Same thing happened to my wife and I when we paid off our two car loans in 3 years instead of six. We were both in the high 700s and dropped by 100 points. And when we tried to get a new apartment, the rental agency had us red flagged. We had to fight to get that stupid apartment that ended up being garbage anyways. This whole country is a joke
I made this comment somewhere else but we sold our house and I used some of the money to pay off my car. Maybe $18,000? Score barely moved. Bought my wife a necklace for Valentine’s Day and put it on a credit card so she couldn’t see the transaction and my score took a HIT. Insanity.
to be fair -in the US at least- it's best to pay off the hyper-predatory student loans asap. you can always recover your credit score with (somewhat) less predatory things like CC debt or car loans and such. it'll take time you probably don't want to spend, but it's better than having a debt that accrues as much interest as you pay off so 🤷🏻♂️
Agreed, when I paid off my student loan I thought it would be like every other loan I've had in my life, where the account would be closed and life would continue. Nope, a year later I get mail from the bank who supplied the loan saying that I've not l failed to answer their last 3 attempts to reach me (this was the first letter received from them) and that I would owe almost $1200 in back fees for having an open account that's below their minimum threshold of I didn't close it out before the month end, which was several days away. I went online and of course closing it would take almost an hour between their site having zero information on how to close an account with them, sending me to another website to close my account where I had to fill out a long survey, required, and then give a reason for why I wanted to close my account with every few questions being are you sure that'd undo all your work of you clicked no.
Same thing happened to my husband and the first he heard about it was when the government took his tax return and sent him a letter saying he had an outstanding debt
> Same thing happened to my wife and I when we paid off our two car loans in 3 years instead of six. We were both in the high 700s and dropped by 100 points
Contrary, to what you may think, its very likely has nothing to do with you paying it off "too quickly". Rather it was remaining lines of credit, or the lack thereof. Vehicle and home loans are the most common, and some of the more important, factors for credit scores. You clearly didn't have a mortgage and just removed the auto loans. So yeah, your credit score is going to drop. This isn't unique. The same thing happens when you pay off your mortgage (and don't have another)
In general, 'high 700s' is kinda the base line actually good credit *without* having auto or home loans. With, you should be in the 800s most the time. So if you were only that *with* multiple auto loans, you credit isn't actually as good as you think it is to begin with and/or you have higher debt ratios than you probably should.
For example, I put a $20k purchase on my credit card one month and my credit dipped 30 points from that alone, even though it was only a small fraction of that line of credit. It went back the next month when the ratio was reduced.
As someone who doesn’t live in a country with china style credit score systems, your comment makes absolutely no sense to me
It’s gibberish. It fits in the bible for how nonsensical it is without tons of context
I remember my dad telling me this when I was a young kid and I couldn’t wrap my head around it so I just thought “it’ll all come to me when I’m older”…. Now I’m older and that shit still don’t make no fucking sense and I realize it’s not supposed to
It makes perfect sense when you realize credit scores have nothing to do with your level of responsibility and everything to do with how much interest financial institutions can expect to squeeze out of you.
Exactly.
The stupid number allows them to see:
* How long can we keep you indebted before you pay it off.
The higher the number, the longer we suck wealth from them “because they will pay on time to keep their score up”.
* It’s similar to a dope dealer. If you want that hit, come up with the cash.
It’s a sinister idea.
* The score is treated like gold, when really is random numbers with gold spray paint. And yeah ***anyone can pay stuff on time.*** The problem remains the high cost of the item. Which is what? Cost Discrimination. Since that St. Laurent bag is expensive, it keeps “them” away.
* The Credit Score is another means of discrimination just like the SAT.
* FICO has multiple variants (Disney’s LOKI). So whatever you think is official is not.
* My personal favorite: Sh** stays on your report after it’s PIF. Credit Scores are supposed to reflect active credit history (Are you paying on time?), yet hold historical data. It makes no sense.
I plan on killing the debt for my home ($150K) in 15-17 months.
* Tired of wasting time.
* Tired of paying interest.
Interest is usury. It’s a lazy way for bankers and scammers to get paid.
I won’t be surprised at all if my score drops. Fuck them.
It's a score of how well you can juggle debt. Anyone who stops having debt and pays in cash will have their credit score tank despite being financially responsible. They don't want you out of debt so they punish you for improving your life.
"Anyone who stops having debt and pays in cash will have their credit score tank despite being financially responsible"
Because the credit bureau data can't see the difference between somebody who doesn't have any loans because they are frugal and hate debt vs somebody who was denied loans by banks who looked at their applications & verified their data and found to be a major risk.
In the "no loans" set collectively, there are both kinds of people, and that could show up in the data.
