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Credit score question

Brian63

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Recently I checked my bank which provides a weekly update on my credit score. Also, it provides some brief info and even tips on how to improve credit. Two factors in particular have me curious:

1. Having hard inquiries, in-depth assessments, tends to be a drag on your credit and reduces your score. Your credit looks better to potential lenders if they see that you are not shopping around to a lot of places, because it can come off as you looking desperate for money and that raises warning flags for them.

2. Having a low balance on your accounts compared to what is available for you to use is a positive marker on your credit. If you have a credit card with a cap of $5,000 and you consistently maintain a low balance on it (all else being equal), then potential lenders see that as a safe and good mark on you.


Given those two characteristics, wouldn't it make sense that if a person is at a point in life where they are in good financial shape with a high enough and steady enough income, high assets over liabilities, etc. that they would go ahead and apply for more credit cards? Take a small and temporary hit by the hard inquiries on your credit, which will bring down your score. If you successfully obtain a new card with a high limit and you keep your balance low, that in turn will raise your credit score. Which force is more powerful? Which offsets the other to a greater extent?

Someone recently advised me that it is best to not apply for credit when you do not need to. I made the above rebuttal about how having another account with a low balance and a high limit would offset the hard inquiry that harms your credit. She began to have second thoughts. Neither of us are financial or credit experts, however. Does anyone know?
 

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The hit for an inquiry is short term, the benefit from the extra credit is long term.

I do not know if it was a real issue or a glitch but I have seen my credit rating drop when my credit utilization dropped to the point that it rounded off to zero percent. Note, also, that your current balance counts towards utilization even if you pay it off before the due date.

Note that ratings above 740 have basically no meaning (issuers treat them the same as a 740), there's nothing to be gained by trying to game the system if you're above that point.
 

Brian63

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Thanks. That last paragraph has me confused though. If Jane Smith has overall good finances and a good credit score of ~800, the point of applying for additional credit cards would not be to game the system. It is not a game at all. The point would be to have an additional pool of available credit in the case of an emergency, for instance. So it would be to her advantage to keep trying to glean as much credit as she can from lenders, until her credit score drops to about 740.
 

Loren Pechtel

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Thanks. That last paragraph has me confused though. If Jane Smith has overall good finances and a good credit score of ~800, the point of applying for additional credit cards would not be to game the system. It is not a game at all. The point would be to have an additional pool of available credit in the case of an emergency, for instance. So it would be to her advantage to keep trying to glean as much credit as she can from lenders, until her credit score drops to about 740.

We have ratings in the ballpark of 800--no reason to try to boost it. There are two reasons I'll apply for a new card:

1) Promo offers. Generally I only bother for $50 and above. A couple of times I have pocketed a few hundred dollars. (There was a substantial minimum spend to get that, I simply pulled forward spending that would have happened anyway and put it on the card.) Such cards get used to satisfy whatever the terms of the promo are and then never used again, the company eventually cancels them.

2) Rewards superior to what I already have. These days this is pretty rare as I have two cards that give 2% cash back on all spending, but there are cards with better rewards in certain cases.
 

Brian63

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I gave another possible reason for wanting to apply for another credit card from an issuer---in the case of a financial scenario where your existing availability would not be enough to cover your urgent and necessary expenses. To prepare for such a situation, it is in the interest of a person with good credit to get as much allowance as they can, until their score drops (because of hard inquiries) to ~740, since as you note it is meaningless to be above it. The person's intent is not to raise or lower their credit score for that sake alone---their intent is to have access to as much credit as possible in the case of a financial emergency, to the point that their applying to more issuers happens to drop their score to 740 and at that point would do some damage. Up until then, no damage is being done by applying for more credit.
 

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From a practical point, Brian, you are correct.

