I’ve said it before, and I will say it again: dear media, please quit obsessing with the credit score. Last week’s episode of the NPR program Marketplace Money was about credit and credit scores. One of the stories was The power of FICO. It featured Pete Deibel of Winter Park, FL (emphasis added by me):
“Here’s how Pete got punished. Without warning, the credit card companies slashed his credit limits. This even though he kept up his payments as he always had. With lower limits, his card balances instantly shifted from making up 20 percent of his available credit to 80 percent. Suddenly, Diebel looks like a guy who’s living off his plastic. His FICO score dropped 10-points [sic]. That may sound miniscule on a scale of 300 to 850, but it could translate into thousands more in interest payments.”
OMG. His FICO score dropped 10 points! Big deal! It could translate into thousands more in interest payments! Are you serious? Or is that subtle word could rearing its ugly head again?
I don’t know what my FICO score is right now. I can’t care less. Whenever I refinance my mortgage, I have them send me the credit reports and credit scores they pulled. That’s all. During all these years, my FICO score must have dropped and gained 10 points many times. It never bothered me. What should Pete Diebel do when the credit card companies slashed his credit limits? Pay off the balance, or apply for new credit. If he can’t do either, he not only “looks like a guy who’s living off his plastic.” He is living off his plastic.
After reading the Wikipedia entry on credit score, I like the Swedish system the best:
This system aims to find people with bad payment attitude. It has only two levels, good and bad. Anyone who does not pay a requested debt payment on time, and also not after a reminder, will have their case forwarded to the Swedish Enforcement Administration (Swedish: Kronofogdemyndigheten), a national authority which collects debts.
… …
If one gets a request by the Enforcement Administration to pay, it is possible to object to it. Then the one requesting the payment must show the correctness in the court. Failure to object is seen as admitting the debt. If the debtor loses the court trial, the court costs are added to the debt, and the Enforcement Administration fee also. Taxes and authority fees must always be paid on request unless payment has already been made.
How about that? Only two levels: good and bad. A national authority that collects debts. I bet people are very good about borrowing money and paying their bills in Sweden.
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Robert says
While I agree with you about not obsessing on it, it is “amusing” to see it change over time – sometime for apparently no real reason. Here’s mine over the past year or so:
757 as of 03/11/2009
786 as of 02/10/2009
757 as of 01/14/2009
741 as of 12/11/2008
765 as of 11/08/2008
782 as of 10/07/2008
748 as of 9/11/2008
752 as of 08/08/2008
769 as of 5/17/2008
Mark says
yep, you’re obsessed, if you feel the need to report your scores on a web site comment section
The Weakonomist says
The FICO score is a joke. The guy that did my car loan told me it plays a very small role in decisions anything if your score is over 650. They use it as a starting point, not the final decision. A 10 pt move means jack crap.
Pelon says
Doe anyone else feel like this only became an issue when the rating agencies started to sell credit scoring services to consumers?
Your credit score is a reflection of your financial responsibility. Blaming a credit card company for affecting your score by reducing your credit limit is like blaming a police officer for giving you a speeding ticket.
SageGriot says
I wish FICO was just a joke….more like a scam IMO. All that data was literally worthless except among the lenders until FICO comes along, creates a magic number and convinces all consumers to pay them for access….scamalicious.
Adrian Logan says
I think the FICO and Credit Limit reducing without just cause is a scam to make it look like us loyal debt payers are bad credit that the government needs to give the bankers money for. My daughter and I have both worked for these scam artists. Believe us, it is all about the banker doing whatever dishonest thing he can to get more monery. I paid over $13,000 in credit card payments last year and my FICO is 669, thanks to corrupt bankers lowering my credit limit as I pay them off. Bank of America lowered by credit limit to $500.00 immediately after they cashed my $8,000 pay off check.
dawn says
Of course, I can’t speak to your financial situation, but maybe you pay all your bills on time, never max out your credit cards and have never had a need for a house or car loan. That’s great if ignoring your credit score works for you, but unfortunately, there are millions of Americans out there who aren’t so conscientious and have leveraged themselves deeply into debt.
