole thing is a complex as a middle east peace accord!

I'm not whining or complaining, it's just that it can be mind boggling to many and that why these forums are so useful and have helpful people on them to navigate this minefield, for which we are truly thankful.


jcarte29
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Postby jcarte29 » Mon Feb 16, 2015 2:43 pm

I can honestly say I've been on almost every spectrum of the "credit score line." When I went to college and they were offering student VISA cards out like candy, my inmaturity and bad-maxing-out decisions cost me YEARS, and THOUSANDS of dollars to fix. I had to go back to humble beginnings, pay off charge offs, and eventually was able to get a card again.

In 2005 my score was as low as I had ever seen (this was before I got in the car business though haha, now thats anything but the lowest I've seen).

I'll never forget in 2009 I was BEGGING to get a secured card or $400 unsecured card, and First Premier gave me that chance. I recognized I would not keep that card (and eventually a second card) for long (the Average age stigma be damned, I didn't want to keep paying the annual fee), but it would just give me something to report to the bureau monthly. As my score improved I was able to buy my house, and eventually 2 new vehicles, and last year my credit card boom LOL. Now I'm just tryin to keep it moving up (I'm close to 750 now)
Portfolio:
CITI Diamond Preferred $7,000 [06-16]
AMEX Platinum (Charge) [11-16]
AMEX EDay $12,000 [11-14]
Lowes Store $15,000 [4-14]
CSP VISA $6,000 [7-14]
GM MC $9,000 [9-14]
AAdvantage Red MC $10,350 [10-14]
Discover IT $4,500 [03-15]
Chase Marriott VISA $5,000 [04-15]
Cap One Quick $2,600[4-10]

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PlyrStar93
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Postby PlyrStar93 » Mon Feb 16, 2015 2:52 pm

You can pay all balances in full every single month while having non-zero utilization reported each billing period. You don't have to pay a single cent to the banks other than the regular purchase like using a debit card or cash when using a credit card. You can also pay all outstanding balances off before it's reported in order to have zero utilization show on credit report.

Thus, zero utilization can still mean cc companies get something from you, which is at least the swipe fee (though this actually comes from the merchant, and not the cardholder unless the merchant levies that to customer). There are also annual fees, foreign transaction fees, late fees, balance transfer fees, cash advance fees, and even interests. Carrying no balance also does not lead to zero utilization, and you can have whatever utilization even without carrying a balance.

To solve the "infinite loop" misery, it's always better to start early when being able to qualify for student credit cards with easier underwriting criteria. Even after student age, it is still possible to get unsecured credit from some, if not all, prime lenders. Credit unions and secured cards can also be good routes to start with.
Citi Forward Visa $5000 10/2012 | American Express Blue Cash Everyday $8000 2/2014 | Discover it $7000 5/2014
Chase Freedom Visa Signature $7000 6/2014 | Citi ThankYou Premier Visa Signature $5000 1/2015
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takeshi
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Postby takeshi » Mon Feb 16, 2015 3:00 pm

roadsterboy wrote:First, you can't get credit without credit, the infinite loop scenario, there is a process to fix this though. check

It's a catch-22 not an infinite loop and there are ways to get one's foot in the door. Secured and/or creditors with more lax approval criteria such as some credit unions are the typical suggestions.

roadsterboy wrote:Fifth, Utilization, Not enough use = BAD, too much use = VERY BAD

That one's not too difficult. Don't allow all your balances to report as zero. Don't exceed 30%. If you want to eke out every possible point then allow only one balance to report at 10% or less.

roadsterboy wrote:Carrying a balance is revenue to the CC cos, too much Utilization means lots of interest for CC Cos but they also feel risky with you so they come up with <30% as 'preferred' use.

Swipe and other fees are also revenue but what generates revenue isn't relevant to how one's credit is assessed. I've never had problems since I've been able to get my reported utilization to around 10% (closer to ~12% right now). The problems I had were back when my utilization exceeded 60% for long periods of time. That said, utilization is just consideration and the rest of my credit was pretty clean.

roadsterboy wrote:Large credit lines lower Utilization and then the banks say "You have too much available credit" for mortgage considerations. "Too many accounts", "too many accounts with balances", "Too many inquiries", "heavy use of revolving credit", many have heard these before. Then there are people so obsessed with their scores or acquiring more credit/cards. Hard Pull/Soft Pull, the whole thing is a complex as a middle east peace accord!

The reasons really don't matter unless they're cited as denial reasons. My scores go over and under 800 and I get "too many accounts with balances" and "balances too high". However, none of those have been cited as denial reasons. If one is applying for a mortgage then one needs to do whatever it takes.

It's really not all that complicated once you're familiar with the usual factors and what the scoring models tend to favor.

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CarefulBuilder14
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Postby CarefulBuilder14 » Mon Feb 16, 2015 3:27 pm

I've have a long-standing distaste for #4.

I use credit cards because I earn rewards, I get perks, and most merchants don't offer a cash discount.

But I really have a hard time believing that I'm somehow riskier because I purchased my vehicle with a lump sum and didn't need to finance or lease it. The incentives are inevitably perverse there.
Very useful: SchwabPlat, CSP, IHG, Costco (was AA Plat), Freedom, SPG, Prestige (retention)
Somewhat useful: Discover, ED (was EDP), BCE, Hyatt
SD with activity alerts, might close: Arrival

Might add: Proper business card, CSR, Ritz, Delta Gold, First Tech, BofA Travel PH, Aviator Red



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