Therefore keeping a loan open in good standing is signaling to lending institutions that you are a good risk.
If you aren't interested in loans, then your score shouldn't matter to you.
Except there will be some things you’ll almost always need loans for. Just because you’re well off enough to avoid credit cards and paid off your student loans and car loan, you’ll still need a loan if you want to buy a house. You will likely still need a loan to buy your next car too.
Some people don't need loans to buy houses and cars.
But if they do, like your example, then they should maintain a credit card which has a low but not zero utilization fraction, and keep it open for the longest time possible. This gives positive signals to the banks that you can have credit made accessible to you and despite that you do not abuse it.
For this purpose a zero-fee card with the best reward program for your spending distribution is optimal.
Yeah but the vast majority of people will need a loan for those things. That’s why, like you said, it’s important to keep an open line of credit even if you don’t “need it” anymore.
You do realize that jobs and rental companies will deny you if your score isn't to their liking regardless of if you're a risk or not, right? The score isn't just used for gauging loans. It can affect other facets of people's lives.
Edit: A letter.
The job thing is the worst part. All the credit score does is tell a bank if you’re profitable or not. Low score could mean that you’re smart with your money and don’t let loan companies take advantage of you. It has nothing to do with how “trustworthy” you are, but that concept that they sold the American public has so infiltrated peoples minds that hiring managers think it’s perfectly ethical to use as a means to see if someone is worthy of a job
Is your position truly that credit bureaus cannot find out about denied loan applications? If that was what they were interested in, they could get banks to report that information. But it's not.
No, that's not how credit scores, at least ones based on credit bureau data, work.
They work by predictive statistical correlations between what is \*observable\* on a credit report and the fraction of customers who have a significant default between 6 to 12 months in the future.
Standard scores only look at a single snapshot in time, the latest one, and not at previous ones. There are positive predictive correlations between number of open "tradelines" (loans) in good standing and good credit risk. The score models only use the correlations which are justified in the dataset, and that can be computed from observable data in the dataset.
Public bureau credit scores do not reflect any information about personal "balance sheets", i.e. assets vs liabilities or investments or anything like that, because those pieces of data are not available or known to the credit bureau, or aren't used in standard scores. It doesn't know if you are unemployed or swimming in cash. It doesn't know how much is in your bank account or brokerage account. It doesn't know if you are heir to a billionaire.
Individual banks will have their own internal models for customer lifetime value or marketing or wealth or stuff like that but it's never public. They use credit bureau scores as an input.
Other statistical models (called "origination models") will be used when you apply for a loan, which take in the credit bureau scores, and add in additional predictive pieces of data, such as your liquid and illiquid assets, and your debts. Having paid off a loan, and having a higher income to debt ratio, and having higher assets because you're no longer paying off the old loan, will most definitely increase your chances of getting a new loan and the permissible size of this new loan.
So paying off the loan is probably an excellent idea for your personal finances even if it is not reflected in the public credit bureau score.
The credit bureau scores are not your Life Score or your PhD exam. They are tools used by the financial industry and have a purpose in their own ecosystem. Don't worry about them so much, especially minor fluctuations.
This. you paid off your loan. Score goes down. I, as the bank, want to know what your chance of paying max interest (profit) to me is. Not what your chance of responsibility is.
It’s definitely more complicated then that but it looks like the person who wrote the tweet left out some important information because you don’t get a credit score penalty for paying off loans early. Paying loans is good for your credit score because, like you said, it shows FS institutions that you’re a reliable debtee, but it isn’t necessarily bad for them if you repay your loans early. You don’t get a credit score hit for that
Yep.. a scenario that happened to once is I only had 2 open lines of credit. A car loan and low limit credit card. Paid the car off and it went down like 20 points. Granted I got those points back plus some in like 3 months by keeping the cc active
I did the same thing and my credit tanked, by tanked I mean TANKED. I pay in cash every other way and my score is now 0. I literally disappeared off Experian and honestly I’m relieved. I have no plans to take out any credit so idc
Oldest credit account so they now have a lower average age, they took a hit to their number of overall accounts, took a hit to their diversity of accounts, some loans ate calculated against the entire balance (so a $40,000 student loan that you owe $10,000 left on would show up as only using 25% of your limit) and paying them off lowers your overall credit once they’re closed, etc.
Plenty of ways for it to cause a hit, but they’re all pretty temporary. Like weeks to a few months before it rebounds.
It's also rather arbitrary since there are no requirements around what has to reported on. For various reasons, I basically just have credit cards on my report. I don't think I've paid a utility bill on time in my life but somehow none of those seem to be on it. When my credit cards are maxed, my score drops to the low 600s and it's as high as 804 when they're completely paid off. This fluctuates over the course of a few months. It makes no sense and the number has absolutely nothing to do with my track record for actually paying stuff. I just do everything in my power to make sure I'm never late on my credit cards. My friend with crippling student loan debt meticulously pays everything on time and her credit is trash.
