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Why attempting to achieve the perfect credit score isn't always the best idea

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Why attempting to achieve the perfect credit score isn't always the best idea

I have almost 30 credit cards, and I'm convinced people seeking a perfect credit score are missing the point. - link to article

 

Talks about how it doesn't really make sense to take out a secured loan just to build up your score unless absolutely necessary and how some other popular ways to quickly boost your score can blow up in your face. A good read!


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Message 1 of 6
5 REPLIES 5
Senior Contributor

Why I never want a perfect credit score . . .

EDIT: Looks like @SEAlifer beat me to it in posting the same article, and one of our helpful MODs merged our posts. Well, it is a very good article IMHO

 

From Business Insider:

I have almost 30 credit cards, and I'm convinced people seeking a perfect credit score are missing t...

 

I think the author makes some good points: (My comments in italics)

 

Striving for a perfect score can incentivize bad financial decisions 

 . . . some people try to improve their credit score by taking out a secured loan. Experian, one of the major credit-reporting agencies, even suggests this as a way to improve your score.  Unless your credit history is nonexistent, it's probably not worth the cost for a minor bump in your credit score. 

- Yep, paying interest to borrow you own money never seemed like a smart move to me, and Types of Credit/Credit Mix accounts for only 10% of your score. And an installment loan only really boosts you score until you get the balance down to the magical 9% of loan amount, which is very near the end of the loan. I'll pass.

 

You can get a lot more value from signing up for new credit cards than from having a perfect credit score

It's true that a large number of recent credit inquiries or new accounts can make lenders concerned that you're struggling to pay your bills, but as long as you're paying your bills every month, these new accounts will have a minimal and short-lived effect on your credit score. And in the meantime, you can reap the rewards of credit-card welcome offers, which are generally worth far more than a perfect credit score.

- This a biggy for me, I really like free money - the new CC SUB and the usual intro 0% rate for 12-18 months. I opened 4 new CCs in 2018, and so far 4 new CCs in 2019, and with a 2010 BK7 (medical debt w/ no insurance) still on credit report I have a 731 Fico8 score on TU, and 734 on EQ. EX has taken the hit the most at 708, mostly because almost everyone pulls EX for me - 13 inquiries while only 2-3 on TU & EQ. But my EX was 722 in March before my app spree, I'm pretty confident it will be back in the 720s by year end. And I've earned nearly a thousand bucks in SUBS and several thousands of dollars in 0% interest. Just be smart, don't buy a bunch of stuff you don't need and can't afford, I just put my normal spend on those 0% cards and put the money I don't pay down the CC with in savings, earning interest until it's time to pay off those cards - while carefully watching utilization. But I have 16 cards with combined CLs of $155k, so I have some "padding".

 

In practice, there's not really a difference between a great score and a perfect one

Lenders don't expect anyone to have a perfect credit score — anything above 740 is considered "very good".

A score in this range tells lenders you have a less than 2% chance of failing to make payments on time. Even a "good" score, between 640 and 739, is a very strong sign to lenders, since only about 8% of people in this score range become late on their payments.

Lenders often don't care about the difference between a very good score and a perfect one, so there's no reason to stress out about it. Just make sure you're doing everything necessary to keep your financial house in order, and spend your time focusing on other things — like how to spend the points you earn from a new credit-card bonus!

- Words to live by! My BK will fall off as early as March next year on TU and gone from all by September. My goal is only a FICO 750-760, much more than that means to me I'm leaving money on the table passing up new CC SUBs and interest free money earning me CC rewards.

 

Your mileage may vary. Smiley Happy

 


Fico 08: 734/716/734 TU/EX/EQ
Message 2 of 6
Established Contributor

Re: Why I never want a perfect credit score . . .


@DaveInAZ wrote:

 . . . some people try to improve their credit score by taking out a secured loan. Experian, one of the major credit-reporting agencies, even suggests this as a way to improve your score.  Unless your credit history is nonexistent, it's probably not worth the cost for a minor bump in your credit score. 