Credit scores exist because banks needed a quantifiable way to measure the risk that a given borrower will default on a loan. One easy way to determine that risk is to look at how well a borrower has paid off his bills in the past, and that’s why 35% of your credit score hinges on just that one factor.
It’s easy to say credit scores are a joke or a scam, but there is a reason for their existence.
In the old days, credit was extended based on a handshake and the banker’s personal relationship with the borrower, who could be a neighbor on his street, the local dairy farmer, or whatever. of course, that kind of one on one business dealing would not be possible now.
eva says
Chasing after a good credit score means you’re in debt.
Mark Waddell says
Hi the trouble with all of the scoring is that there is no standard system there are at the least three. I dont mean reporting agencies I mean THREE scales being used and they are all differant scales 500-900 or 280-850 and 300-800 and with the “Big Three ” Transunion , Equifax and Expirian I find they report each others scores!! But the real kicker here is the scores will be differant even when you see Equifax scores on the TransUnion site . So what I see happening is it will depend on the Score , more then the “Borowers Credit History” I had a financial set back due to a second income lost , I fell behind and ran up debt
a three month period of past due or late dropped my overall score from 720 to 595 . All the debt is current on time or paid in full as agreed , my score has dropped to 549 at times . It’s great if you never get in trouble BUT it would be nice if any of the lenders considered thirty years of good over threes months of not so good . I never wanted to fall behind it just happened , there is a lot more going on now due to the plummeting score , but I just wanted to say , I had a bad spot That does NOT make Me a bad person .
Carly says
The first point I would like to make is that it surprises me that people would even think that having a poor credit score is a moral judgment on them, this is laughable. Secondly, in response to Dawn, can’t you see that it may well be legit for banks to want to estimate the risk level of a lender but with the introduction of the FICO banks have been given the power to create their own wealth by lowering the credit on cards that have been paid off thus “forcing” consumer to start spending using the card again to maintain a good FICO score.
George says
If you are foolish enough to be in debt, and live beyond your means, you deserve all the interest payments to the banks taken from you as they do!
It used to be that if you wanted something, you saved for it and when you saved enough to buy it, you purchased it. Now, people want instant satisfaction and have the “I want it now” attitudes and can’t save for what they want and pay cash for it.
Credit Cards are debt traps. period! They are not convenient, they are a menace and create trouble for millions of people every day.
People today have no idea what “Money” is. They have lived on credit for so long now, they have no savings at all, and the some that do, use it for vacations as soon as they can take that one week off of their slave jobs and spend it, just to start saving for next years vacation.
When this debt based monetary system of credit and debt finally stops, which it will, I can only imagine what terrible positions these people will be in when their world of plastic and credit no longer function as money.
Never in all of history has any nation ever been in so much debt as the United States.
Never in all of history has any paper fiat currency lasted and not collapsed from debt.
John Pierpont Morgan told Congress back in 1912: “Gentlemen, Only Gold and Silver are Money! Everything else is credit!”
There are only two ways to conquer a nation and control its people.
One is by the sword, and the other is by debt!
Mac says
Get cancer…. how’s your credit now?
Jacob says
That was before the boomers ruined the economy, before trade became more efficient with overseas labor, before the boomers scoured and devoured the natural resources, and exploited the planet.
Do you really think a kid turning 18 today has any choice but to go into debt? Unless they come from a wealthy family, they have to take on debt to get an education, they have to acquire a vehicle if they live in an area without mass transit, they have to deal with major medical issues and escalating hospital costs, they have to deal with a huge population of competitors for employment given by companies that do everything they can to not pay what you’re worth.
You are delusional if you cannot see the way the world has changed and that for anyone under specific familial income levels – credit is the only way to feed, cloth, educate, and shelter yourself. Or perhaps you can tell me how 7.25 an hour is supposed to provide all those things at 40 hours a week.