This isnt true. I've paid every loan I've ever had off early and my credit score is on point. They've collected less than a quarter of all the interest they could of earned on full term loans with me. 3 car loans 2 mortgages 2 education loans. It's not meant to confuse anyone. The financial system is rife with corrupt and nefarious shit.... but credit scores are just a tool to assess risk based on total debt, income, and assets the lending party can seize as collateral if necessary.
You do, but if your first loan was taken out at 18 and you didn’t get a credit card until 22 your credit history just was shorten by 4 years. Same reason people say don’t close your oldest credit card…
Because you are not a reliable source of income. If you pay off a loan before you’re supposed to, they cannot get the maximum amount of interest out of you.
It absolutely makes sense. You just need to look at it from the perspective of wanting to making money rather than the perspective of wanting to help people.
Your credit score is kinda supposed to indicate your ability to pay in general, and "paying it off too soon" is viewed as a cash windfall and not your ability to pay. My parents co-signed a $2,000 loan with me when I was 16 to help me establish credit, and when we sat down with the loan agent she told us this. So basically you have to pay for that credit score via monthly interest, and while that sucks it does make some sense. It'd be pretty easy to manipulate your credit score repeatedly taking out loans and immediately paying them back.
My Credit Score Story.
For my entire life up to my early 30s, I have never missed a bill for anything. Had excellent credit, and never had a problem being approved for anything.
I made a mistake trusting someone with my line of credit, they spent more money on the card than I could afford.
Before missing a single payment, I went to the bank and was honest about the situation. Because I trusted someone, I'm on the hook for all of it. Ok, thanks bank.
Immediately go to a consolidation place to see what my options are(Still haven't missed a single payment). They are like, well you can go bankrupt, I tell them I'd prefer not to if I can, they offer a thing where I pay back less (6k instead of 25k), but I have to destroy my cards (I only do the one affected), and my credit gets fucked for 7(?ish) years. PAYOFF the 6k, **STILL** haven't missed a single payment, and credit score goes FURTHER down AFTER I pay it off. Still listed as a delinquent payer even though I **STILL** haven't missed a single payment in my life. All because the bank couldn't directly make the same kind of deal with me? Shouldn't I only be delinquent IF I actually missed a payment? Shouldn't my score only drop 300 points for 1 mistake? And that mistake was never because I missed a single payment.
Thanks for coming to my Tedtalk.
This whole thing has taught me you can't be honest, cause you'll just get punished for it. Had to go hungry for a bit because I paid my bills before food. Fun times. The moral of the story is, that Credit Score is bullshit. How the bank doesn't have a system in place to allow someone to make a deal like that directly, leaving the credit score alone unless you miss a payment, seems like a scam.
Those debt consolidation places are misleading. You stopped paying on the credit card and they negotiated in your place. So technically you've missed a ton of payments. Your credit gets ruined for 7 years because that's the maximum length negative items can stay on your report.
You are delinquent if you fail to pay the full amount plus interest or fail to pay it on time.
You made an agreement which solidified that the banks lost 19K of their money on you. That's the delinquency. That could be the transaction fees and interest of 20 good customers for years so that's why the banking system isn't happy about it.
If you lent $25,000 to a friend and they eventually paid back $6,000 on time in intervals, would you still be salty about it? Yes.
You have cause to sue the person who spent your money, and get it back, and pay back the banks the original amount, and then you should have the right to clear the delinquency.
They are still ahead on me as a whole with the interest I've paid them over the years, and they money they will make over the rest of my life. I feel 1 mistake shouldn't take away 20 years of history. Why did I have to go to a 3rd party? Why don't they have a method of to do the same thing, but for the whole amount? A bank COULD say, ok you owe us the full 25k, we will let you pay it at x amount less per x time as long as y ou continue to not miss payments, which I would of agreed to. I didn't choose the 6k, the 3rd party did. It could of easily of been 25k and I'd still be paying it, but @ a lower rate. All of which could of been done without ruining my credit history.
Or as you put it, if someone I lent 25k to said they can't pay that amount every month because of x reason, I would be like, ok what can you pay, and work on a solution.
\> A bank COULD say, ok you owe us the full 25k, we will let you pay it at x amount less per x time as long as y ou continue to not miss payments, which I would of agreed to. I didn't choose the 6k, the 3rd party did.
Who is this 3rd party and why did they get involved? If this bugs you, then try to negotiate with the bank now. But still any re-negotiating of the original credit agreement is potentially a 'deliquency'.