We have close to $200k of usable credit if we need it. But our monthly balance generally is well under $5k, and that's only because we recently had a family emergency, and it will be paid off soon. We have had our credit balance up over $80k for several years (lay-offs, moves, family emergencies, all within a couple years) and it was nice to have it available. If we had waited until we 'needed' it, we would have been fucked, and our savings would likely have been wiped out. Sometimes, being able to transfer balances from card to card, while a pain, is also a way to 'game' the system and pay very little interest.
 

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I've never used nor been tempted to use credit cards, and the credit score people hate me for it. You're supposed to be in predictable debt, not prudent non-debt, in their view. My only saving graces are my student and car loan. I don't actually make financial decisions based on what Experian wants me to do, though. I might if my credit score got low enough, but it hasn't yet, so I try to ignore all their self-serving propaganda as much as possible.
 

rousseau

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I've never used nor been tempted to use credit cards, and the credit score people hate me for it. You're supposed to be in predictable debt, not prudent non-debt, in their view. My only saving graces are my student and car loan. I don't actually make financial decisions based on what Experian wants me to do, though. I might if my credit score got low enough, but it hasn't yet, so I try to ignore all their self-serving propaganda as much as possible.

If you're consistently in the black using a credit card regularly is a good financial decision. We have a PC card that gets us grocery rewards for two stores surrounding our house. So we get a kickback of 1% on every dollar we put on the card, and 3% when we shop at the right grocery stores. This usually amounts to about 20 - 40 dollars a month in our pocket, just for using the card.

When we're shopping at a small business we debit directly from our bank account as this costs them less, but big box stores and the like - we fire away with our credit card. We just always make more than we spend.
 

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I've never used nor been tempted to use credit cards, and the credit score people hate me for it. You're supposed to be in predictable debt, not prudent non-debt, in their view. My only saving graces are my student and car loan. I don't actually make financial decisions based on what Experian wants me to do, though. I might if my credit score got low enough, but it hasn't yet, so I try to ignore all their self-serving propaganda as much as possible.

If you're consistently in the black using a credit card regularly is a good financial decision. We have a PC card that gets us grocery rewards for two stores surrounding our house. So we get a kickback of 1% on every dollar we put on the card, and 3% when we shop at the right grocery stores. This usually amounts to about 20 - 40 dollars a month in our pocket, just for using the card.

When we're shopping at a small business we debit directly from our bank account as this costs them less, but big box stores and the like - we fire away with our credit card. We just always make more than we spend.

Similar to my approach. I pay off all cards in full every month, and use the one that gives me most cash back for any given purchase. Usually comes to $500-1000/yr "free" money (vs using cash or check). My Amex does charge an annual fee (the only one) but for 6% off groceries, that's a no brainer.
 

rousseau

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I've never used nor been tempted to use credit cards, and the credit score people hate me for it. You're supposed to be in predictable debt, not prudent non-debt, in their view. My only saving graces are my student and car loan. I don't actually make financial decisions based on what Experian wants me to do, though. I might if my credit score got low enough, but it hasn't yet, so I try to ignore all their self-serving propaganda as much as possible.

If you're consistently in the black using a credit card regularly is a good financial decision. We have a PC card that gets us grocery rewards for two stores surrounding our house. So we get a kickback of 1% on every dollar we put on the card, and 3% when we shop at the right grocery stores. This usually amounts to about 20 - 40 dollars a month in our pocket, just for using the card.

When we're shopping at a small business we debit directly from our bank account as this costs them less, but big box stores and the like - we fire away with our credit card. We just always make more than we spend.

Similar to my approach. I pay off all cards in full every month, and use the one that gives me most cash back for any given purchase. Usually comes to $500-1000/yr "free" money (vs using cash or check). My Amex does charge an annual fee (the only one) but for 6% off groceries, that's a no brainer.

Exactly. Before our son was born we automated everything we could, and set things up so our credit card bill would be paid in full every month. So we don't even think about it - just use the card and receive free groceries.
 

southernhybrid

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I've never used nor been tempted to use credit cards, and the credit score people hate me for it. You're supposed to be in predictable debt, not prudent non-debt, in their view. My only saving graces are my student and car loan. I don't actually make financial decisions based on what Experian wants me to do, though. I might if my credit score got low enough, but it hasn't yet, so I try to ignore all their self-serving propaganda as much as possible.

