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.
but I pay it off in full each month and I’m in the high 700s.
I’m young
And now you know why you’re in the 700s. Give it enough time, it’ll come down.
Bull shit. I’m 57 and been paying my cards off every month for decades. My score is 800+.
About 30 years ago I got charged $1.56 in interest because the “interest free” period was 30 days from the purchase date, not the billing date.
…fuck that shit.
I said never again and it hasn’t happened ever again.
But yeah, seconding your comment.
Thanks man, really gives me a reason and motivation to keep living /jk
I love when teachers would tell me “if you think it’s bad now, wait till you’re an adult!” it really adds flavor to the “where do you see yourself in 5 years?” questions and all that 😊
Don’t listen to the person above. Keep doing what you are doing and it will go up. Especially as you have more times of credit. Mortgages, car loans etc.
Yeah, I know. I just wanted the guy to consider if they were being an asshole for a few minutes.
I can totally recognize the fact that I’m lucky to have parents who are doing financially well and are willing to provide most of my basic needs while I finish college, which allows me to have a good credit score as I really only have to pay for gas, car stuff, and miscellaneous things.
But I can also pat myself on the back at least for not blowing through my cash and maxing my cards on stupid shit like cars & designer clothes.
And besides, it’s not like anyone gets a prize for winning the “Struggle Olympics” I just want to not be miserable in the future, and I’ll take anything I can to reach that goal.
If you think it’s bad now, you’re right. Being an adult is way better.
and reduce your credit usage to what you can actually afford.
Just be sure not to reduce it too much, otherwise it will lower your credit score.
That’s right, having a credit card but having a credit utilization under something like 30% will hurt your score.
Defend that one.
It might depend on the particular credit score assessment. Mine is always low - 6% currently - and I have an 850 FICO score. Per FICO that’s one of the reasons it’s so high.
Whatever score the Chase app shows says I’m at 826, so also no apparent penalty for low usage.
Huh, I’ll have to take a look at mine. I usually just do credit karma. My score has gone up considerably since the years where I was worrying about credit utilization percentages. I’m wondering if it has to do with how many other things you’ve got going on that also indicate good credit.
In other words, when I was just out of school with shit credit and student loans to pay back, they had very little data on me to determine my “worthiness” or whatever, so my only real option was to open credit cards and to use them maybe?
Maybe now that I’ve been consistently paying my shit back for decade(s), they don’t put as much weight in credit card utilization %?
I wish I had a screenshot from years ago, but it was like the exact opposite. Like some “Your score is low because your ‘WELLS FARGO N.A. XX86’ credit card utilization is only at 11%. Please increase utilization of this account” bullshit. And all of the links they’d give you were about how you want to keep it at like 30%.
Maybe I’ll go to credit karma today and see whats up. I hate credit cards, and I hate carrying a balance but it was drilled into my skull. My credit score is great right now so maybe I should just pay em all off.
Sorry if im rambling, I took a nice strong edible today.
Edit: Is it possible that the discrepency between the 850 and the 826 as reported by Chase (a bank) to be itself the “penalty” as you say?
I meant to add I wouldn’t trust Wells Fargo with anything given their corrupt & recent history. Doing the opposite of what they suggest is probably better with nothing else to go on.
True. But to be clear I literally just put the first thing that came into my head in there. I should have just used a fake company instead so as to not distract from the point.
Regarding my FICO score, the details on my utilization percentage says it makes up approx 30% of the score, and as you can see in the screenshot above, that highlighted as a positive, not a negative.
The score I see in the Chase app is my VantageScore from Experion, a different credit agency. Not sure what their max is but 826 is an excellent score too.
As far as carrying a balance goes on my credit card, we do not. We use it for most purchases and pay it off in full at the end of the month. So while it has a balance month-to-month, and makes up most of our utilization, nothing carries over and we pay no interest but instead get cash back. We have high limits on most cards so that keeps our % utilization low, which really is an advantage.
On our recommendation most of our adult kids do the same re: using the credit card as a debit and paying it off monthly. I know at least 3 have their scores in 800s too. If you have the discipline, having the high limit with a low utilization seems to be advantageous.
Wrong. My utilization has been under 10% for 20+ years.
You’ve been saying the same bad advice up and down this thread.
If you reliably pay your credit card bills in full by the due date, your score climbs and climbs. Not instantly, over time. Reliability isn’t a one-off.
If you cancel your credit card, you have less evidence that other institutions are happy to lend to you, and your score could go down.
The highest credit scores are for people who have been loaned plenty of money, and who always make their payments.