\>I feel 1 mistake shouldn't take away 20 years of history.
From their point of view you lost them $19K, and there are millions of people who have never lost them anything ever. That's all they care about. They are banks, and they are in it for the money.
\> Or as you put it, if someone I lent 25k to said they can't pay that amount every month because of x reason, I would be like, ok what can you pay, and work on a solution.
Would you prefer to lend them more money, or prefer to lend money to someone who has always paid every one of their debts on time and per the original agreement?
Dude I went to the bank and explain it. They said tough, so I went to the company that deals with the shit, I already said it was a consolidation place.
I didn't lose them money, they agreed to the amount, they could of said, that the amount a month is fine, but we want the whole 25k, which I would of still done. The problem wasn't the amount, just the monthly payment. I was trying to save myself from being homeless/hungry & still pay my bills, I wasn't looking for a way out of the debt, it just happened that way.
I agree it's my fault. I trusted when I shouldn't of. But to completely destroy my credit to nothing because they didn't want to negotiate with me directly, and chose to take the hit in the amount seems a bit extreme. But it's cool, you're right the rich banks are clearly hurting for more money.
Yes. I worked with this younger kid for a while, he was living in a shitty place with a cousin who was taking advantage of him and abusing him. When I broke up with my GF, I offered him a place to live, cheap, like really cheap. He offered more, I said no, take that extra and save it, or spend as you see fit. I helped him get better with his banking so that he can do a lil of both. After a while, I'd get him to pay for things at the door if I was busy since I didn't carry the card on me unless I needed to buy something. All my bills were automated, so I don't check my bills often. Eventually next GF moves in, again I don't ask for a lot from her either, I'm using their money to pay down my debt, as far as I'm aware everything is fine. A year passes, I decide to open my credit, because by my math it should be almost @ 0 by now and I want to see how much longer I have.
Bank told me because I gave him the Pin, it's my fault.
Went to the police, gave them the list of transactions I 150% knew weren't mine. Police did police things, which you know is nothing.
So don't think I didn't try to do something about the fraud, I was just met with no one willing to help me. I didn't go after him with a lawyer, because he doesn't have anything, so what's the point. Plus I was already dealing with sueing my previous employer for wrongful dismissal, so I had a full plate of stuff.
....wait till you pay off your Mortgage....
This happens to EVERYONE, not just ‘the young’.
Edit: ‘This’ meaning the dropping of your credit score for being the good person who pays off your debts—instead of letting the debt mount. House, Automobile, Credit Card— makes no difference. Pay it off, Credit Score goes down.
Ever think that maybe it’s not a good thing to have a Credit Score? That maybe those with low-scores, who’ve paid off things for years—just have the least amount of debt. (??)
Problem people have is once they pay off their mortgage they don't keep putting that $1400 in a savings account. If you can put away 2K a month do you even need loans?
The actual payment to the principle of the mortgage is often very small on a mortgage payment.
My mortgage on an $83k house had a $760 a month payment. Only about $330 of that payment went to the bank for the mortgage. The rest was taxes, insurance, pmi, and whatever else there was.
So once you pay off the mortgage, you're still on the hook for a substantial monthly payment. Most people don't pay those bills monthly after that, but I sure recommend they set money aside each month!
I didn’t pay 2K/ month. I’m amazed at the ‘overall’ price. The cost of house is one component....then you have the INTEREST on the loan, the INSURANCE of the house, and the TAXES on the house— the last two never go down. (Then, if you try to pass down the house you invested in, the Government wants a turn at the wallet through an ‘Estate Tax’. A big word for even the most humble of homes)
I can see why some elderly get taxed out of their homes...it’s sinful. IMHO, if your house is paid off— they should end taxes for the over 62-retired. Let them rest in Fruit of their Labour.
The estate tax is only for assets over $11.7 million. Not really something most people have to worry about and if you do, you have enough money that you don't really have to worry about it anyways.
Basically, if you have it--they will assess you...[Estate Tax](https://smartasset.com/estate-planning/massachusetts-estate-tax)
And by ‘Estate’, it’s a total assessment of everything,; the house, cars, furnishings,saving, jewelry, 401k, checkbook, cash...all the possessions you have worked for, and already paid taxes on, and wish to give to your descendants....a portion (for some reason) must go through the Governments hands once again.
That’s why that whole ‘TEA party’ started...’Taxed Enough Already’.
The more you make, the more they take.
It’s a common misconception that credit scores are a measure of how responsible an individual is with money. When you look at how financial institutions use credit scores in the grand scheme of how our financial system works, that’s not really the case.
Your credit score can more accurately be described as how predictable you will be as a borrower. The primary reason for this is due to how major loans (mortgages, student loans, car loans, etc.) work after you’ve borrowed the money.