If you're consistently in the black using a credit card regularly is a good financial decision. We have a PC card that gets us grocery rewards for two stores surrounding our house. So we get a kickback of 1% on every dollar we put on the card, and 3% when we shop at the right grocery stores. This usually amounts to about 20 - 40 dollars a month in our pocket, just for using the card.

When we're shopping at a small business we debit directly from our bank account as this costs them less, but big box stores and the like - we fire away with our credit card. We just always make more than we spend.

I was going to say something similar. We probably still have a very high credit rating but we don't need it because we have no loans and we have plenty of savings. But, we use our Discover credit card for just about everything. As a result, we get back at least 500 dollars a year from Discover. We pay off the card every month, so it's never a worry. We are old and lucky to have enough savings to use for unexpected emergencies.

There are other credit card companies that have followed in Discover's footsteps by giving back money based on how much you spend. Imo, it's foolish not to have a credit card, unless you have no discipline and are afraid you will charge up more than you can afford.
 

Loren Pechtel

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I've never used nor been tempted to use credit cards, and the credit score people hate me for it. You're supposed to be in predictable debt, not prudent non-debt, in their view. My only saving graces are my student and car loan. I don't actually make financial decisions based on what Experian wants me to do, though. I might if my credit score got low enough, but it hasn't yet, so I try to ignore all their self-serving propaganda as much as possible.

Using credit cards doesn't have to mean you're in debt. I haven't paid interest in ages, but I use them for convenience and the rewards. Credit cards are also safer than debit cards--if one is compromised it's only that card that's a problem, not your whole bank account.
 

Loren Pechtel

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Similar to my approach. I pay off all cards in full every month, and use the one that gives me most cash back for any given purchase. Usually comes to $500-1000/yr "free" money (vs using cash or check). My Amex does charge an annual fee (the only one) but for 6% off groceries, that's a no brainer.

Exactly. Before our son was born we automated everything we could, and set things up so our credit card bill would be paid in full every month. So we don't even think about it - just use the card and receive free groceries.

Second this. We have virtually everything automated. Of the routine bills the only ones that aren't are the sewer and the property tax, and those are because they don't have automation systems in place.
 

Loren Pechtel

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I was going to say something similar. We probably still have a very high credit rating but we don't need it because we have no loans and we have plenty of savings. But, we use our Discover credit card for just about everything. As a result, we get back at least 500 dollars a year from Discover. We pay off the card every month, so it's never a worry. We are old and lucky to have enough savings to use for unexpected emergencies.

There are other credit card companies that have followed in Discover's footsteps by giving back money based on how much you spend. Imo, it's foolish not to have a credit card, unless you have no discipline and are afraid you will charge up more than you can afford.

Check your rewards--Discover nerfed theirs many years ago. If you pay on time you can get 2% here: https://www.citi.com/credit-cards/credit-card-details/citi.action?ID=citi-double-cash-credit-card
 

TV and credit cards

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I don't like that it is typically referred to as "my FICO" or "my credit report". It's about me but I didn't initiate it and I can't stop it but the perception is pushed that I am somehow responsible for it. Humph!

I got a credit report back in '03 when I got a mortgage. I got hit for "insufficient data" or some such term. It's been my observation if you don't much use credit and don't make any mistakes, you'll make it to the low to mid seven hundreds. I've looked at my FICO a couple times in recent years because the link is right there on my Navy Federal Credit Union home page. I got a credit card with NFCU when I was twenty and still have it. I've never gotten another. I consider the value of my time when it comes to playing musical credit cards. I'd just as soon keep it simple and spend my time doing happier things. Be it banks, insurers, or anyone else who might bill me, it's all about simplifying. I might miss out on the few table scraps they push off but that's okay with me. Because I'm happy.
 

