Scoring seems unfair

[Anonymous]

I appreciate all of the help I've received on here. Some things I am still studying about and will try, like goodwill letters, and others I am storing as "future reference" for my own knowledge. When I talked about being in a "catch 22", I have read that extending credit limits or opening new credit accounts will help with both utilization and to raise your score, and the problem is that when you have a low(er) score it is more difficult to accomplish this. Personally I do not want another credit card but I would like to raise my utilization percentage, ergo the reason for my plan to pay down the cards. I also appreciate the advise of an emergency savings account; something to definitely think about. For now, I will continue to learn and keep my goal of paying off the 2 credit cards I do have, continuing to make payments on time as I have. One thing I will note is that, although I did make the decision to forgo the credit card payments in order to pay for school, never did I ever miss a payment on either my car or my house. Additionally, I overpaid each card until they were completely paid off which only took about 3 months.

Sometimes I feel that when people ask for help when trying to raise their credit score or with credit in general because they have made mistakes, they are mistakingly judged as not being credit conscience. I'm not saying that this is the case on here. I am very credit conscience as I had to work very hard to rebuild my credit up to the 700 status after a bad divorce. It really pained me to have to make the decision that I made and this is why I feel that the scoring is a bit unfair. The trust factor that was brought up is a very valid argument, however to lose more points in 1 missed payment than you gain to make it up in 3 on time payments almost defeats the incentive. The "mcdonald's friend" example is valid, but not everyone is like that and I can certainly say that because I was missing payments making school tuition, I definitely was not spending any more money on anything else. Also, I am a "she", not a "he".

Anyway, I do appreciate all of the insight; I still have a lot to learn about credit and credit scoring and, again, will continue to learn and rebuild my score back to where it was.    

[Anonymous]

Hey Twhit!  Nice to see you on here.

As far as gender goes, we just don't have a good solution to that in Standard English.  What would be great is if we had a third singular pronoun, something different from he or she.  A lot of people use They for that, which would be great it They weren't plural, and it is strange to be attributing multiple personalities to someone whom you know is just one person.

The traditional solution is supposed to be to use He as the ungendered pronoun, as in "every student brought his lunch."  But it's far from ideal in a number of ways.  Anyway, glad to know you are not a He!

I really like your solution to the problem of high CC utilization, which is to pay off the cards.  Definitely the best way to go.  Bigger credit limits do not in themselves help your score.  Here's an example:

Sue has four credit cards, each with a credit limit of $1000 and a balance of $70.  She calls her issuers and suprisingly all four agree to raise her limits to $20,000 each.  Her score will not go up by even one point.  That's because what FICO cares about there is the utilization %.  Sue's was very low before and now that she has the big limits it is still very low. 

By paying down her debt, Sue solved the problem of her CC utilization.  Actually, Sue could have one card with a $500 limit, spend $1000 per month, and still have a 3-4% utilization.  That's easy to do.

Best wishes moving forward.....

[Anonymous]

The missing of a payment is serious because the minimum due on most balances isn’t a significant amount usually. When a person misses a payment it means they didn’t even have $50 or $100 in emergency savings which means they’re a very high risk for default.

Credit scores don’t know how much a person earns or how much they have saved but to not have enough to pay a minimum for a month means they not only didn’t have any savings to prevent it but they are living well beyond their income.

It’s a double warning flag and it’s why making 3 years of on time payments isn’t enough to remove the risk factor.

After three years, a 30D or 60D late only hurts for about 30 FICO points.

[Anonymous]

@ABCD2199 Not all things are equal tho. I've seen a woman get a 30 day late because she bought something and returned it, by the time the statement came out the balance was on there. A day or 2 later they credited her account back to zero. Well she had account assurance which charged her 1 dollar for having a balance on the statement. Which then got a $35 late fee and the CC company refused to waive it. Should that be the same penalty as the guy that bought $300 in call of duty weapons and chose not to pay?

[Moneyklutz]

Glad you replied back twhit.

If I came across as judgmental to you in my reply to your original post I apologize in advance.

I was in your position roughly seven years ago. Divorce, foreclosure and mac & cheese for the first few years and had to make choices of who to pay each month knowing that not all of my bills would be met... it simply sucked.

Later when I'd got back on the "Whoosh... I'm gonna make it ok!' horse I realized the damage I'd done to my credit was far worse than I'd ever envisioned. My scores before the fall were always good to excellent according to the people I'd sought loans with but I can't to this day tell you what my actual score was. However, I very much can now.

...poignant lesson learned for me.

My point to all this I guess, is that calling the credit scoring system 'unfair' when you're down is understandable but don't let it hold you there. Its simply a metric that attempts to be impartial to everyone but fails when looking at each of our individual circumstance. It will never judge correctly those who choose to be irresponsible vs. those who got poked in the eye by the fickle finger of fate.