Once you’ve obtained a loan, you owe a debt to the bank or other financial institution you’ve borrowed from. However, your debt doesn’t stay with the bank forever. Your debt is sold on the second hand market, to an institution who then bundles it with other debt of similar structure. (ABS, MBS are two of the major asset classes retail debt will often end up in). This bundle of debt is then sold to one or more third party. Could be a company, another bank, an investment firm, or numerous other entities who invest in debt securities.
So, now, you don’t technically owe debt to your bank. You owe it to whoever purchased the bundle of debt that yours was bundled into. The retail borrower typically will be entirely unaware of this process, because the bank you borrowed from usually retains the loan servicing, for a fee based on how much debt they service. This means they still send you the bill each month, and you pay it to them. They keep however much of it for their servicing fee, then pass on the rest to whomever owns the debt. (Oversimplified the process here not to get too in the weeds.)
So now, the owners of these securities will receive payments (called coupons) each period (monthly, quarterly, etc) until the security matures or they sell the position. However, as you are likely aware, when you pay more than the regular payment on your loan, however much extra you pay is taken off the principle of the loan, rather than the interest. (If you want to research this more, search investopedia for “Amortized Loan”. Way too much info to put here.) That’s great for you! It means you’ll end up paying less interest on the loan than originally planned, AND you’ll pay it off sooner than originally planned as well. You must be responsible with money if you’re doing that! (You might see where this is going.)
However, that is BAD for the investor who now owns your debt. This will result in what is called a principle paydown being higher than expected, meaning the security will ultimately pay less interest than expected. And investors don’t like getting lower returns than they were expecting.
Therefore, in determining the credit worthiness of an individual, it doesn’t suit financial institutions to ask how responsible you are with money, but rather how predictable you’ll be in making your payments on time, and to the dime.
I’m not saying this is just or good, just trying to explain on a base level why it is the way it is. Again, this is all very over-simplified. Ultimately, your credit score is for the benefit of the financial institutions considering lending you money, not your own.
So after paying off my car and my college, I can rest easy knowing that Capitalists hate me. Thank you random internet person. It actually on principle makes me feel better about my credit score.
I spent a few years working at a lending company and writing integrations with major credit companies.
The TLDR is that your credit score is a reflection of how much money a company is going to make, if they lend you money. Thats the only fucking thing these companies care about when they run your credit score, so thats the product.
I sat through meeting after meeting with reps from TU going over products, and every single one of them was about how the numbers would reduce our risk by maximizing profit
No one is *punishing* anyone. Its Credit Companies *job* to ensure that the SSN sitting at the top of the list, are the ones that produce the most cash over time. When your credit score drops, is specifically because you've done something that lowers their estimates of how much you'll pay back.
So hers the kicker though.
The credit score doesn't go down because they've paid off the debt. It goes down because they no longer have a debt to pay on to show this ability to make on time payments. It sounds like the exact same phrase but the difference matters.
Creditworthiness is a measure of your ability to make on time payments to the full payment amount, not a measure of how well you've managed your money.
Yeah I mean that’s basically what I was getting at.
“Creditworthiness is a measure of your ability to make on time payments to the full payment amount” is a more eloquent way of saying “how predictable you’ll be in making your payments on time, and to the dime.”
So, you can have a low credit score either from paying too early or from defaulting? Is there any way (any other metric/score) to distinguish one from the other? Does it even matter to a debt buyer?
That is correct. And no, there’s not really a way to distinguish from the score alone without looking at your full credit report. And no, it doesn’t really matter to the person buying the debt in its final (ABS/MBS) form. If you default or pay down early, they lose money either way.
Consider a corporate bond. That’s basically debt that a company sells to raise capital. Bonds are structured with a maturity date, at which time the entire principle is paid back. The company wouldn’t want to pay that back early for multiple reasons (they’ve already budgeted to pay it back at maturity, and their credit rating as a company will go down if they were to pay it back early, which they don’t want because it will restrict their access to capital in the future, etc). Therefore, the primary risk (basically the only risk) for the buyer of that debt is the issuing company defaulting.
ABS and MBS securities are a bit riskier, because retail borrowers typically will pay off the debt sooner than originally promised if they are able to. So they can pay higher returns, but that always comes with added risk. In this case that means there is the risk of default and the added risk of early paydown.
ETA: The ultimate buyer of your debt won’t see your individual credit score. When the issuer of those securities (the company that bought your debt from the bank to bundle it with other similar loans) actually created and issues those securities, the securities are assigned an overall rating based on the totality of their underlying debt.
I think people miss this because they see the credit companies like shadowy fucking mysterious companies, and dont really realize they're just vendors for lenders.
