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Have only one type of debt and that's bad?

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Anonymous
Not applicable

Have only one type of debt and that's bad?

My latest report tells me that I have perfect payment histrory (Grade A), less than 1% credit utilization (Grade A), Average account age 7 yrs 5 months (Grade A), One credit inquiry in the last 12 months (Grade B); and 10 open accounts, but all of them are the same type (?), namely credit cards (so GRADE D). Can somebody please explain how it makes sense that my credit rating should be penalized because I have no home loans, no auto loans and no student loans. Indeed the one credit inquiry that has been made on my account in the last 12 months was for a home mortgage loan pre-qualification, but that attempt to strengthen my credit by borrrowing more and different has also had a negative impact on my credit. This credit scoring game is straight out of "Alice in Wonderland."

Message 1 of 9
8 REPLIES 8
NRB525
Super Contributor

Re: Have only one type of debt and that's bad?

Welcome to the forums.

What are your MyFICO scores? The "Grade A" sequence sounds like CreditKarma FAKO scores.

 

And, yes, technically you may be slightly penalized by not having a wide mix of credit products with good payment history on each. FICO is a scoring tool used by lenders. Lenders like to see a history of good payments. If the borrower has a wider mix of credit products, that would be looked on favorably by the lenders, who are the real customers of FICO.

 

Having 10 credit cards with perfect payment history will get you almost as good a score, for a given file history, as if you have those other products, so it's probably not hindering your score too much.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
March 2021 $33k on $312k EQ 796 TU 798 EX 801
May 2021 Paid all Installments and Mortgages, one new Mortgage EQ 761 TY 774 EX 777
April 2022 EQ=811 TU=807 EX=805 - TU VS 3.0 765
Message 2 of 9
Anonymous
Not applicable

Re: Have only one type of debt and that's bad?

I'm not consoled by knowing that my credit score will be only slightly effected. My concern is with the fact that the scoring algorithm is not only secret, but patently irrational. I have more than 60 years of credit history during which I have had all of these categories of debt, and during those years have faithfully dischraged all of my debts. But apparently FICO has a very short memory.  I am determined by FICO to be a poorer credit risk because I have virtually no debt. Even on the basis of tthe limited history with which FICO is apparently working, the more veridical assessment would be that all available indications are that I am an extermely good (one of the very best?) credit risks based on the available history. I would like to see the data that says someone is a poorer credit risk if they have less, or fewer forms of debt. 

Message 3 of 9
NRB525
Super Contributor

Re: Have only one type of debt and that's bad?

What are your MyFICO scores?

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
March 2021 $33k on $312k EQ 796 TU 798 EX 801
May 2021 Paid all Installments and Mortgages, one new Mortgage EQ 761 TY 774 EX 777
April 2022 EQ=811 TU=807 EX=805 - TU VS 3.0 765
Message 4 of 9
Anonymous
Not applicable

Re: Have only one type of debt and that's bad?

Dude!  Smiley Happy  The best advice I ever got regarding my credit score was that it would "be best if it were zero".  What the person was trying to tell me is that I would be best NEVER TO BORROW MONEY EVER AGAIN. 

Now, for most of us that is not realistic.  Very few of us can pay cash for a house, for instance. 

I think one of the things we all forget when we get wrapped up in trying to figure out these Credit Scoring logarithms is that even a banker/lender uses common sense when they are considering who or who not to lend money to.

If you have money in the bank, your debt to income ratio is solid and you have been paying your bills ontime, my GUESS is that you will be able to borrow money you need at a great rate.

And, ultimately, isnt that the POINT of aspiring to a high FICO score? 

I am open to discussion from the community on this one......

But that is my thought.  all the best............

Message 5 of 9
Anonymous
Not applicable

Re: Have only one type of debt and that's bad?

"˚… isn't that [being able to borrow] the point?"

 

No dude, I'm afraid it isn't; at least it's not the only point.

 

I can borrow money. That's not an issue. You may not aware that these so-called "credit scores" are also used to determine what interest rate you will pay on that loan, and what premium you will pay on your home and auto insurance, and whether or not you will get the job you wanted. Your credit score is becoming your reputation in a nutshell. I care how my reputation is being characterized and am outraged when I am given irrational explainations for what is being said about my reputation.

Message 6 of 9
CreditDunce
Valued Contributor

Re: Have only one type of debt and that's bad?

FICO isn't to blame about all of your old credit history not being counted.  The government passed the law making the CRA's delete the old information.   I am sure they would love to keep more history if they could.

 

Secondly, your credit score is based on averages.  On average people who don't have installment loans have been shown to be more risky than those that have shown the ability to pay installment loans on time.   They can only group you based on credit history they are allowed to use.

 

The score penalty for not having an installment loan is fairly small for someone with good credit history.   It is possible to have an 800+ credit score without an installment loan.  A 761 and an 850 credit score will get the same rates for just about any loan.  Moreover, employers do not get to see your credit score.  They just get a report.   In general, they are looking for people with charge offs and other baddies.  They don't care about your credit mix.

Message 7 of 9
Anonymous
Not applicable

Re: Have only one type of debt and that's bad?

OK FICO is not entirely to blame. But surely it is correlations rather than averages that they are using and as any fist course in statistics teaches, Correlation does not imply causation. I would like to see the statistical model that validly connects 10 credit cards and no other debt with a higher probability of default than the same 10 credit cards plus a home loan, two car loans and a student loan. My very strong suspicion is that this is a case not of  bad credit but of bad statistical reasoning. Of course it is all secret so we will never know.

Message 8 of 9
CreditDunce
Valued Contributor

Re: Have only one type of debt and that's bad?

I feel stupid taking this bait but....

 

FICO does not make any claims about casualty.    They are just trying to predict the chances of a default in the near future.   If they have less data to work with, then the maximum score you can get is lower.  It doesn't mean you will have a bad score.  Nor does it not mean someone with a mortgage will have a higher score.   But if they haven't missed a mortgage payment or any other payment in 20 years.... 

 

If FICO didn't have the most predictive model, then we wouldn't be having this discussion.  The credit lending industry is very competitive.  Banks pay a premium to use the FICO model because it is currently the best model.  Banks constantly back test FICO against FICO's competitors.  If they find a more predictive model, they will switch to the better model.   There is too much money at stake to stick with something that doesn't work as well as a different model.

 

And the most ironic part is I don't think you were looking at your FICO score reasons.  The Credit.com, Quizzle and CrediKarma's of the world give out educational grades, but not for FICO.  They are basing the grades on Vantage or other FAKO scores.  It is not just FICO that likes to see a mix of good credit history.

 

Heck, from how you described your credit history, I think most lenders would give you the best interest rates based on your FICO scores.  Your FICO score is almost certainly over 760.    Many credit card companies will give the best rates with a lower score.  But just about all of them will give the best rates for 760+.  The "D" in credit mix for a FAKO score is completely meaningless.

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