Scoring seems unfair

[Anonymous]

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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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I'm not criticizing OP either, I've had to build my credit three times in 25 years.  Once was 500% my fault (young, dumb, didn't care), once was my fault for trusting someone else (cosigner status) and once was my fault for getting married to someone not on the same page as wel.  All 3 times, my fault.

As for the grace period portion, it's even more interesting than that because you have 25 days grace period PLUS 30 days before a credit report ding plus the time before the statement cuts. This could be anywhere from 1 day to 30 days.  So technically if you are marked "30 days late" on a credit card, it could be over a charge you made 85 days ago and didn't pay on time.  Not having $25 or $50 to make a payment within 85 days is definitely a red flag to creditors.

[arkane]

Also my opinion is unless you don't plan on living very long, you need an emergency savings because it's simply a matter of when and not if something unexpected happens and you wind up with a huge bill, or go for prolonged periods of time without a source of income. 

[Anonymous]

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@arkane wrote:

Also my opinion is unless you don't plan on living very long, you need an emergency savings because it's simply a matter of when and not if something unexpected happens and you wind up with a huge bill, or go for prolonged periods of time without a source of income. 

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I've been doing surveys with folks on some Facebook financial forums and I have hundreds if not thousands of data points (self reported).

60% of people with bad credit would have been able to NOT be late with just 1 month emergency savings.  80% would not be late with just 3 months.  Something like 95% with 6 months.  I am in the seconds category -- all of my FICO hell holes happened because I didn't have enough to cover 2 months and the spiral made it all go out of control.

Now I have 19 months emergency savings and in 2018 my goal is to have 24 months.  I didn't do it by being rich, I did it by living well below my means.

[Anonymous]

Love what you guys are saying about Emergency Funds.  One helpful observation IMO is that an EF doesn't have to be thought of solely in terms of cash.  Cash in a high interest savings is absolutely the first piece in it.  But a person can expand his EF conceptually by pushing money into a Roth as well.  The goal of course should be to never touch the Roth -- but if absolute disaster struck and all money in the savings was exhausted, it's nice to know that the Roth money can be accessed without penalty.

[arkane]

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@Anonymous wrote:

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@arkane wrote:

Also my opinion is unless you don't plan on living very long, you need an emergency savings because it's simply a matter of when and not if something unexpected happens and you wind up with a huge bill, or go for prolonged periods of time without a source of income. 

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I've been doing surveys with folks on some Facebook financial forums and I have hundreds if not thousands of data points (self reported).

60% of people with bad credit would have been able to NOT be late with just 1 month emergency savings.  80% would not be late with just 3 months.  Something like 95% with 6 months.  I am in the seconds category -- all of my FICO hell holes happened because I didn't have enough to cover 2 months and the spiral made it all go out of control.

Now I have 19 months emergency savings and in 2018 my goal is to have 24 months.  I didn't do it by being rich, I did it by living well below my means.

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Congrats! After the scare of 2013 I decided to hunker down and build up a comfortable nest egg before dabbling in anything else (part of the reason why I gardened for so long...). Likewise I think my emergency fund is enough to cover 24 months. I'm thankful I started early because a layoff last year ate away 3 months, and I barely saved anything in 2017 after another series of events cost me almost $5000 in expenses. My current goal is to reach 36 months, which can hopefully be squeezed to 48 months on a minimalist lifestyle. 

And yes, living far below my means is also how I accumulated my savings. While everyone else was spending $200 or so a week eating out and getting expensive drinks, I cooked or ate microwave food, and abstained from alcohol apart from the occasional beer or glass of wine. Some of my friends thought I was broke and asked if I needed financial assistance. 

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@Anonymous wrote:

Love what you guys are saying about Emergency Funds.  One helpful observation IMO is that an EF doesn't have to be thought of solely in terms of cash.  Cash in a high interest savings is absolutely the first piece in it.  But a person can expand his EF conceptually by pushing money into a Roth as well.  The goal of course should be to never touch the Roth -- but if absolute disaster struck and all money in the savings was exhausted, it's nice to know that the Roth money can be accessed without penalty.

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 Good point. Anything with very high liquidity works. Even a 401k could be used as an emergency fund of absolute last resort when you have nothing else left to tap into. 

[Anonymous]

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@arkane wrote:

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hunker down and build up a comfortable nest egg before dabbling in anything else (part of the reason why I gardened for so long but I digress). Likewise I think my emergency fund is enough to cover 24 months. I'm thankful I started early because a layoff last year ate away 3 months, and I barely saved anything in 2017 after another series of events cost me almost $5000 in expenses. My current goal is to reach 36 months, which can hopefully be squeezed to 48 months on a minimalist lifestyle. 

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Minimalism has been a slippery slope to more happiness for me, for sure.  The less I "want" in useless consumer goods, the longer I can survive without additional income, the more sensitive my brain gets to joy and happiness from more basic things.  The reduce financial anxiety is incredible for a guy like me who was formerly Type A in every measure.

The amazing part of getting to 48 months of emergency savings is your interest earned will actually start providing you with a "free" extra month every year going forward.  Kinda crazy to start watching it happen.

My FICO score has very little to do with my financial outlook, though.  FICO is useful for maximizing rewards earned from credit cards, but I don't think it matters much to me beyond that.  I bought my first home without credit, I bought my first 5 cars without credit, I bought my first boat without credit.  The only negative was I left cashback rewards on the table, but more important than a shiny FICO score is (a) that emergency fund and (b) living beneath one's budget goals.

FICO may seem unfair, but my birth certificate didn't guarantee me fairness in life.  Not having emergency funds or a budget is way more painful than the unfairness of FICO, and both of those areas are 100% individually driven although none of us want to admit it.

