Credit Rating Nonsense

[Henro]

I’ve always lived a debt free life, except for an occasional Car loan which made sense economically.

I did borrow via a home equity loan to buy the property next-door, again because it made economic sense as far as federal taxes go.

So anyway, I got sick of the home equity loan and decided to pay it off in 2020. And paying off that loan was a major ding against my credit rating! Dropped from 860 to 820 (FICO, MAX is 900). Nothing else changed.

Credit rating means little to me in reality.

Actually, I am in a position to pay off any debt I have if I would decide to do that, but I don’t because I don’t want a hit as far as federal income tax goes. Not that I have a lot of money, just very little debt.

If I needed to loan money to somebody, I can’t think of a better person than someone like me!

So for paying off debt I am penalized...not that I care really...but find this curious.

what is wrong with this picture???

 

[D2Cat]

Yes, the the credit rating has an impact on insurance rates, like for your car! It's all BS to keep people borrowing money.

 

[Toyboy]

I could care less about my rating.
When I buy something, or have a service done, I don't care who's name is on the check as long as I get what I want.
We were going to finance our home years ago and had decided on a bank. All was set until I asked the loan officer if I could use the washroom. She replies: there is a public one down the street. OK
We walked out of that bank to the next one and they have had our business since then in everything.

 

[NCL4701]

My wife has a better credit rating than I do because she has a few store credit cards which give her access to various deals and discounts. Her intrinsic value is priceless but she hasn’t generated a dime of income in 25 years.
When I started regularly traveling for business about 25 years ago, I really needed a credit card to deal with hotel reservations, rental cars, etc. Bank is dealt with since I was a kid told me I had no credit so no credit card. I took that as a challenge. Told the “personal banker” in that case give me all the money I have on deposit and I’ll shop elsewhere. We were saving for a down payment on a house so had a bit over $60K on deposit. Of course I needed it in cash even if I had to wait a couple of days to get it, which meant she had about 2 hours worth of paperwork to fill out for the Treasury Dept. She agreed to “bend the rules” and give me $500 credit if I’d move $1000 into a separate account with a $1000 minimum balance. After over an hour of negotiation ended up with a $1000 limit on a credit card that wasn’t secured by any special account. Still one of the stupider experiences of my entire life.

 

[bird dogger]

I've only had four vehicles in my life, so far. Retired in 2015. No debt. Had been banking at the same bank for years. My old set of wheels needed replacement so I went to the bank to get pre approved for their newly advertised, extremely low interest rate program on a new vehicle. The bank said absolutely, go find your new vehicle and come back and we'll do the paper work. I bought a new Tacoma pickup (2017). Went to do the paperwork and hit a stone wall. I had no steady income according to the bank. Even with more than enough in my savings account to buy it outright. I had taken a lump sum instead of an annuity at retirement and offered to show them my net worth but they didn't care as I had no steady income. I couldn't believe it. Told them to secure the loan with my savings account but they couldn't do that either. I went back to the dealer and paid cash for the truck. the next day went back to the bank and closed all my accounts there. Made them cancel my CC card at the same time. Caused quite a commotion when the bank manager got involved and wanted to know my reasoning. I told her your bank sucks and has absolutely no value to me. Also told her that the wife and son will be in shortly to close their accounts, too. When I explained the details to her she wanted to make an exception for me but I said, "Too little, too late!" I walked out with a rather large cashier's check and went to a small local bank where they now know me by name as I walk in the door. The former bank wasn't very congenial to the wife and our oldest son when they closed their accounts. Good riddance to U.S. Bank!

 

[JimmyJazz]

I’ve always lived a debt free life, except for an occasional Car loan which made sense economically.

I did borrow via a home equity loan to buy the property next-door, again because it made economic sense as far as federal taxes go.

So anyway, I got sick of the home equity loan and decided to pay it off in 2020. And paying off that loan was a major ding against my credit rating! Dropped from 860 to 820 (FICO, MAX is 900). Nothing else changed.

Credit rating means little to me in reality.

Actually, I am in a position to pay off any debt I have if I would decide to do that, but I don’t because I don’t want a hit as far as federal income tax goes. Not that I have a lot of money, just very little debt.

If I needed to loan money to somebody, I can’t think of a better person than someone like me!

So for paying off debt I am penalized...not that I care really...but find this curious.

what is wrong with this picture???

I would not consider that a "major ding" against your credit rating. You still have excellent credit. I wouldn't worry about it. Personally I would try to make a lot of money. Thats all that really matters to many people. Problem solved.

 

[PaulR]

Yep.
I've never paid any mind to any of that credit score nonsense, pay my bills and that's it.
Credit score is mid 800's.

Funny story, honestly not to brag: I have a commercial building I own/manage, probably 500K in equity, been paying mortgage + extra for 10 years on time to TD Bank. Also have decent-sized sums of money with TD Bank.
Buying a new truck I decided to go for the rebates, so they say I can't also get the zero 0% financing. I'm like fine I'll take the rebates, get stuck with the bad financing and just pay it off real early.
Dealer does the financing, applies to a few banks to get an approval.
One of the finance reject letters I get a week later, you guessed it, from TD Bank.
You would think they would know not I'm not a bad credit risk. lol. idiots.