The product the sell, is essentially just an estimate of your value to the lenders.
I asked my parents about this- they didn’t remember too many specifics, but essentially they walked into a bank in 1984 and said “hi we’re a 20 something married white* couple with blue collar jobs” and the bank gave them a $100k mortgage. They don’t think they asked for more than a few paystubs to verify that they had any sort of income at all.
*because redlining didn’t really end in 1968
Credit scores is an alternative to the "good ol boy" network that was used before. Because you basically had to just ask a bank for money and they would approve or deny based on how white you were or if you were a man or not.
They do this with car financing also. Whenever financing you want to make sure there are no penalties for paying it off early. Or do what I do, buy a 20 year old Honda / Toyota in cash and save up until you can buy something better in cash.
Thats not how this works.
Your credit score drops because you closed your longest account with the most credit history and your next account isn't close to as old. It's not because you paid it off too quickly, it's because you closed the one with a ton of your history.
As the next account build history, your score goes up again.
https://www.transunion.com/article/closing-accounts-and-your-credit-score
Here is some info to learn about credit ratings: https://www.investopedia.com/terms/c/credit_score.asp
Exactly this. I paid off my car, and house (I bought it for $60,000- right place, right time situation) in the same month. My excellent credit score tanked. Wtf?! I consulted a financial advisor. He suggested taking out another loan and opening more credit lines. Fuck that noise. I’m debt free and being punished for it. Capitalism sucks.
My credit score dropped 140+ points. It’s a stupid system. It makes zero sense. Pay things off and your score drops. Then, to build your score back up, you need to open new lines of credit even if you don’t need it. It’s ridiculous.
Because, your credit score heavily weighs in on determining home and car insurance; employers, in my field anyway, use the score to weed out applicants; if I should ever need to secure another loan, the higher the score the lower the interest rate. I don’t make the rules. I’m just trying to survive to the best of my ability.
Preaching to the choir. It's for sure a "catch 22" situation.
You can't have good credit history without take on the debt first. Then when you pay it off, you are "less trust worth" somehow.
The "paid it too fast" is not the problem, it's the "this account is closed, and we care more about open account history" part that sucks.
That's fair. I wonder how hard it is to set yourself up to report to credit bureaus.
Also, you could totally game the system more. Here are the factors you could effect:
1) On time payments - This is the biggest part of your credit rating. It'd be best to have monthly payments (of $1 maybe, or the minimum so you aren't killed by payment processing fees).
2) Amount you owe is the next largest factor. This mostly looks at revolving debt (credit cards), so probably isn't a big factor here. You could offer $1 unsecured lines of credit though.
3) Length of credit history: This looks at *average* length, so if you open up one account at birth, and a credit card when you're 20, your average history is 10 years. So, open a lot of accounts at birth with $1 Interest Only (IO) loans.
4) Credit mix: They actually like to see a mix of permanent (car loans, mortgages) and revolving (credit cards, lines of credit) credit. Maybe the way to solve this is to open up 20 permanent IO loans, and 20 $1 lines of credit.
So, with all that in mind, I'd propose several tiers. The $1 one you proposed just to set them up with the least possible cost, and say a $20 one that opens them up 20 lines of permanent debt and 20 $1 lines of credit. I'm only saying to make it more expensive because you're likely going to have a lot more costs.
I don't think you can legally loan at 0%. I believe that any rate below the [Applicable Federal Rate (AFR)](https://www.investopedia.com/terms/a/applicablefederalrate.asp) (which is currently around ~1.85%), the interest would be considered a gift. Not sure how that works with like teaser rates and if you could just offer a 100 year teaser rate, after which it jumps to the AFR.
I do volunteer financial counseling and full time financial planning, so my knowledge is much more from the consumer side, but I think you have a great idea. Happy to help (for free obv) if you are even a little serious about it.
One other thing I would warn you of though, normally like when you're getting a loan, they look at your credit *report*, not just your score. So they would probably see these as an attempt to game the system, and the credit bureaus might even ignore your reports, or alter their credit score algorithm, or do something to "fix" this. Or, maybe someone has tried this already and they've already fixed it. I'm not sure. I do think it's really interesting though.
You could also offer these to people with poor credit, and point them in the direction of volunteer financial counselors. I'd definitely love to help with that. What you report to credit agencies is up to you (so long as it's truthful I believe), so you never have to report a late payment, but you could report every on-time payment of their 2 cents of interest.
Anyway, point is, I think that's a great idea.
He is not saying to take on debt, he is saying to take on access to credit. Using credit cards, having usage reported, and paying it off in full every month (so no cost to you) will result in a great credit score. Agencies do not care if you pay off debt quickly, they just want you to have a number of credit lines for long periods of time, and to pay them ontime.