Deliberately causing them to charge you interest just makes you poorer and does not show that you’re a good risk to loan to. It’s the front door for ballooning debt, and that’s what they want none of - people who get declared bankrupt or have other debt interventions are a massive loss to them, and what they want to avoid like the plague.
It’s a signal that you aren’t actually using your revolving credit, which makes it less relevant for determining your credit worthiness. The formula is stupid only to the extent that the input data is bad. Otherwise, it would be an easy hack to raise your kid’s credit score to open a bunch of credit cards for them at birth, and do just the bare minimum to keep the accounts active.
They could report a long history of the balance, and use some kind of historic weighting function, or they could report both the amount currently due, and the amount paid each month, or both. The institutional players don’t want to reveal more than they have to to each other. Each of them is trying to know the most about you, and deny that to others.
Otherwise, it would be an easy hack to raise your kid’s credit score to open a bunch of credit cards for them at birth, and do just the bare minimum to keep the accounts active.
I think this might actually be a thing that people do (however, kids don’t have a credit report til they hit 18):
My usage is less than 10% my combined credit limits are ~100k my scores are around 800-817 depending where I check. Actually when I went to buy a car 2 years ago I overheard the sales guy and the finance guy who were talking about it say “holy shit, she has really good credit.”
Edit to correct my numbers after I looked them up
I didn’t say it was the entire score (unless all you have is a credit card).
You can call up the agencies yourself and ask. They will tell you that the optimum is something like ~30% credit utilization. More or less than that will affect your score negatively.
I imagine how big/small that affect is depends on all sorts of other factors.
Edit: It’s stupid. Shortly after college, when I had to start paying back student loans, I decided I wanted to try to “build credit,” so I got one of the few cards they were willing to give me. My (already not great) credit score immediately dropped.
When I looked into why, I learned about “credit utilization” and why you always want to carry a balance if you want to build your credit.
It’s fucking stupid.
Credit utilization /= carrying a balance. I put most purchases and payments on CCs, pay them off completely every month, and my credit utilization is typically something like 10% without paying a cent in interest, and I have an excellent credit score.
From years and years of first-hand experience, there may be a swing of a couple 10s of points when you get closer to that 30% utilization, but it has nothing to do with whether you are carrying a balance and paying interest. Further, that 20 or 30 points basically background noise when it comes to qualifying for new credit.
People get so fucking hung up on whether this or that will change your score by 15 points and how that signals some grand conspiracy. Open a line of credit or two, use it responsibly to demonstrate that you can manage access to that credit–pay on time and in full–it really is that simple.
I just find it interesting and convoluted, not trying to imply anything about any kind of conspiracy.
The bigger impact than credit utilization would be the hard inquiry that they use to determine whether to give you the card as well as the avg age of accounts. Low credit utilization may drop your score an extremely tiny amount (only like 1 or 2 points) but the new inquiry and lowering avg age of accounts is a much bigger impact (tens to dozens of pts drop)
You’ve been saying the same bad advice up and down this thread.
If you reliably pay your credit card bills in full by the due date, your score climbs and climbs. Not instantly, over time. Reliability isn’t a one-off.
If you cancel your credit card, you have less evidence that other institutions are happy to lend to you, and your score could go down.
If you apply for a new credit card, your score can go down because that’s also what people who are running out of money do, not because your borrowing to limit percentage is low.
The highest credit scores are for people who have been loaned plenty of money, and who always make their payments.
Deliberately causing them to charge you interest just makes you poorer and does not show that you’re a good risk to loan to. It’s the front door for ballooning debt, and that’s what they want none of - people who get declared bankrupt or have other debt interventions are a massive loss to them, and what they want to avoid like the plague.
my usage decreased to 0% and my score went up 10 points this month to 799.
What horribly wrong advice. There is no defending it, your wild crazy accusation is just wrong.
That doesn’t seem to be true from my experience. My credit limit is more than 10x my normal usage per month and i never carry a balance forward. My credit score is 825 right now.
That’s great. I’m sure you have more than just a credit card, and those other things have a much larger affect on your score. And there’s probably a million other variables in there.
I am not going to claim to know the exact formulae used… But it’s my understanding that something around ~30% utilization for credit cards is optimal in terms of the agencies giving these scores.
Say all you’ve got are student loans (that you’ve been consistently paying back for like a year), and you’ve got a score of say 600 and you want to try to establish credit.
If you open up a credit card with a $1,000 limit, your score will immediately go down to like ~585 or something, despite the fact that you don’t owe any money on that card and have $1,000 more credit available than you did before. Yes, it’s fucking stupid.
(I’m admittedly pulling these specific numbers from my ass, but this is nearly exactly what my experience was many years ago).