- Yep, paying interest to borrow you own money never seemed like a smart move to me, and Types of Credit/Credit Mix accounts for only 10% of your score. And an installment loan only really boosts you score until you get the balance down to the magical 9% of loan amount, which is very near the end of the loan. I'll pass.

For people that already have revolving accounts for a year or more, you're right that it makes no sense.

 

But for people with no credit history it can be used to give the most significant boost to a FICO 8 score that I've read about anywhere on the internet. (Outside of derogatories or BK's 'falling off'. This is just a pure gain from aging and SSL less than 9%.)

 

I was very naive about building credit when I started with a credit builder (or share secured loan/SSL) loan in December 2017. I just let the auto payments of 42.35 a month come out of my checking account for 12 months and didn't even think of trying to get a credit card back then.

 

In December 2018, when that loan account (the only account on file) was paid down to 8.47% remaining and reached 1 year in age, meaning my AoOA, AAoA, and AoYA all reached 1 year together, all 3 bureau FICO 8 scores went up around +62 points.

 

On December 23rd, 2018 I used CCT to check my scores after 1 year:

TU 8 went from 666  to 728. (I had a Dec 4 myFICO TU 1B report to compare.)

EX 8 went from 687 to 748. (Dec 4 creditscorecard.com to compare.)

EQ 8 was 750.

 

At that time I applied for my first 2 credit cards ever and started with a total credit limit of $8500. (Citi was most generous with a $6500 starting limit, and they just gave me a SP CLI of $2500 after 6 months.)

 

Total cost of the SSL was around $8 in interest. I don't know how many points I am getting right now for having a closed installment loan on my account - maybe it's 5 or 10? But I surely wouldn't have started my revolving credit history with a $6500 Visa Signature card with no foreign exchange fees without that SSL boost.

27 FICO Scores + 3 VS3. MTG (Mortgage), AUT (Auto), and BKC (Bankcard) are scores 5,4, and 2 from the top.

New CRADIS contacts, bearing 1 carom 9. Just think of EQ, TU, and EX as Cylon Basestars.

Message 3 of 6
Established Contributor

Re: Why attempting to achieve the perfect credit score isn't always the best idea


@SEAlifer wrote:

I have almost 30 credit cards, and I'm convinced people seeking a perfect credit score are missing the point. - link to article

 

Talks about how it doesn't really make sense to take out a secured loan just to build up your score unless absolutely necessary and how some other popular ways to quickly boost your score can blow up in your face. A good read!


I have 3 accounts on my 1 year 8 month old credit file: 2 credit cards that are both 8 months and a closed installment loan that was open for 1 year before the cards.

 

I called the branch manager at my credit union and was told that once my credit history reached 2 years (in December) I'd already be qualified for the lowest rate on an auto loan. They only require a TU 8 of 720 or above, and I'm at 742 right now, but they also factor in revolving history.

 

With another year, or 3 years total credit history with 2 yrs of that being revolving credit history, I'd get their lowest rate for a mortgage even if my middle score wasn't exactly 760 (it's 34points shy of that right now). This is mainly because of my occupation (programming) and 20% down payment. (They consider 'ability to get a new job quickly in your field if you lost your current job'.)

 

All I really need 'excellent credit' for is the best auto/home loan rates, and it turns out that's possible with only 2 cards and just being in that 740-799 'very good' range.

27 FICO Scores + 3 VS3. MTG (Mortgage), AUT (Auto), and BKC (Bankcard) are scores 5,4, and 2 from the top.

New CRADIS contacts, bearing 1 carom 9. Just think of EQ, TU, and EX as Cylon Basestars.

Message 4 of 6
Super Contributor

Re: Why attempting to achieve the perfect credit score isn't always the best idea

I agree that once you are in the "very good" area, going to "excellent" is really just a pride thing and unlikely to make any difference to any lender's decisions. It's not really worth chasing those extra points, and opening loans you do not otherwise need is just completely misguided.

Message 5 of 6
New Member

Re: Why attempting to achieve the perfect credit score isn't always the best idea

Great post
Message 6 of 6
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