@Anonymous wrote:The reason to avoid carrying balances is not to improve one's FICO scores, since the FICO models can't tell whether you are carrying a CC balance. It's to avoid paying outrageously high interest rates, often in excess of 20%. A corrolary to carrying CC debt (on which one pays high interest rates) is that such a person typically has almost no money saved -- either in retirement savings or just a regular savings account. If he does, then he's choosing to pay high interest to CC companies in preference to getting 2% on a savings account, which reveals a different set of problems.
The exception of course is carrying a balance on a 0% card -- then the cardowner might have strong savings, which is fine.
ImTheDevil is right that Joe Sixpack often buys a lot on cards and makes minimum payments. Joe was also destroyed by the 2008 meltdown. He's destroyed in fact when he loses his job during a happy time for the economy, or if his wife loses her job, or if he has a kid with an unexpected challenge like autism. He will also likely be devastated in retirement, when he realizes Medicare and SS are not enough to support himself.
As far as AZEO, I have been thinking about creating a thread that tells a person everything he needs to know about it. I have certainly stayed on message every time that the subject comes up, namely that it gives you no help whatsoever in building a score over time, though it can be especially helpful shortly before an important credit app like a mortgage.
All of the above is valid - points well taken and I'm in agreement - there are many financially sound reasons to never carry a balance, just as there are several legitimate reasons to carry a balance - we can discuss that all day given the basis for each will generally rely heavily on circumstantial factors. This post was more about folks being leary of allowing a balance to report or carrying a balance (including during 0% periods) soley because of the concern that they may lose a few FICO points in the interim; this is pretty much meant to be irrespective of personal finance because, while financial conditions wildly differ and require examination on a case-by-case basis, score obsession, as well as its underlying reasoning, is an extemely common thread amongst (re)builders.
@Anonymous wrote:
You all make some great points! I think some of these "phobias" that many of us have about credit are also due to the fact that we did NOT know how to manage our credit lives before. Now that someone tells us how, it's hard not to get obsessed about gaining (or losing) points.
I can't tell you how much I have learned from these forums, I wish I would have known this stuff 20 years ago. Thanks to all of you!!
This is so true. Seeing your score increase is thrilling - especially when it happens due to something you did - so when it drops, even if by only a couple of points, it can be quite heartbreaking and often feel like a setback even when, in the grand scheme of things, it's not.
Not to sound too much like a support group, but Thanks for sharing, Kathy!
@CreditInspired wrote:Thank you OP for outlining successful habits to adopt as we navigate the credit world.
I agree 100% with this analogy because for the last 2 years this was me—micromanaging my credit like crazy doing the AZEO method; and although my scores were beautiful (790-804), the process itself was driving me nuts.
So at the beginning of the year, I decided with my scores, it wasn’t going to matter if I had a 10-15pt drop, my scores were still in the range to get the best interest rate possible if I wanted to apply for another card and not worry about approvals.
So last month, I did 2 BTs and I almost had a heart attack when I did my weekly pull from CK and my EQ score had dropped 51pts and TU 44pts. I quickly rebound because I recalled I only use CK for monitoring. So I pulled my scores from CCT. Yes, there was a score drop for crossing 28.9% (went from 4% UT to 32% UT) and having 2 more cards reporting a balance. But it was only a drop of ~10pts, which will correct itself next month.
I’m much calmer now and I use my credit without micromanaging every aspect of it. AZEO definitely works when applying for a mortgage. NFCU LO told me my application was the easiest and cleanest one she had done in a really long time. I grinned from ear-to-ear, especially since I was a first time homebuyer.
Again, thanks, because this will indeed help newbies.
This is exactly the point I hope all (re)builders will reach one day. I think, in the beginning, everyone will obsessively monitor and manage - that's the nature of nurturing, right? But at some point, you have to let go just a little bit.. and that can be quite difficult.
Also -- great story about 'when & how' to use AZEO -- a mortgage app is the prime example of when it's worth taking the time to implement. (Dude! I would have been grinning ear-to-ear too if an LO had said that to me... that's awesome! 
).
Thanks for chiming in!
After some chatter in the Garden, I've been convinced to let things ride... for the most part.
My crazy micro-managing wasn't so much squeezing every point out of my score, but just because I am new to credit life. My ex went nuts and opened cards and wasted money and destroyed my credit score/profile even though, other than student/auto loans, I never used credit (heck, the only card I had was one from Mervyn's in the 90s). After clawing my way out of debt (that wasn't really mine), I'm just having a hard time with the thought that I have credit debt. In actuality, I don't - every penny is accounted for in my budget (I used a 0 based budget), so I can pay the cards at any time, but I do it relentlessly and pathologically. In fact, the only reason I previously let one card report a balance because of what I've read here in the forums.
So, I'm resolved to just let everything report naturally, not pay anything down between statements (except Disco, because I still have double-cashback and I'm putting most of my spend through it which is well above the CL). It should be interesting to see how things shake out. I have no goals or plans for the next while, as I don't have to worry about a mortgage and I just got an auto loan. With a new card with a high SL, I certainly don't need any more credit.
If you need me, I'll probably be sitting in a corner rocking myself in the next week or so
@Anonymous wrote:
You all make some great points! I think some of these "phobias" that many of us have about credit are also due to the fact that we did NOT know how to manage our credit lives before. Now that someone tells us how, it's hard not to get obsessed about gaining (or losing) points.
I can't tell you how much I have learned from these forums, I wish I would have known this stuff 20 years ago. Thanks to all of you!!