The only reason I have a great credit score is because I opened a credit line at 18, and have a house, which I was only able up get because, when we got married, our parents and family helped raise 10k instead of having a large wedding. Add our 20k in savings that we were only able to get because we lived with my parents, and we were able to put a down payment on the house. Thanks to crazy house prices, we look well off. On paper.
We have less than 1k in savings, so any surprise bill or breakdown might have us having to take a loan. I’ve been learning how to fix and repair everything we own. Basically me, every time something breaks. I spent the last 6 months doing maintenance on our 2 vehicles. Transmission filters, brakes, radiator coolant, diff oil, etc. I realized I’ve become my grandpa who drove a 35 year old POS, but kept it running well.
I seriously don’t know how us regular ppl are supposed to better our lives when everything is predatory and something as simple a credit score fucks you.
The hard inquiry for opening that new card lowers your score. The avg age of accounts drops with the new card and that also lowers your score. The $1k credit limit doesn’t raise your credit enough to offset the drops but over time the impact of those will wear off and your score will go back above 600.
What the OP in the image probably means is that paying off a non-revolving account (not credit, something like a personal loan or car loan) can drop your score. It will drop more if its a large account because it drops the total value of all accounts or the total value of non-revolving accounts you owe on (not the remaining value, it uses the total for some reason afaik) + your credit limits from cards.
The best way to raise your credit is to just have an assortment of different credit cards, continually pay them off in full, and have some other type of account in the mix like an auto or personal loan that you continually pay off.
Opening all of those at once will tank your credit for a bit because “credit seeking behavior” is a ding against you. That’s not an actual term I don’t think, but opening a bunch of credit lines at the same time is a bad look and could be a sign of financial distress that scares off lenders. So just start with 1 card and 1 loan then open a new card every 6 mo to 1 yr. Then when you eventually pay off the loan your score may drop anyways so use that time to open a new loan so you offset the impact of the drop.
The system is dumb but it isn’t incomprehensible and it’s actually possible to game the system a bit. There are companies that offer pre-paid debit cards but they report to the credit agencies as if you have a credit card with like a $1200 limit and they always report that you have a 20% utilization and always pay on time. That way you build credit without ever actually using credit or racking up debt.
This myth is the dumber cousin of ‘tax write offs generate income’.
The trick is to pay it off, but never fully. At least that seems to be working for me
when you close your credit card your credit 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.
Part of the credit score algorithms are the amount of unused credit you have.
This makes some sense: other companies have been willing to extend you credit, and you’re not using it. Therefore your less likely to default (because you have more of a buffer if you need to spend), plus if you do, there are more lenders to shoulder the pain.
So when you close a card, you’re doing the opposite: you’re reducing the amount of unused credit you have. So your score goes down.
Footnote 1: you can offset the hit to your credit score if you can convince another card to raise its limit.
Footnote 2: if you have NO credit cards after closing your last card, then they have no insight (or at least far less) about how your finances are going because they can’t see that you’re regularly paying some other company. Additionally another part of the algorithm is how old your oldest account is if you have none than that part of the score is zero.
“Fun” aside: when I left for college, my father added me to his Amex (for emergencies) and that started my credit history. But he’d had the card since before I was born. For the next several years I carried a credit card that said “Member Since” a date well before I was born (and a credit history that said the same too).
i’m also not a very good sea captain
It makes it very hard to extend maritime insurance to you. But you don’t notice that because you don’t need maritime insurance.
The credit score is how financial institutions measure how good of a source of money to extract from you are. It penalizes you for actually being responsible with your money, because you’re not as valuable to them if they’re not earning interest from you.
Pissed me off when my score went down after paying off my car in less than 2 years. That’s when I learned the reality or what it actually is.
Nah it’s all about risk. They dont make much money from me but my credit score is excellent. Sure it goes down if you pay a loan off but so what?
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.
It’s just a measure of how safe you are to lend money to.
Except that it now ends up getting (ab)used for things that have nothing to do with lending money, like vetting job applicants and apartment renters. It’s slowly creeping its way toward a Chinese-style ‘social credit score’, except in some ways even worse – your social score will only be affected by financial stability.
They justify it for job applicants as an overall meaaure of responsibility. They justify it for renters as a measure for how likely you are to pay rent on time vs not paying any rent and needing to be evicted.
Just in america. You can’t just random credit check anyone here in norway if it dowsnt have to do with borrowing money.
renting is competitive in some hcol/mcol area, it make sense they would ask you for credit score or INCOME level.
They’ve been doing that for decades. I had a video store run my credit to be a manager over twenty years ago.
Oh, and my credit was garbage then and it didn’t matter. Apparently they were looking for high debt (higher chance to steal i guess).