[Kree]

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@Anonymous wrote:

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@arkane wrote:

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hunker down and build up a comfortable nest egg before dabbling in anything else (part of the reason why I gardened for so long but I digress). Likewise I think my emergency fund is enough to cover 24 months. I'm thankful I started early because a layoff last year ate away 3 months, and I barely saved anything in 2017 after another series of events cost me almost $5000 in expenses. My current goal is to reach 36 months, which can hopefully be squeezed to 48 months on a minimalist lifestyle. 

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Minimalism has been a slippery slope to more happiness for me, for sure.  The less I "want" in useless consumer goods, the longer I can survive without additional income, the more sensitive my brain gets to joy and happiness from more basic things.  The reduce financial anxiety is incredible for a guy like me who was formerly Type A in every measure.

The amazing part of getting to 48 months of emergency savings is your interest earned will actually start providing you with a "free" extra month every year going forward.  Kinda crazy to start watching it happen.

My FICO score has very little to do with my financial outlook, though.  FICO is useful for maximizing rewards earned from credit cards, but I don't think it matters much to me beyond that.  I bought my first home without credit, I bought my first 5 cars without credit, I bought my first boat without credit.  The only negative was I left cashback rewards on the table, but more important than a shiny FICO score is (a) that emergency fund and (b) living beneath one's budget goals.

FICO may seem unfair, but my birth certificate didn't guarantee me fairness in life.  Not having emergency funds or a budget is way more painful than the unfairness of FICO, and both of those areas are 100% individually driven although none of us want to admit it.

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They say 3 months, other thems say 6 months. But really, I think everyone want 20 years of emergency savings, because at that point you can retire.   I don't trust retirement savings by themselves. 20 years of emergency savings is my goal.

[Anonymous]

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@Kree wrote:

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They say 3 months, other thems say 6 months. But really, I think everyone want 20 years of emergency savings, because at that point you can retire.   I don't trust retirement savings by themselves. 20 years of emergency savings is my goal.

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I retired at age 41 from work entirely because I made a plan at age 30 to be done by 40.  I missed my goal by about 17 months and then a year and a half later pulled a FICO score (February of this year) and realized that I don't need income anymore, but I was leaving all the cashback rewards on the table with my organic spend!

My savings + investments + assets is enough to live on the rest of my life at my current quality of life, which is 97% minimalist at home but I do spend about 30% of my net income on travel every year (and plan to/budgeted until I'm 50).

The reality here is that I had to make a huge leap of faith that I could reduce my consumer-driven mindset and I knew from talking to others that it takes about 10 years to get there.  Quitting alcohol was easy, cigarettes took 3 years, but getting rid of TV/streaming took me almost 7 years of struggle and re-attempts!  Facebook was super easy and now I just log in twice a week to manage my financial private groups and ignore the public feeds or private messages entirely.  TV was the most difficult thing I ever quit, but I figure it saves me about $4000 a year in TV expenses and I used to log over 2000 hours of TV watching a year, now it's closer to 150 hours a year (all of it on an airplane flight).  Dreadful withdrawal though.

A lot of people come to me asking "how can I retire at 40?" and I tell them: you really don't want to unless you condition your brain to go without a lot of things.  Of course, I missed the entire election season in 2016 and am thankful for it, lol.  Now I just roll my eyes at people who bring that topic up.

Looking forward, I really don't need FICO at all.  The only thing FICO is good for in 99% of situations is living beyond one's means and struggling with job anxiety until they're 70 or dead.  In my case, I only use FICO to abuse/game the system and get as much cash as possible, but I'd prefer it if EVERY website and store just offered a 5% cash discount up front.  I'd take that over any rewards, even Amex BCP.

[Anonymous]

Moneyklutz wrote: Credit scores and the manner in how they are calculated are actually quite fair in my opinion.

Several years ago my cable TV box malfunctioned. I called the cable company. They said to bring it in for an exchange. I exchanged it. The only channel that I now got was CNN. Every station was CNN. I called. They said push these bottons. Try this. Do this. Nothing worked. They said they would send someone to fix it. I took off work. No one showed up. I called. The repair person was re-scheduled for another day. I took off of work. No one showed up. I called. They will send someone on Saturday. No one showed up. I called. I said cancel the service. A received a bill for the monthly cable bill. The same amount when I received more than CNN. I called. They said I had to pay. I said come get your equipment. They said they would. They never came. The box was placed on my porch and sat there for over two weeks until I brought it back inside. Another monthly cable bill this time charging me the monthly charge and for the box. I didn't pay. I called. They did nothing. The cable company reported me as late. I wrote to the cable company and asked who else is billed the normal monthly rate, but only receives CNN. No response. The cable company turned me over for collections. I wrote to the CA. They didn't respond. I called the CA. The guy said too bad, pay your bill. I of course was not going to pay for months worth of no service and for a box which they could have/should have picked up.

Needless to say, my CS dropped. Now to me this was not fair! There are a lot of stories like mine.

After the SOL ran out, I destroyed the box. It felt good!

[Moneyklutz]

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@Anonymouswrote:

Moneyklutz wrote: Credit scores and the manner in how they are calculated are actually quite fair in my opinion.

...Needless to say, my CS dropped. Now to me this was not fair! There are a lot of stories like mine.

After the SOL ran out, I destroyed the box. It felt good!

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Frustrating story... Cable companies in my opinion plop with a wet squishy sound into the same bucket as politicians and Nigerian email scammers. 

Remember though, your score is only calculated from the data provided to it. Garbage in really does equal garbage out.

In your case I'd blame the horrible experience you've had and subsequent score drop on your Cable provider, not FICO.

I feel sorry for you but I did chuckle envisioning the malfuntioning box meeting a well deserved demise.