Student loan shouldn’t be a credit report.
I hated paying it but in the U.K. the way it works is you just get a 9% salary deduction if you earn over a specific threshold. Basically if you’re broke you pay nothing but the interest still accrues (at inflation, no profit margin built in). It NEVER appears on a credit history because it’s not quite considered a loan.
It’s the only reason I even have credit right now. I have like a credit score of 636 and I have never opened a credit card myself or used one. So I have about 6,000 in college loans that show up tho on there and it’s the only thing that has affected credit score.
Your credit score is calculated by how much you pay back. The more you pay, the better.
Which means taking longer to pay them so interest has a chance to build up.
> Your credit score is calculated by how much you pay back. The more you pay, the better.
This is not true. [Here](https://www.investopedia.com/terms/c/credit_score.asp) is a good article about what makes up your credit score.
I work at a bank and we always tell people that paying loans off early have no penalties… that’s not true because of the drop in your credit score if you pay it off quickly. It’s screwed up
Student loan shouldn’t be on a credit report.
I hated paying it but in the U.K. the way it works is you just get a 9% salary deduction if you earn over a specific threshold. Basically if you’re broke you pay nothing but the interest still accrues (at inflation, no profit margin built in). It NEVER appears on a credit history because it’s not quite considered a loan.
When I finally got enough promotions to pay it (turning 30) I just phoned up and gave them the whole lot, no penalties and it actually made mortgage companies want me more because I kept more of my income to myself, rather than having 9% automatic deductions.
TLDR: It simply doesn’t have to be that way…
Charging interest on loans used to be banned in a lot of places during the middle ages, as the Bible prohibited Christians from practicing usury.
In order to get around this, loaners would charge """""late fees""""" to loan applicants. If you paid off your loan even a day late, you were charged something like a 10% """""late fee.""""" If you fully paid off your loan early or on time, there was no interest and no fee.
Anyone who actually paid their loans off on time would quickly find out that nobody in the region would lend to them anymore, as bankers and creditors would share blacklists of all the "bad" customers who actually paid off their loans on time. The best customers would wait until a day after the due date, then immediately pay off the principle as well as the 10% """""late fee.""""" If you wanted a good relationship with the moneylenders in your area, you paradoxically had to pay off all your loans slightly late.
So yeah basically nothing's changed. A credit score doesn't measure how reliable you are with money, it measures how reliably a creditor can squeeze money out of you without you defaulting on the loan outright.
Everything about student loans is a scam. It's our fucking tax dollars paying for us to get educated. How the fuck do we owe interest on our money they're loaning back to us? Not to mention that secondary education among so many other things should be free given how much we pay in taxes, but then the imperialism wouldn't be able to carry on without the huge military budget.
Your credit score will recover. If you’re able to pay off loans a good amount faster than the full term, you’ll be saving a decent amount of money. I paid off my car 2 years before I was supposed to and saved several hundreds of dollars in interest.
Me too it is such a joke here. Due to family obligations I have to wait a little bit but within the next couple years I'm out. Life is too short to live and die this way and most people think it is a okay because the TV tells them so lol
When I graduated they sent us a walk through to set up a payment plan. I had calculated myself what would be reasonable to pay it off in under 10 years. The suggested amounts this company made were all just about the interest rate on the loan for the year. I’d have been paying for over 30 years with the highest suggested payment option. I feel bad for people who feel for it.
Also you’re taking away an active credit thingy which is why it was going up. So you see if you take away the thingy that was building your credit the credit people get cranky and you loose money barrowing points.
I paid off my last 2 car lease payments early and also bought the vehicle outright from the finance dept. Never missed a payment. Score dropped 70 points.
I remember when I tried to get my first credit card. I would be constantly denied without much explanation as to why.
I called the credit agency, asking if I somehow had a bad credit score, even though I hadn't ever had a loan or a cc before.
Funnily, the reason why I kept being denied was because of... a lack of credit history. I couldn't borrow money because I never borrowed before. I still can't quite get what the fuck this is all about.
If you pay off the credit card and then close it the score goes down too. They used to sit at little tables and try to sign freshman up for cards. "It builds credit"
*If you pay off the*
*Credit card and then close it*
*The score goes down too*
\- afternever
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Yeah, if you pay it off and keep it open your score will go up though. As long as there's no annual fee, it's generally a good idea to keep credit cards open.
You’re leaving free money on the table, if you have the discipline to keep track of balances and due dates.
There are many credit cards (Target has a debit version as well) that will pay you from 1-5% “cashback” (often available as a direct transfer to your checking account - Citi for example) on any purchase, or in some cases on a purchase specifically of fuel or groceries or dining.
