How Much Is A Credit Score (FICO) Worth?

You suggested he get loans and pay a huge amount of interest. My suggestion if he needs to do anything is to get a credit card or two, and just use them. Buy gas/groceries on the card(s). Pay in full each month. That's all. Of course, buy the darned score for $8 would render much of this dialog moot, now, wouldn't it?

Joe

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Not really. I suggested that doing so would raise his FICO, I didn't suggest that he actually *should* do it.

I suspect that neither of us know which of the above, if either, will actually help a credit rating or by how much. However...

How so? Are you saying that if his score is low then he should use credit cards as you suggest, but if it is high he should use them some other way, (or not use them at all?)

Frankly, I don't see how knowing his score now will help him in any way. Can you explain it to me?

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Haven't you said in the past that, since the precise FICO algorithm is inaccessible to the public, one cannot know what happens to one's credit score when one takes on more debt?

Whereas I contend that the general guidance on how one's credit score changes is well publicized. According to these guidelines, taking on debt may affect the FICO score positively or negatively, depending on the details. E.g. the guidance is to keep credit card debt a small percentage of the allowable balance.

likely to agree on much here. Rather, I am posting so as to suggest others go to more authoritative sources, such as the guzillion consumer sites that give general guidance on FICO, and with which I have not seen any serious dispute. After all, if myfico.com 's guidelines are false, the repercussions would be serious. With so many people participating in taking home loans and therefore so many using FICO in this process, one would think there would be more complaints about it. The only complaining I hear about is not with the algorithm itself, but with ID theft, resolved issues not being reflected on the credit report, and so forth.

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One cannot know precisely what will happen, I'm sure even you can agree with that. That said, we know what the FICO score is supposed to represent and we can more or less accurately guess what should affect such a score.

The above is just too funny. So you say that general guidance says that taking on debt *may* affect the score positively *or* negatively... ROTFLOL!

Of course the "details" aren't known because the calculation of the score isn't known.

It seems to me that we are more in agreement than you would like to admit.

Absolutly! Don't assume that *I* know what the hell I'm talking about.

Let's go with that...

And of course the grand daddy.

Have credit cards - but manage them responsibly. In general, having credit cards and installment loans (and paying timely payments) will raise your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

The OP obviously has not followed this advice. He hasn't made timely payments on a loan for 13 years now.

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I was assuming that they had electric and gas bills that need to be paid on a regular basis.

-john-

You call that a loan? That's not any definition of a loan I ever heard of.

Brian

You buy something, but don't pay cash. The guy who sells it to you wants to be paid promptly. So Visa loans pays the guy who sells you something and puts the charge against your account. If you don't pay the card balance in full by the due date, they'll charge you interest. Whether or not you are charged and pay interest, you've had the use of their money for xx days, and you have to pay it back. If that's not a loan, I don't know what is.

Elizabeth Richardson

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"Daniel T." wrote

Of the five main areas that make up credit score, two are "capacity used" and "type of credit used." If one reads more on the details of these and then sees where the specific debt a person takes on falls, then one can estimate the effects on credit score.

Wow, that's harsh. The OP said he hadn't had a loan since

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That's credit. It's not what I've ever heard describe as a loan. A loan is generally a specific amount for a specific purpose. The fact that both loans and credit have interest (possibly) doesn't matter.

More specifically, I don't believe that credit cards were what the OP was talking about. It is possible that I misinterpreted that.

Brian

Upon first reading this sub-thread, I was inclined to agree with Elizabeth, but after spending a few minutes with the dictionary, I now know that "loan" and "credit" have clearly distinct meanings -- but see my comment at the end as to whether or not the distinction pertains to this thread.

Credit is routinely extended as part of many business transactions. Store owners, construction contractors, patrons in a bar, even employers

-- all are commonly the recipients of goods or services provided up front on credit, the only requirement being that the provider trusts that they will receive payment at some point. There is no expectation or desire that the original good or service will be returned, only that it will be paid for. (The root meaning of "credit" is "trust").

