Hey buddy! Sounds like I am making more progress in understanding you.
@Anonymous wrote:
Hey there,
What I mean by "scam" is the scoring model is clearly tailored to maximize profitability for an industry that does not need help with profit maximization. FICO basically has a monopoly on scoring and there is no other choice. I can shop rates, but 90% of lenders are going to use FICO scores and they will most times not even tell you which FICO score they are using, either because they do not know or they don't want to tell you. While FICO is not the true offender of the scam, they enable lenders and to some degree reporting agencies to fix the "game" in their favor.
You are right that FICO has an effective monopoly in this area and it sucks. I say that simply because I have a free market orientation and I think defacto monopolies are rarely good.. I would really like to see Vantage become a better scoring model and get better traction amongst lenders.
On the other hand, be careful what you ask for, because at other points in this thread, you have objected to the vast proliferation of scoring models (specifically the many models used by FICO). If we had more competitors in the scoring world there would be even more scores that might be used.
Think about it, everyting in the debt game is set against the borrower, do the reporting agencies report good behavior, no, they report bad behavior. So "good" behavior actually breaks down to not bad behavior, which is not one and the same.
This is not actually true. In my case my reports consist of a tiny sction devoted to Derogs (so called "negatives"). That tiny section basically says: No negatives. The rest of my fairly lengthy reports consist of a wide range of accounts in good standing, some of them going back many years, some open, some closed, etc.
So most of my reports consist of the CRA reporting good behavior.
Even when you perform, a "good" action, such as paying off a debt early it is considered a "bad" action.
Paying off loans early can indeed cause a score dip in some models. It depends on the scoring model (many are fine with it) and even if the model does care it may actually help your score depending on what your other loans were and how much you owe. So even with loans a payoff may either have no effect or help. I acknowledge freely, however, that this is an area that many people make a natural mistake on -- they assume intuitively that paying off a loan would be certain to help their score.
Paying off CC debt, as BBS has explained, never hurts your score and often helps it, as long as you still have a true credit card reporting a small balance somewhere.
So most intuitively "good" actions (paying down CC debt, etc.) are indeed rewarded inside FICO models, with the corner case of loan payoffs being an exception.
The reason you will get is because you are closing a line of credit, the true reasoning behind this however is that you removed debt and income from the companies who would have gained from that transaction. Same reason why maintaining a slight balance on a CC will allow your score to grow faster than paying it off every month in full. You are taking income out of the hands of the lenders, why should this negative burden for the lender penalize a responsible borrower who is actually performing a more fiscally responsible action?
None of this is true, though I can totally see why you might think it is.
Closing credit cards can lead to a higher CC utilization. Higher CC utilization has been proven to correlate with higher risk.
Reporting a small balance on a single card is fully consistent with also paying it off each month. You can do this without paying a penny of interest to the big banks. FICO likes to see at least one card reporting a balance because the big three bureaus have had (for almost all of their history) very limited data, and there was no way for FICO to tell whether these cards were being used at all unless one reported a balance.
Again, just learning how the models work and using Ockahm's Razor will prevent a person from postulating an unrealistic conspiracy between FICO and the big banks. There are far simpler explanations that all have to do with FICO's mission, which is to assess risk based on the limited data it has in the credit report.
I get it, life isn't fair, this is the system we have, insert whatever catchy cliched slogan.
I would geneuinely appreciate help here, but I find myself in a discouraging situation and feel as if I am being taken advantage of by a system that is focused more on driving profit ratherly than appropriately rating a borrower, again I am not looking at taking out any debt in the foreseeable futrue.
Totally understand your feelings. It's just that they are based on not fully understanding how things work. Your scores are limited now because of the past derogs, but they can be improved even given that. For one thing, the folks here may be able to help you get them removed. The other is that we can help you better with your credit cards and loans. There are easy actionable things to do regarding those.
Once you adopt a plan, you can improve your scores and divert your energy toward stuff that makes you happy in life (going for a run, watching a movie, playing with the kids, whatever) rather than in an angry bewilderment against the Man.
Maybe my situation is unique or maybe their are others out there in similar situations, that is why I came here, to state my frustrations with a system, get advice and hear about others that are in/were in a similar situation.
Lastly, the individual who gave examples of similar products and not using one or calling it a scam because you don't like it is a terrible analogy and precisely why this is a scam. In borrowing, I have no choice on the score or scoring company I use outside of shopping loans, but the choice to use one score over another is not an option that will be presented by a lender.