 

[BigG]

The only problem with no credit is you can not get a credit card. There are places that now only take credit cards. Or for example being wheel chair bound a credit card makes it a lot easier to get gas as I have been to gas stations and been refused help. Or they do not have a phone number to call. You can not rent a car and hotels do not want to give you a room.

I went to buy a new gooseneck trailer. Cash or credit card only. No checks, company or personal.

 

[je1279]

I recently moved and for about a year I had mortgages on two properties. Additionally, I had a spare credit card for years in case I ever needed it, though I never used it. So due to lack of use, the credit card company canceled the card. The same month I sold the other property. While any sane person would argue that I was in a better place financially, my credit score dropped 45 points. To combat this stupidity, I chose to finance a small portion of my new tractor in hopes of getting it back to where it was previously...

 

[D2Cat]

Back in 1985 we banked in a small town bank that had been there since concrete was invented. I had bought, fixed up, painted and sold a Ford TO 20. I wanted to purchase a new Kubota tractor. Shopped around, found a good deal and was offered a loan at the dealership. I wanted to check with my local bank since we had been there a few years, my wife's folks had a business and banked there. When I went in to talk to a loan officer, explaining what I was going to do, he insisted I fill out a ream of papers. I told him I was making a $5500 purchase, but had $3000 to put down. Still had to fill out the papers, government regulations he said.

We had a CD there. You could borrow on your own CD and pay 2% above the rate it paid. He didn't want to do the paperwork. The loan rate at that time was around 11%. I took the paperwork and left.

I called the dealer and talked to the owner's son. Asked Scott about the load deal he had mentioned. How long would it take to get it all set up? Confirm the interest rate? Well 1 hour later all was done and the rate was 2% less then my local bank.

It was the best lesson I ever learned in my life. I don't count on others to satisfy my money needs.

 

[bosifus]

When a person with actual tangible wealth is penalized by society because they don't carry a load of debt from month to month you know something has gone real haywire.

 

[GeoHorn]

Credit ratings are based upon payment histories. Paying off a loan early may appear to credit software that a loss of payment history has occurred. So a letter from you to your credit file will correct that misconception by the rating system.

In the “old days” it was easy to establish credit by borrowing a small amount you don’t need over a 90-day period, and then paying it off the next month early. That was back when actual people kept the records and noted the borrowers’ payment record. But in the “modern’’ system an early payment looks like a customer did NOT comply with the 90-day payment plan to which was agreed.... therefore a negative mark.

Write a letter and have it placed in your file. Should correct the issue. (Yes... dumb,... but that’s how to correct it.)

I had the perfect 900 when I borrowed $17K cash to quickly close the deal on my tractor in a private sale. I cashed in a CD and paid the loan off 2 days later. My rating would have dropped over that....but my banker was smart enough to know the system and made a “lenders comment” to my file as the report was made... so my rating did not change. Had he not done that....and had I given a damn about the deduct to perhaps 880.... (which has virtually no effect and neither does 860 to 820... but a hundred-point-loss of 860 to 760 would be a serious “ding”) ... I would have had to write a similar letter to recover the lost rating.

Yep. Dumb. But it’s how things are done in “modern society” and bitchin’ about it and walking away won’t change that. It’ll only make your insurance premiums climb.

 

[skeets]

How does one check their credit score?

 

[Borane4]

860 to 820 (FICO, MAX is 900).

So for paying off debt I am penalized...not that I care really...but find this curious.

what is wrong with this picture???

860 to 820 is not a major ding. It's probably still in the top 1% of scores.

 

[random]

How does one check their credit score?

Creditkarma is free (IIRC it will ask for a credit card, but you can skip that) and will give you a rough idea, but it's not an accurate FICO.

Discover has a free FICO service, I think you can get to it from their home page.

But the actual score differs depending on the purpose - i.e. car loan, home loan, credit card, etc. and the only way you can get that is to apply for a loan and see what the lender gets back. IMO That's serious BS.

Credit score is based on utilization - so if you're not USING credit your score goes down. The calculations consider you a higher risk than someone actively using it and paying it off. In fact, the ideal level of credit card debt, score-wise, is about 5-7% of your total limit. Scores drop off a good bit once you go under 5%.

When looking at those scores, consider WHO they exist for: the score isn't there for you, it's there for the lender. They don't want people who pay off loans early (less interest collected) or who keep their balances at zero (no interest on a zero balance) - they want people who constantly borrow and pay interest, so they can make more money.

 

[re54drider]

Go to Annual Credit Report.com. Required by law to get your 3 repports once a year for free.

 

[je1279]

860 to 820 is not a major ding. It's probably still in the top 1% of scores.

I don't disagree but those same 40 points may have a substantial impact with a different starting score. You could be charged higher interest rates or not get a loan at all even though you did nothing wrong.

 

[random]

Go to Annual Credit Report.com. Required by law to get your 3 repports once a year for free.

Yes, but you can't get your score.

Still, a very good idea to keep an eye on it. Surprising what sometimes turns up.

 

[PaulR]

Credit Karma is decent. I would recommend. Never paid them a dime, just somehow got signed up through freecreditreport.com or something. They send emails once a month, tell you when your score's changed or someone searched your credit. It's nice to click one button on the email and see what's going on with your credit if you need/want to.

 

[bird dogger]

It was the best lesson I ever learned in my life. I don't count on others to satisfy my money needs.

Agreed. Nobody is more concerned about a person's personal or financial needs than that person himself!