• ObjectivityIncarnate@lemmy.world
    1·
    5 days ago

    Credit scores are opaque ratings of people kept by private organisations

    They are only opaque to the extent that reduces the ability to game them. It’s very common knowledge what the primary factors are that determine your credit score:

    1. payment history (it makes perfect sense that seen as more risky to lend to, if you don’t make your loan/credit card payments on time). Also, the more consistently you make your payments on time, the more credit limit increases you get, which helps with—
    2. utilization (it makes perfect sense that you’re seen as more risky to lend to, the closer to ‘maxed out’ you commonly are)
    3. derogatory marks (e.g. being sent to collections, having your house foreclosed on, etc.; makes perfect sense for things like these to be considered evidence of you being risky to lend to)

    Without paying a cent of interest, my credit score is in the 800s, simply because I use my credit card for everyday purchases, then pay off the statement balance each month, and have done this consistently.

    used to refuse business to people effectively based on their spending & borrowing behaviour

    “Refuse business” is deceptively overbroad—no entity will prevent you from fully paying for something in cash based on your credit score, for example. But they may refuse to lend to you, if you have a history of failing to repay money that was lent to you in the past.

    There’s nothing shady about that, it makes perfect sense for one to be less willing to lend money to someone who has a reputation of not repaying their debts.

    Without a credit score or similar system, lenders either will:

    1. treat everyone with the same caution as they would someone who’s never borrowed anything before (which is detrimental to people who reliably repay their debts), if they’re ethical
    2. guess at creditworthiness based on prejudices/biases/stereotypes of the immutable characteristics of the individual looking to borrow, inviting bigotry to play a major role in who gets loans, etc.

    Credit scores are purely beneficial to good/reliable borrowers—it seems that invariably, those who have the biggest problem with them are unreliable borrowers who really wish they could hide the fact that they don’t repay their debts from the next entity they intend to get more ‘free money’ from.

    • WoodScientist@lemmy.world
      11·
      5 days ago

      One caveat. You do get dinged on your credit score if you are too responsible with your credit. You get dinged if you don’t carry a balance on your credit card. Credit reports ultimately rate how profitable you are to lenders, not how responsible you are with credit.

      • ObjectivityIncarnate@lemmy.world
        1·
        2 days ago

        One caveat. You do get dinged on your credit score if you are too responsible with your credit.

        Untrue. I’m in the 800s, and all I did was consistently pay off my everyday-use credit cards every month.

        You get dinged if you don’t carry a balance on your credit card.

        Absolutely false:

        Carrying a balance on a credit card to improve your credit score has been proven as a myth. The Consumer Financial Protection Bureau says paying off your credit cards in full each month is the best way to improve your credit score and maintain excellent credit for the long haul.

        Credit reports ultimately rate how profitable you are to lenders

        No they don’t, or else I, who has literally only profited off my credit cards via the combination of never paying interest, and utilizing cash back rewards from regular use, wouldn’t have a credit score in the 800s.

        not how responsible you are with credit.

        Explain my 800s score, then. They’re making literally negative profit from me.

        If someone has one credit card that’s always maxed out, and while they’re always making payments on time, they’re minimum payments, so they’re accruing essentially the most interest they could possibly be accruing, I guarantee that person’s credit score is much worse than mine, even though there is no arguing that this hypothetical person generates way more revenue for the credit card provider. That refutes your assertion from the other direction.

        And that’s without even mentioning how significant a negative influence 100% utilization has on the score.

        • WoodScientist@lemmy.world
          11·
          2 days ago

          No, you are incorrect.

          This is a screenshot directly from a credit report disclosure from a current mortgage application. This type of credit report is much more accurate than the ones you get from a free site, as they are the version of the credit report actually used by a mortgage lender.

          I do the same strategy you do. We don’t carry a balance on our cards. Usually the only debt we have is our mortgage. And yet, clear as day, the credit report disclosure clearly indicates that our score took a hit because we don’t carry a balance. I also have a plus 800 credit score, but it would be higher if I made a habit of paying the bank lots of interest income.

          • ObjectivityIncarnate@lemmy.world
            1·
            3 hours ago

            the credit report disclosure clearly indicates that our score took a hit because we don’t carry a balance.

            Are you paying your cards off before the statement cycle ends, resulting in your statement reading $0 every month? “No recent revolving balances” means that, as far as the credit reporting agencies know, you haven’t been using your card at all for 3+ months (emphasis added)[1]:

            “No recent revolving balances”—another way to say your credit cards are all paid off—sometimes appears as a FICO® Score risk factor. To be included in a credit score calculation, accounts need to show activity over time. By making a small purchase each month and then paying the balance in full, you will demonstrate that you are a good credit risk. The balance on your billing statement is what is usually shown in your credit report. Even though you’ve paid the balance in full, your credit report would show the balance, indicating activity in your account and helping your score.

            You should let the statement cycle end with the balance of whatever you used it for, and then pay it off, anytime between that day and your due date. As long as you pay it off no later than your due date, you’ll still pay no interest, but paying it off before the statement ends prevents the agencies from even realizing that you used the card at all, because the agencies can’t see your actual credit card usage activity. They see only:

            • statement balance
            • (if it’s nonzero) payment status
              • ‘did you pay at least the minimum?’
              • ‘did you pay on time/by the due date?’

            I also have a plus 800 credit score, but it would be higher if I made a habit of paying the bank lots of interest income.

            No, it wouldn’t. Interest paid is not a factor at all—the credit reporting agencies literally have no way of knowing what portion, if any, of your statement balance is interest, they’re only provided the bottom line total statement balance.

            Also, if you’re over 750, any further increase is ‘gravy’ anyway, almost no lender has a tier higher than that. The highest ‘breakpoint’ I’ve ever seen is 780. Even if what you said was accurate, ‘I’m over 800 but it could be higher’ is a distinction without a difference.

            1. And this is only an ‘adverse effect’ insofar as, after that amount of time, you start to be considered similarly someone who doesn’t have those credit cards at all, since as far as they know, you’re using them the same amount as such a person, lol. ↩︎