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@Anonymous wrote:

I still have a lot to learn about credit and credit scoring and, again, will continue to learn and rebuild my score back to where it was.    

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Me too.. 
        

[Anonymous]

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@Anonymous wrote:
@Anonymous Not all things are equal tho. I've seen a woman get a 30 day late because she bought something and returned it, by the time the statement came out the balance was on there. A day or 2 later they credited her account back to zero. Well she had account assurance which charged her 1 dollar for having a balance on the statement. Which then got a $35 late fee and the CC company refused to waive it. Should that be the same penalty as the guy that bought $300 in call of duty weapons and chose not to pay?

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This above example would be the exception, not the rule.  It's an extreme outlier example.  I'm not sure how the $35 late fee turned into a 30D late, but even if the lender wasn't willing to waive the late fee I'd bet that 99 out of 100 would have no problem doing a GW adjustment based on a $1.00 hiccup outlier example 30D late if you addressed the CEO.

[Anonymous]

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@Anonymous wrote:
The trust factor that was brought up is a very valid argument, however to lose more points in 1 missed payment than you gain to make it up in 3 on time payments almost defeats the incentive.   

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I feel you still sort of looking at this the wrong way.  You don't "gain" points from making on-time payments.  Making on-time payments is considered meeting expectations with respect to FICO scoring.  As someone stated earlier, you don't get any bonus points for simply doing what you're supposed to do (paying on time / as agreed).  You will however lose points for not meeting expections and paying late.   

The "incentive" is to not be late in the first place, as recovering from it can be a lengthy process.  Try to understand that it's all about assessing risk and your FICO score is a way to measure and attempt to quantify that risk.  Anyone that is late once statistically stands a much greater chance of being late again.  Making a handful of on-time payments following a late payment isn't going to significantly reduce risk factor.  That takes a good deal of time.  

[arkane]

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@Anonymous wrote:

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@Anonymous wrote:
The trust factor that was brought up is a very valid argument, however to lose more points in 1 missed payment than you gain to make it up in 3 on time payments almost defeats the incentive.   

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I feel you still sort of looking at this the wrong way.  You don't "gain" points from making on-time payments.  Making on-time payments is considered meeting expectations with respect to FICO scoring.  As someone stated earlier, you don't get any bonus points for simply doing what you're supposed to do (paying on time / as agreed).  You will however lose points for not meeting expections and paying late.   

The "incentive" is to not be late in the first place, as recovering from it can be a lengthy process.  Try to understand that it's all about assessing risk and your FICO score is a way to measure and attempt to quantify that risk.  Anyone that is late once statistically stands a much greater chance of being late again.  Making a handful of on-time payments following a late payment isn't going to significantly reduce risk factor.  That takes a good deal of time.  

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I feel the contention is that, someone who's had an excellent and established track record of on-time payments could be cut a little slack for one missed or late payment. 

My personal opinion is that's already baked into the model -- you don't get dinged until you're 30 days past the due date and haven't made even the minimum payment. If you're between 1-29 days late, you simply get assessed a late fee but won't get a ding on your file (well maybe on the lender's internal file). 

[Anonymous]

Good points, Arkane.  The credit user is protected from score harm in a number of ways:

First there is a grace period, after the statement prints, that last about 25 days.  The CC user has that full 25 days to make a payment.

Second, after the grace period has elapsed (and he is technically "late") he has a full 30 days to fix it before the CC issuer will report it to the credit bureaus.

So accidental oversights (I was on vacation and forgot to pay) or the need for as much as eight weeks of extra time due to financial emergencies, are already built into the credit card reporting system.

In our OP's case, there were multiple missed payments after that initial eight weeks.  Nobody is criticizing him -- most of us have been there!  The earlier folks were just explaining why missed payments, once they finally get reported, are looked at seriously by FICO.

[arkane]

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@Anonymous wrote:

Good points, Arkane.  The credit user is protected from score harm in a number of ways:

First there is a grace period, after the statement prints, that last about 25 days.  The CC user has that full 25 days to make a payment.

Second, after the grace period has elapsed (and he is technically "late") he has a full 30 days to fix it before the CC issuer will report it to the credit bureaus.

So accidental oversights (I was on vacation and forgot to pay) or the need for as much as eight weeks of extra time due to financial emergencies, are already built into the credit card reporting system.

In our OP's case, there were multiple missed payments after that initial eight weeks.  Nobody is criticizing him -- most of us have been there!  The earlier folks were just explaining why missed payments, once they finally get reported, are looked at seriously by FICO.

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Her

Jokes aside, I agree with everything that's been said. I think ABCD's advice of an emergency savings of at least 5x minimum payments is very sound. I had a string of unfortunate events back in November 2013 that resulted in me having to put close to $7000 on my card within a month. It was the first (and hopefully last) time I had to liquidate nearly all my savings in order to PIF that month (didn't have 0% promo APR at the time). Certainly a very painful lesson money-wise, but it definitely saved my rear in the long run.