Loren Pechtel

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I don't like that it is typically referred to as "my FICO" or "my credit report". It's about me but I didn't initiate it and I can't stop it but the perception is pushed that I am somehow responsible for it. Humph!

I got a credit report back in '03 when I got a mortgage. I got hit for "insufficient data" or some such term. It's been my observation if you don't much use credit and don't make any mistakes, you'll make it to the low to mid seven hundreds. I've looked at my FICO a couple times in recent years because the link is right there on my Navy Federal Credit Union home page. I got a credit card with NFCU when I was twenty and still have it. I've never gotten another. I consider the value of my time when it comes to playing musical credit cards. I'd just as soon keep it simple and spend my time doing happier things. Be it banks, insurers, or anyone else who might bill me, it's all about simplifying. I might miss out on the few table scraps they push off but that's okay with me. Because I'm happy.

You don't need to play musical credit cards to get 2% rewards. I only worry about playing musical cards when it's big-ticket stuff like air tickets.
 

atrib

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Given those two characteristics, wouldn't it make sense that if a person is at a point in life where they are in good financial shape with a high enough and steady enough income, high assets over liabilities, etc. that they would go ahead and apply for more credit cards?

Credit cards are no substitute for an emergency fund, where you have set aside cash in savings or money market accounts to deal with unexpected expenses. This is especially true for people who are in good financial shape with a steady source of income that allows them to save. The money tied up in the emergency fund is insurance; it is not there to make you money, but to save you from borrowing, potentially at high cost from your retirement accounts, if/when an emergency arises. If you have a steady income and live within your means while saving for a rainy day and retirement, you don't need a high credit score, since you are using cash to pay for purchases.
 

atrib

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I've never used nor been tempted to use credit cards, and the credit score people hate me for it. You're supposed to be in predictable debt, not prudent non-debt, in their view. My only saving graces are my student and car loan. I don't actually make financial decisions based on what Experian wants me to do, though. I might if my credit score got low enough, but it hasn't yet, so I try to ignore all their self-serving propaganda as much as possible.

Using credit cards doesn't have to mean you're in debt. I haven't paid interest in ages, but I use them for convenience and the rewards. Credit cards are also safer than debit cards--if one is compromised it's only that card that's a problem, not your whole bank account.

Agreed. But in the real world, very few people have the discipline to budget their expenses and follow a plan, and a credit card makes it really easy for them to spend money without considering the long term financial ramifications of their behavior. And its not just credit cards; its also things like car loans.
 

Brian63

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Given those two characteristics, wouldn't it make sense that if a person is at a point in life where they are in good financial shape with a high enough and steady enough income, high assets over liabilities, etc. that they would go ahead and apply for more credit cards?

Credit cards are no substitute for an emergency fund, where you have set aside cash in savings or money market accounts to deal with unexpected expenses. This is especially true for people who are in good financial shape with a steady source of income that allows them to save. The money tied up in the emergency fund is insurance; it is not there to make you money, but to save you from borrowing, potentially at high cost from your retirement accounts, if/when an emergency arises. If you have a steady income and live within your means while saving for a rainy day and retirement, you don't need a high credit score, since you are using cash to pay for purchases.

Earlier in life I was rather careless about using credit cards excessively, and it did hurt in the longer term.

In the last several days I have been doing reading from other financial-guru sites about these scenarios, and there were some conflicting tips. Some were suggesting that if you have good credit, then it is to your benefit to apply for a new card every 6 months or so. The hard inquiry may drop your score about 5 points (but less if you have good credit), and the inquiry gets erased from your record in 6 months. But now, voila, you have more credit available and the debit-to-credit utilization will have decreased, which is a good mark for you.

Others advised against applying for more credit unless you needed it right then, though my memory unfortunately is a little murky about the rationale. I think it in part related to the potential need to apply for more credit in the next 6 months. So do not do it now, if within the next 6 months you may need to do it again. So apply for credit cards very sparingly.
 
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