good info on common credit myths that can effect your credit score.

Credit Score Myths

Let me condense the "myths":"

1. Its misnamed, its Fecal score
2. Any entity that uses it, makes more money with the lower the customers score by charging disproportionate higher rates, the key word here is "disproportionate", meaning inflated
3. The lower ones score, the weaker a customers bargaining position financially is on anything, ie credit, car insurance, etc
4. The credit scoring companies will NEVER disclose exactly how your score is derived, think "mushroom", as that dispels the "myth"
5. Lowest score is "300", know anyone with a 300, and what do you have to do to get a 300?

I paid off all my debt and my score dropped 30 points, figure that one out.

Same here. To the T.

I got my debt to a point where a consolidation loan made sense. 'Paid off' my credit cards, my score jumped 35 points! Then the loan hit the credit report and my score dropped 40 points. So, my score is now lower than when I started.......

Same here, last year checking monthly when I’d get my Discover bill, I was always 835 to 850.
Paid off my mortgage late last year and the balance of my HELOC this year now Discover says being debt free means I’m down to 810-825.

No one would pay any attention to a drop like that, though. Virtually no difference between an 810 and an 850 when it comes to anything.

if you actually understand credit scores and how they work, it's pretty easy to figure out.
paying off your mortgage is just like canceling a credit card you had long term. doing this removes a LONG term active positive event from your credit history. doing this changes your length of credit reported used to determine your credit score.

a similar credit event would happen if you applied and received a NEW CREDIT CARD ACCOUNT, not a new card from a EXISTING account.

going from a 850 to a 810 won't really make much difference on you financially and that # won't stay that low for to long if you continue to use credit responsibly. if you don't used credit actively this number will continue to get lower.

again. you changed the length of your credit history used to determine your credit score.
when you paid off your credit cards you lowered the PERCENTAGE of available credit used doing so. this raises your credit score.
now you opened a new account with your loan consolidation loan. this shortens the length of credit you have in your credit history. this lowers your score.
CONGRATULATIONS on paying off your credit card debts. continue to use credit responsibly and your credit score will rise in not to long.

a few posts show how people don't understand how credit scores are determined. this is why i posed the linked article.
it's a short slide show that won't effect your computer in any way.

a LOT of people don't understand how credit works and how your credit rating scores are determined.

your credit score might be one of the most important things that effect you financially.
i am no expert on credit scores. but i do have a understanding on how it is determined.
i would suggest people do their own research on credit scores and how they are determined. then work on getting this score higher. if you do this you might just find more $$$ in you bank account at the end of the year.

answer to #4 directly from one of the companies who calculate credit scores.now the exact percentage events change the score is a trade secret.
How Credit Score are calculated.

#5 is pretty easy also. EVERYONE in the USA with a SS # or a green card starts out with a 300 score. the moment you do anything financially related with a bank effects this score.

here is a SAFE government sponsored link on how to get your FREE credit report.
how to get a FREE credit report

Pay cash as much as possible, and you can tell them to stick their credit score where the sun don't shine. Just one more shackle the financial institutions want to have over all the 'good little consumers' out there....

Sometimes its actually a very good idea to have several good credit lines to establish a track record as one who pays his bills on time( those credit lines certainly don't have to be credit cards)
For instance, some of the car manufacturers offer 0% for 72 months occasionally. It makes very good sense in most any instance to take advantage of such deals instead of paying cash, if in the market.You had for sure better have that cash earning you more than 0% wherever you have it.
And no lender will loan you money at such a rate without an established track record.
Would you let somebody who had never been down the track make a lap in a 9 car you owned?
You sound very out of touch with reality

you beat me to that point.

i will also point out using a cash back card then pay the balance off every month in full you get FREE money.

before you start off on nothing is free rant. YES it's free $$$ that you are passing by with only cash attitude. merchants pay a percentage of the total charges they bill the Credit card company. the free $$$ comes from this fee. the problem is most consumers are usually not the brightest bulb in the box. they carry a balance every month and pay interest on it. in a LOT of cases the interest rate in in the 30% area. the free $$$ also comes from this.
now if you charge it with your cash back card then pay the bill in full it's exactly the same as paying cash in most situations and you get cash back at the end of the month. YES you can try to negotiate a lower bill by paying cash.it does work but not to often in my experiences. in most cases the person running the cash register will look at you like you are speaking a foreign language, worse yet they probably can't give you any discount if they actually understand what you are saying.

Using credit to your advantage is a smart way to financial freedom.

Holy Sh*t. I just agreed with Sixpack,

I paid off everything about 10 years ago, including my house. Now I only buy things that I can pay for in cash. I don't do debt. Feels great. It is surprising how much money you have when you don't have to make monthly payments.