Your credit score is a measure of how long (time) lenders can expect to receive money from you
The fact that the formula for your credit score is unknown and managed by private companies is the real dumbest shit.
This is the part which drives me nuts. All this information about you is collected and distilled without your consent in the most opaque way possible. At least if it was a government managed thing, there would be basic public oversight. I know everyone dunks on China for the social credit score, but the issue with that is really the same - it’s dystopian because it is opaque and (allegedly) an autocratic tool, not simply because it (allegedly) exists. In a proper democratic system, it could be a tool for encouraging pluralism as much as a tool for managing consumer debt.
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.
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. 🤷♂️
because a lot of lemmy posters think they are geniuses, when they are simple arrogant idiots who spout ignorant propaganda to feel superior.
it’s wild to me how many like basic facts of reality are viewed as some sort of conspiracy or exploitation.
credit scores are ridiculously simple, and if you have a crappy one it’s because you don’t pay back what you borrow. but sad losers will make up this elaborate nonsense and spout lies to make themselves feel better as to why their score is in the tank, rather than fess up that they simple don’t pay off their loans.
a lot of the commentary here reminds me of weight loss people complaining they can’t lose weight, when they cut back from a 4000 calorie diet to a 3500 calorie diet, but only burn 2200 calories a day… and they wonder why they can’t lose weight. because if you only burn 2200 calories, you need to eat less than 2000 to lose weight.
basic arithmetic.
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.
Without a credit score, how does your country deal with wealthy people repeatedly borrowing money and not repaying it?
Welcome to criminal offense? You get sued, plain and simple. Bank or lender sues you, and either you cooperate or your shit gets taken and if it’s still not enough, you get part of your pay docked each month for x time.
In poor people cases, that goes down to minimal pay (exceptions happen if needed, for example caring for elder I believe).
Rich people have enough shit for taking most of the time that it gets resolved at first step.
How does a credit score help? In my country we have a register for things like cars than you can see if any debt owed on it, so I guess tracking is on the asset side. Otherwise, wouldn’t it just be fraud and the banks would take legal action? That would still produce a record that could be checked too.
Bailiffs can place an arrest their income streams and bank accounts and sell their cars and homes.
Also there’s a debt registry you can be put into if you’re like 3 months overdue and don’t come to some kind of agreement with whoever you borrowed from. Usually the banks are pretty lenient if you go to them with a proposal to pay off the debt in small installments because it’s less messy than going to court and getting a bailiff appointed
Ok, so in your country the debt registry functions as a credit score to warn lenders about deadbeat borrowers
Yes but it’s pretty difficult to end up there and most people never do. Meaning all our data is safe.
Meanwhile people mock a fabricated Chinese social credit system that doesn’t exist (I know – I’ve lived there)
That doesnt sound correct but maybe its just cooked in america. I believe the way it works here is that making obligation payments improves credit score and failing to pay on time reduces it. You can dispute any failed payments to have them overturned and they go away after 2 years. You do not need to get into debt to build credit, stuff like utility bills and internet bills will build your credit up to almost perfect. It seems fair to me but there are still a lot of people who have chopped credit and it affects being able to rent. My flatmate has dogshit credit and refuses to do anything about it and I have to do so much extra work just to secure places to live.
That doesn’t sound correct
That’s because it’s not. It’s a commonly held belief of people who don’t understand credit very well.
It doesn’t sound correct because it’s not. Financial literacy in the U.S. is awful and the ridiculous misconceptions about credit scores that propagate are one symptom of that.
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.
thought it was total credit limit / useage % something like that. get a few high limit cards and don’t use them much. number goes up. mine bounces about 10 points every month. quit paying attention. always pay balance. hovering at 820 for years. net worth figures in too. not an expert. playing their game 30 years.
It’s literally because people tend to close accounts when they pay off a card, so it’s still their fault. Just keep the card open and it is recent credit, and your average credit age doesn’t go down.
People argue about this shit but it’s like the tamest aspect of capitalism IMO. It’s easy to understand math they use to let you borrow shit or sign up for things and trust you’ll pay them.
Part of the problem with capitalism is that it fucks over people who can’t do the math. I agree it’s pretty tame, but you gotta realize just how research and math hating many are
they know. then they bury the terms in fine print nobody reads and rip-off 20% on unpaid balance while pushing the minimum payment which looks tempting to people not knowing it’s mostly interest (see terms) and almost nothing towards principle. balance goes up. title loans are insane rates. compounding is beyond average math skills so they lose their cars and max out cards fast.
Which kills me, because it’s not like compounding interest is a complex math subject
