I don't understand FICO

[janna]

After a bankruptcy, I stopped using credit cards and I am now on a cash only basis. If I can't pay cash, I figure I can 't afford it. Works for me! I use my bank debit card as a credit card if a credit card is required. I own my own home and and have a 100% history of paying my mortgage on time (for almost 10 years.) Yet, when a credit score is run on me, they say my score is too low. I am constantly urged to get more credit cards and use them to "raise" my score. Why doesn't my excellent mortgage payment history ever count? It's a large debt I have and I keep on top of it. Isn't that a crdit history, 10 years of on-time payment?

Also, I have read about FICO and it's so arcane. If you use too much credit, it's bad, but using too little is bad also. If you apply and are rejected, it lowers the score. If you have too many or too little cards it can lower your score too!

Who the hell devised the FICO system anyway? The credit card industry? It seems designed to suck people into the consumerism and suck their $$ out of them. Sort of like vampires running blood banks! LOL!

Should I get more credit cards? I'm afraid that I'll be tempted to overspend. But if I get them and don't use them, there no benefit and possibly a detriment.

I'm confused. Any advise?

[Gelsomina]

I don't know how FICO works, but I agree with you that it's a system that is arcane and it's never seemed liked a fair system to me.

Does your mortgage appear on your credit report? Maybe you can add a statement to your credit report detailing your excellent credit history with mortgage payments - it won't raise the score (I don't think) but potential creditors can see it.

As if FICO isn't enough - I think there's a new credit scoring system called Vantage, but I haven't looked into it yet.

[72Tiger]

Do you need any credit, or are you just somehow worried that you can't get it? Sounds like you have a mortgage, and you are using cash and can pay for everything that way. Looks like you are doing good after a bankruptcy. Avoid the credit cards, and you sound like you will do fine.

[janna]

I looked into refinnancing my home and my FICO is low because i don't use credit cards a lot, so I don't have a long "credit history." when i point out my xllnt mortgage payment history, they say that doesn't matter as much as using credit cards. and not store department cards. they want me to apply for and start using major crdit cards. otherwise, they only offer me the worst loans with the worst rates and highest payments. that's why, to me, FICO just seems designed to push you into debt and credit hell!

[72Tiger]

Try to find a bank that will do what is called Manual Underwriting. They use things like payment history, job stability, etc to decide if you qualify for a loan instead of the FICO score. I don't know how your previous bankruptcy will factor into it. I am guessing it depends on how long ago it was.

I agree with you, FICO's design is built on the use of credit, and the management of debt. Good luck!

[kav122]

Originally Posted by 72Tiger

Try to find a bank that will do what is called Manual Underwriting. They use things like payment history, job stability, etc to decide if you qualify for a loan instead of the FICO score. I don't know how your previous bankruptcy will factor into it. I am guessing it depends on how long ago it was.

I agree with you, FICO's design is built on the use of credit, and the management of debt. Good luck!

Good answer 72Tiger!

[Daniel]

FICO in its most basic form is a measurement of the riskiness of a borrower. It can seem very arcane because its based on more academic principles than what you believe to be common sense. It takes into account factors that help estimate that risk such as past delinquency, whether or not credit is "maxed out," etc.

In many cases one important way of improving a credit score is to diversify the types of debt you have; this is why people are telling you to get a credit card. Your mortgage would be considered installment debt while a major credit card would be revolving debt. A person with diversified debt is considered less risky.

If I understand correctly the bank will approve you for some credit but at a high rate. If the bank will offer you credit the manual underwriting will not matter; it can only affect approval and is very unlikely to affect the rate.

As an alternative to credit cards, you could talk to your bank about the smallest possible revolving line of credit they would offer which would probably be $1000. This would probably cost more than a credit card; the finance charges for the bank would be about $150 (15%) just for working it up in addition to whatever rate they would offer. Of course, don't just directly take my advice, but talk to your bank. A good banker should be able to tell you what your options are and about how much each one will impact your credit score.

[iceclone]

I agree with Daniel and 72Tiger. "A person with diversified debt is considered less risky." If you have a variety in your debt, like credit cards, mortgage, auto loan, etc. and can prove that you can maintain them all, it shows that you're a better risk for them.

I used to have a lot of credit cards, but now I'm just using one (and just use it for emergencies). The others, I'm not using (so I just keep them in a safe place). The others, I closed (they are not long enough to hurt my credit).

But anyway, I have to agree with you also. FICO scoring is tricky. There's a lot of things to learn to beat it (or work with it).

[Megan]

If you do want to get a credit card to build up your credit score, here's one relatively easy way to do it with less risk of overspending.

Apply for a card, and when you get it, use it to sign up for automatic bill pay for one of your monthly bills (if you're not comfortable with automatic bill pay, you can always enter it on the bill paying site and have it stored there so that each month, you sign on and pay the bill with that card with a single click).

Then cut up the credit card. For security purposes, I would write down the last four digits of the card and all of the phone numbers on the back of the card, in case you do ever need to contact the credit card company.

Pay the credit card bill monthly. This shouldn't be too hard since you're using it to pay a monthly bill that you're already paying. It's not a new expense, just a new manner of payment.

And there you go. It is still a bit more risky, because you really have to trust yourself to not use the card at all, and you have to remember to pay the bill every month, but it will help.

[cccdude]

Originally Posted by Megan

If you do want to get a credit card to build up your credit score, here's one relatively easy way to do it with less risk of overspending.

Apply for a card, and when you get it, use it to sign up for automatic bill pay for one of your monthly bills (if you're not comfortable with automatic bill pay, you can always enter it on the bill paying site and have it stored there so that each month, you sign on and pay the bill with that card with a single click).

Then cut up the credit card. For security purposes, I would write down the last four digits of the card and all of the phone numbers on the back of the card, in case you do ever need to contact the credit card company.

Pay the credit card bill monthly. This shouldn't be too hard since you're using it to pay a monthly bill that you're already paying. It's not a new expense, just a new manner of payment.

And there you go. It is still a bit more risky, because you really have to trust yourself to not use the card at all, and you have to remember to pay the bill every month, but it will help.

Thats what I do. All my credit cards are in auto pay, so I never pay any late fees or penalties. You have to discipline yourself though to never charge more than you can afford, keep a balance of your checking account and make sure you have enough funds in it to cover your credit card due balances.