100+ for me. As a "woman of a certain age", when I began my credit life I could not, by law, apply for credit in my own name. It had to be attached to my husband's credit file. So my credit health was dependent on his credit decisions...which were not always sound. Fast forward to divorce and financial independence...even as a college educated professional, I was in total credit ignorance. I thought the CRA's were akin to the Gods on Mount Olympus, play with us mere mortals for their personal amusement. I had no idea that my scores could be influenced by even small actions on my part. When I discovered this Forum a short while ago, I started getting an idea of how the credit world worked, but did not totally dive in until about 3 months ago. The idea that I could have some control based on balances, number of cards carrying balances, etc. has been eye opening and has appealed to my internal control freak. Positive results have occured in my file and I am learning new positive ways to handle my finances. On the downside...that internal control freak has been triggered to the point that I have become OCD when I deviate a point or two. So I thank you guys for not only educating me, but though this thread, showing me that I can let go of the OCD micro-managing, take a deep breath and just be responsible.
@Anonymous wrote:
@thornback wrote:
@Anonymous wrote:The reason to avoid carrying balances is not to improve one's FICO scores, since the FICO models can't tell whether you are carrying a CC balance. It's to avoid paying outrageously high interest rates, often in excess of 20%. A corrolary to carrying CC debt (on which one pays high interest rates) is that such a person typically has almost no money saved -- either in retirement savings or just a regular savings account. If he does, then he's choosing to pay high interest to CC companies in preference to getting 2% on a savings account, which reveals a different set of problems.
The exception of course is carrying a balance on a 0% card -- then the cardowner might have strong savings, which is fine.
ImTheDevil is right that Joe Sixpack often buys a lot on cards and makes minimum payments. Joe was also destroyed by the 2008 meltdown. He's destroyed in fact when he loses his job during a happy time for the economy, or if his wife loses her job, or if he has a kid with an unexpected challenge like autism. He will also likely be devastated in retirement, when he realizes Medicare and SS are not enough to support himself.
As far as AZEO, I have been thinking about creating a thread that tells a person everything he needs to know about it. I have certainly stayed on message every time that the subject comes up, namely that it gives you no help whatsoever in building a score over time, though it can be especially helpful shortly before an important credit app like a mortgage.
All of the above is valid - points well taken and I'm in agreement - there are many financially sound reasons to never carry a balance, just as there are several legitimate reasons to carry a balance - we can discuss that all day given the basis for each will generally rely heavily on circumstantial factors. This post was more about folks being leary of allowing a balance to report or carrying a balance (including during 0% periods) soley because of the concern that they may lose a few FICO points in the interim; this is pretty much meant to be irrespective of personal finance because, while financial conditions wildly differ and require examination on a case-by-case basis, score obsession, as well as its underlying reasoning, is an extemely common thread amongst (re)builders.
Hi Thornback. You might have intended your first post to be solely about people worried about losing a few FICO points. I.e. at first you were talking about the issue of reporting balances.
But very early on contributor ImTheDevil expanded the discussion to include the question of carrying balances, and whether the forum advice to avoid doing so might be similarly misplaced. ITD writes:
"To be honest, i would take the assumptions a step further and put forth that many many people out there do not PIF monthly and carry balances for extended periods with no AA taken as long as they make payments each month. I can tell you firsthand that for a long time I carried a substantial balance...."
You then affirmed what he said by replying: "I completely agree with everything stated here." (I.e. stated in ITD's post.) So at that point in the discussion the two major contributors seemed to feel that carrying balances was something they wanted to talk about as well (and that they agreed with each other).
That's the point that I jumped in to explain that FICO scores were incapable of being affected by carrying balances, but that there were very good reasons to regard carrying balances as a serious problem -- on other grounds.
Hope that explains my comment better.
Carrying balances is still reporting a balance. And many fear carrying balances becuase it will report a balance continously until paid off... and this could mess up their util / # of cards reporting a balance (for a number of reasons - some of which stem from their financial condition). For example -- a high BT balance may take months to pay off, and is therefore, carried, which means that the util on that card (and maybe even overall) will be higher than normal (if even only 25% or 30%) for that time --- and this can make some needlessly nervous. I read @ImTheDevil's response as one made with an effort to soothe this nervousness - as there was no mention of how carrying a balance may affect one's finacial well-being in the long run.
That said, I immediately understood why you made the comments you made because a mention of balance carrying can certainly open a door to financial fitness; I mean - my own original response to @ImTheDevil included mention about taking advantage of 0% promos and perhaps adding a low APR card to one's portfolio should the need to carry a balance arise so they could save money. I then deleted that portion of my response because I suddently realized it could cause the conversation to veer off into a topic about financial health and I wanted to avoid that, if possible. Then I read your post... and I got sucked in again and wrote like 4 paragraphs in response to a few of the statements you made about Joe Sixpack and the 2008 meltdown and I HAD TO STOP MYSELF AGAIN - delete all of that, and, instead, try to steer the topic back to how we obsess over FICO points -- because your post sparked a whole new lot of something to talk about (which is wonderful, btw).
That's all, I wasn't 'scolding' you or anything of the sort -- I've seen other threads that have gone off on tangents and were ultimately, essentially, shut down by moderators because of it (and I don't start threads often so I didn't want that happening here if it could be avoided).
So... would I love to have a conversation about the financial impact of carrying a balance -- absolutely -- I think it would be worthwhile and you or @ImTheDevil should start a thread so we can all respond and continue the analysis about what happened to Joe Sixpack, his credit card balances, and presumed need to file bankruptcy when the 2008 financial crisis hit...