A loan actually requires the return of the original thing borrowed, frequently with a charge for the use of it. In the case of money, this is interest; in the case of a DVD movie or a car at the airport, it is a rental fee.

A "credit card" muddies the waters to the extent that it is a two-phase transaction. During the first phase, the card holder's grace period, a balance on the card represents credit extended to the holder, which the merchant has outsourced to the card company in exchange for a service fee paid by the *merchant*.

After the grace period, if the credit balance is not paid in full, the merchant is out of the picture and the card holder now has a loan from the *credit card company* and is expected to return the money which was borrowed to close out the credit balance. A cash advance is a pure loan from the outset, with no credit or merchant involved, which is why there is no grace period for a cash advance.

For purposes of this thread, it seems the distinction is irrelevant, as the FICO score forecasts *payment* ability, regardless of whether those payments are to close out a credit balance, settle a utility bill, pay rent on an apartment, or return borrowed money.

The huge thing that is missing from the forecast, of course, is the existence of present or future income, or liquid assets. What strikes me as peculiar is that I can have a great FICO score, take out a huge loan, and then quit my job tomorrow, with the lender being none the wiser nor having taken this risk into account when they made the loan.

-Mark Bole

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Clark Howard recently mentioned a couple of companies that provide free credit scores:

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"Mark Bole" wrote

But of course, one generally cannot get a mortgage loan without a satisfactory income. I think what is missing from the thread is that, per many sources, the three Cs of mortgage underwriting are credit, capacity, and collateral. The FICO score takes into account only the credit part. Capacity takes into account income (not just amount but type of income and so apparent stability). Granted, as you proposed, a person could quit tomorrow. The algorithms are only as perfect as the inexact science of financial planning.

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I don't want to go round and round with this. It's up to the OP to clarify what HE meant by loan. If he meant "any use of credit" then my little anecdote was not applicable. If he meant a car or home loan, then it was.

I will certainly agree that someone with no credit history won't have a FICO. As far as no credit history for ten years or so, I frankly don't know.

Brian

Come on now. You're posting in this group and don't know that you are borrowing money from a credit card company when you buy something using a credit card? You don't think that's a loan? What do you call it when someone else pays your bill and you have to pay them back that money? Thumper

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In what way?

-Will

william dot trice at ngc dot com

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I guess I even dispute that statement. FICO does not look at assets or savings, only debts. I think credit part has to include assets to be fair. After all, is someone like Bill Gates a bad credit risk if he has no loans outstanding, and thus a zero FICO? And if a person can handle a $200K loan, but also has another $100K in the bank, aren't they a better risk than someone with $0K in the bank and $50K in credit card debt?

I still only see FICO as a measure of how badly a bank can rip you off, not what a great deal they can give you.

-john-

I've never dealt with a lender who even bothered to look at anything beyond the score. Doesn't mean they don't exist, though.

Lenders may now be required to give you your score when you apply for home loans. I just applied for a HELOC and got a letter from my bank saying, "In connection with your application for a home loan, the lender must disclose to you the score that a consumer agency distributed to users and the lender used in connection with your home loan, and the key factors affecting your credit scores." Could vary by state? May apply to all types of credit/loans?

-Will

william dot trice at ngc dot com

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But John, since income is not part of the FICO score, nor are assets, it's possible, however unlikely, that Bill's FICO is not great. Is he actually a bad risk? Of course not. When we last went around on FICO, I thought we agreed that FICO created a number offering a likelihood of default, not a measure of one's ability to pay anything.

I pull $30000 off a zero interest deal, and deposit the money to earn

I decide I hate XYZbank and cancel two cards I've had for a while. FICO score drops.

I struggle to pay three high interest cards off, and somehow find two cards that will permanently lower the rate while transferring the debt, and I cancel the three old cards. FICO just got trashed.

There's no one at Fair Isaac asking questions, looking over one's shoulder. Just a series of equations.

Joe

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OK, I'll grant that. My line of thought is that if you have a plan B and a plan C, you are much less likely to default. But of plan B and plan C are assets or savings rather than income or credit limit, FICO doesn't look at it. In my case, I'd rather than assets than income or credit as a backup plan.

-john-