Great feeling, ain't it? Sadly, the financial industry in this country want to start off people thinking it's ok to be in debt; that it's a normal thing, and as young as possible. Debt isn't something to be ashamed of, but neither should it be something to be normalized. Their business models would have you making payments for the rest of your life. Then again. maybe if there was some shame connected to debt, people might feel more obligated to pay it back...
And credit scores? No one commercial company should be allowed to possess so much information about someone that it makes that information valuable enough to steal and potentially ruin someone's life with, with seemingly little punishment when such a theft occurs.

i will clarify.
the only debt i have is my mortgage. i could pay it off tomorrow if i wanted to. i would have to cash in some investments to do so. i am in a 3.125% interest fixed rate 30 year mortgage i took out in 2009 and i am only making the minimum payments. i owe about $30K on my house.i pay $650 a month in payments that include $400 a month in property taxes and $75 a month in homeowners insurance. i use the cash i would have sent to the bank and invest it in low risk investments that currently pay in the 6% annual range. i earn about $7,000 a year from these investments.
i use my cash back card DAILY and as often as i can. i pay the balance off in full every month and it pays me back about $100 a month for using it instead of only paying cash. the end of the month the result is the same as paying cash when i make the purchase..


if i only paid cash and i paid off my mortgage like you suggest i would LOOSE about $5,000 a year if you deduct my principal payments on my mortgage.

i will also add because i regularly use debt it keeps my credit rating high so i get a better rate in my insurance premiums than if i only used cash.

You’re not financially free, if you are in debt, which is what a credit score is a measure of. If you owe money to others, that is money that you can’t use to buy assets.

Several years ago, I bought a new Ram, 0% for 5 years. Why use my money if I can use their money for free?

We just bought $5k worth of new furniture. I got 12 months at 0%. I had the money to pay cash, but why use my money if I can use their money for free?

I have the cash to pay off my house, but my mortgage is at 3.25%. I make quite a bit more than 3.25% by investing the money I would otherwise use to pay off my house. If I ever need to do so, I can pull that cash out and pay off the house with one check. This is the only debt we usually have, though now I have the furniture mentioned above.

I make lots of $$$ in cash back on my primary credit card, and we get 5% off at Target with our Target card. Pay them off every month, like clockwork. Haven't paid a dime in interest in close to 25 years, and we put just about everything on our cards.

Paying cash for everything is a great thing if that's what someone wants to do. For whatever reason, a lot of the "cash only" folks seem to lack a basic understanding of how responsible use of credit really works. Our credit scores are both in the 820s, and as Mr T pointed out, credit scores can directly impact things like your insurance premiums. They also impact your ability to borrow, and how much it costs you to do so, should an emergency arise that requires you to do so. The latter is not a reason to have debt, by itself, but it is a reason to consider trying to have a good credit score.

You’re not financially free, if you are in debt, which is what a credit score is a measure of. If you owe money to others, that is money that you can’t use to buy assets.
[/quote]


your credit score IS NOT a indication of how much debt you have. it is only a number that rates you ability to handle debt responsibly.

you can have no debt and have a high score. you can have no debt and have a low score also.
you can have a lot of debt and have a high score. and you can have a lot of debt and have a low score also.

your credit score IS NOT a indication of how much debt you have. it is only a number that rates you ability to handle debt responsibly.

you can have no debt and have a high score. you can have no debt and have a low score also.
you can have a lot of debt and have a high score. and you can have a lot of debt and have a low score also.

[/quote]

Yep! I have a credit score well into the 800s(so does my wife) We use credit everyday...we carry very little debt

And if, God forbid, you get sick or lose your income, then what? The monthly bills will keep coming. Can you pay everything off if that happens? And still live comfortably? Better in my opinion to owe nothing and have emergency cash to sit on for unforeseen events.

i get what you are saying by pay for your purchases in cash when you buy them. you owe nothing after that for the items.

BUT you are bypassing the part where he says " I had the money to pay cash, but why use my money if I can use their money for free?"

he is basically saying he could have used his cash to pay in full if he wanted to. he chose to INVEST his $$$ to earn more $$$ and use somebody's else's $$$ for free to pay for his purchase them pay off the borrowed $$$ over time.
for a more THEORETICAL way to view this. in real life there are no guarantees. if he chooses to invest in the stock market, currently earning 10% annual return. he would be kissing $500 of earnings goodby by paying cash on his $5,000 furniture purchase.
if he gets sick or louses his job all he has to do is cash in his investment to pay off the bill.

I have savings and investments I could tap. With the only debt being the mortgage, that's an easy payoff. I also have short term disability coverage, long term disability coverage, life insurance, etc.

One way is not better than the other. They are just different. Now, using debt to live above your means is a totally different story. That's never a good idea. I am curious to know one thing...if I can finance something for 0%, and I have the cash to buy it, what is the downside to financing it at 0% and letting the cash earn investment income?

Guess then you have never experienced a catastrophic unexpected medical, natural disaster, victim of a criminal act , etc financial event in your life that went way beyond any rainy day fund, and a soulless scoring system decided you were financially irresponsible?

WOW... never seen anyone with a 850 score....

Nothing wrong with that I guess if that is what you like. I don't for me. I am investing exactly as I like with no mortgage/debt. To each his own. Glad you are in good shape and comfortable.

Generally but not always 0% financing offers are usually either 0% financing or a cash off incentive. You have to do the math to see which is better. I usually take the cash off offer. But it depends on the amount and what your investment money is making. If you are just collecting 2% or less in a savings account then it's probably worth it to take the cash off and pay it in full. Put the payment amount back into your investment every month.

The highest mine has been is 830 it usually is around 799. I charge everything except when tipping. My bank automatically pays off my cards on the due date so I dont pay any interest.

I've looked into a lot of the 0% financing offers. Like stater earlier, most (nearly all) are either a 0% financing, or a discount for cash payment. If the 0% financing price is actually higher then the cash price, how can it be 0% financing?
Your paying the financing cost up front, and then they are hoping you don't make that last payment by the date set, or they get to charge you more financi8ng charges, back to the original purchase date. You can keep believing its really 0 % financing if you want.

A couple years ago, we bought new flooring for our house. The company was advertising 0% financing, but the cash price was $1,000 cheaper. Please explain how that works.
BTW, our credit score is over 800 with no debt of any kind. Gene

You guys are right about needing to check the cash price. I've never paid more $$ to get 0% financing, ever, for anything. Hell, the truck I bought at 0%, I got for about $9,500 off sticker. It was an 06 Ram, QC, 4x4, TRX Off-Road package, Hemi, etc. Very nice truck at the time. The furniture price was the same whether I would've paid cash or not. We once financed some appliances back in the days of no interest/no payments, too, but the crash of 2008 put a stop to those offers. We also bought a mattress/box spring at 0% for 12 months, no difference in price. I've invested my money well, which is why I'll be able to retire once my kids are done with college, should I choose to do so. My wife, we'll have to wait and see. Years of service make a huge difference regarding her pension once she goes past 30 years. We will be fine if she wants to retire at 30, but there's a huge advantage for each year between 31-35.

The 0% interest loans are an incentive from the manufacturer. Its truly interest free. Any single penny you pay above that is on you for being late on a payment.
The unit you are buying has the same dealer price if you pay cash or finance it. If a Ford employee walks in and wants a new truck, the price is fixed, its better than anybody can get. Whatever that price is, you get 0% from that price, or no zero% and instead more money off from Ford in the case of a rebate.
Where the difference in price comes in is from the manufacturer via a rebate. That comes over above the deal the dealer cut you. You have the ability to go to your bank and see what rate they will give you. Do a little math and figure out if say a loan at 4% and say a 4000 dollar rebate will save you over no rebate and 0% interest and not getting the 4 grand rebate.

Regards your above example..... do you think the flooring company can loan money at 0% interest without it costing them something. Use your head bud. It isn't that hard.
They “ buy down” the rate. In other words, say they can get money for 3%. They pay the difference to give you an option. The other option Is to just knock money off( your 1000 bucks) and let you get your own financing.

Quick example..
You go in and want 30K in flooring.... they offer you your choice, they knock a grand off and you finance the 29k that is left at your bank at 4% for 5 years.
Or you finance the whole 30 grand and they give you 0% but not the grand off.....
Well, taking the 0% offer would save you three times as much as getting the 1000 off and going to YOUR bank.
Now, do you see it costs them more in the above example to give you zero% than a 1000 off? You seem to not know dealers nor GM nor Ford nor Honda nor anybody prints money at zero%. They PAY to make that money available to you for free, zilch, no interest

I just looked into a Jumbo loan (probably wont do it). You need a credit score of 680 or more. I have never been a 680. That's setting the bar pretty low. Depending on how much I have on my business credit card (that I pay off in full every moth and have never been charge interest), I fluctuate in the low 800's.

My son that sells cars said anything over 750 is considered "perfect credit". He said you WOULD NOT believe how messed up peoples credit is. Said many people that make very decent money have terrible credit cause they live on the edge and their entire life is financed. Said one young girl in her 20's that made $90k had terrible credit. So bad they couldn't get her a loan. Another young girl the loan was 26%. You read that right!!!!

Like Dave Ramsey preaches - IM DEBT FREE!!!!!!! No mortgage, no car loans, no credit card debit, nothing. I tell all my kids (in their 20's) to NEVER get a 30 year mortgage UNLESS they make payments like its a 5, 10 or 15 year mortgage. 30 year mortgage (that took us 22 years to pay off) was one of the STUPIDEST things we have ever done financially!

We do exactly that. We have a 30 year fixed, but we we pay bi-monthly, and we pay more than is necessary on each of the bi-monthly payments. I could save a few bucks by having a 15 or 20 year mortgage, due to the slightly lower rate. For me, I prefer the flexibility of the 30 year mortgage, because if I circumstances dictated, I could always just start paying the actual payment amount. I pay enough extra to offset the difference of the 15 or 20 year mortgage rate, and invest the rest of the $$ that I could otherwise use to pay off my house. It's worked well for me thus far.