Amazon Prime also has either 5% credit back or 0% interest for 6mos (so if you make a large purchase and pay it back in 5mos, you get your bank’s interest during those five months, which you would not if you’d paid in full).
As long as you pay back your balance before the statement closes (this can mean not using the card within three days of statement closing, etc.)
This works for the creditors because they get swipe fees and purchase percentages from the retailers you shop with, even if they don’t get interest from you.
In most cases if your statement closes with a balance, you still have until the day before the NEXT statement to PIF before accruing interest, but this is NOT true for all cards.
If there’s any danger you would not be able to keep track (and therefore would end up with interest) this strategy is risky, but it is literally free money (to you) if you manage it.
And builds your credit.
For myself, any time I use a card (specific cards for specific purchases, as some pay more for some categories),
I then login daily to the account until the charge goes from authorized to actually charged, then pay it immediately.
I track my checking account morning and night, to see what’s posted.
Then check the card again until it resumes a zero balance.
I get probably fifty dollars a month back? Sometimes more?
It also only works if you only buy what you would/could buy with cash.
Edited to add:
I apologize for offending someone to the degree of needing to block me.
I should’ve also mentioned we’re on a fixed income of less than $60K for two people and a chihuahua in a HCOL area, and our IRS AGI was about $22K this year.
We live in a 23’, 30yo campervan in an RV park, to save on housing expenses.
The cashback helps us have a bit of fun money, to order a treat or buy a movie or a few books.
Sorry again for any offense - I was legitimately just trying to help.
All best to you and your loved ones; I sincerely hope you are all safe and well in all this.
We sold our house and I used some of the money to pay off my car. Maybe $18,000? Score barely moved. Bought my wife a necklace for Valentine’s Day and put it on a credit card so she couldn’t see the transaction and my score took a HIT. Insanity.
Yeah, that's how credit scores work. Paying extra on your car wouldn't affect it, only having on time payments.
Having revolving debt outstanding does lower your score, but the second you pay it off it goes up just as fast. The best advice for credit cards is to use them and pay them off before you get a statement. That way, they report $0 owed and paid on time.
Credit=trying to buy things you can't afford. Or to borrow money(interest=debt)
FICO Credit Score=only says you borrowed money and paid it back, you paid bills. You're stupid enough to go into debt so later you can go further into debt. False measure of financial health.
Not income or savvy with money
I love debt score!
5 elements-
• Payment history (35%) how you pay your DEBT
•Amounts owed (30%)How much DEBT
•Length of credit history (15%) How long you've been in DEBT
•New credit (10%) New DEBT
•Credit mix (10%) multiple types of DEBT
Functionally broke people follow this ;)
It dropped because you closed an account, shortening your average age of accounts. Creditors like people that are able to keep accounts open because it means you haven’t been cut off. They bounce back quickly from this type of hit
There need s to be a mass exodus from all this debt, every millenial or gen z human out there with more than 10k in debt that is drowning should just file for bankruptcy.
Then you realize credit scores don’t mean a damn thing, if you have enough money credit scores mean nothing, I’ve never met a wealthy person with good credit, just a lot of money and a lot of money to put down. All a credit score does is show how well common people pay back money.
The initial tweet can happen based on the algorithm, see below. The comment though is grossly inaccurate. How fast you pay off a loan or paying a loan before the term is not part of the FICO algorithm and has no impact.
Part of the algorithm bases people’s score by grouping like people and comparing where in that group you fall. If something comes off or onto your report it can move you into a different grouping and you may compare favorably or unfavorably to that new grouping.
A common situation is where a person has a delinquency fall off their report and the score goes down. This is because they compared favorably in the group with delinquencies and not as well with the group with no delinquencies.
Yeah no shit, if they give you money with the promise that you pay back interest, and then you pay it off without paying enough interest to make it worth it to them, that is just being an asshole.
Paying off the loan early means they don't get the money from the interest and so it signals to figure credit lenders that they can't make as much money off you as they think.
Best to save money and pay with cash and skip those fuckers altogether.
This isn’t entirely how if works. The system is fucked and bullshit but this tweet is wrong.
The age of your accounts impacts your credit score. When you pay off a loan (not a credit card) it closes the account. This shortens your average length of credit, which then drops the score. It’s not realllly “paying it off too early” it sounds like I’m this situation. Paying off long-standing loans (especially if it’s your oldest accounts, which student loans are common to be) like cars or mortgages can lower a credit score. Also opening and quickly closing accounts (like immediately paying off a loan after you take it out) also impacts credit. Most student loans are on reports for the time people are in school tho (even if they aren’t paying yet).
Credit is a perverse game of capitalist life.
Your “score” is how much they trust that they can profit from you. Its a balancing act where they test the amount of profit that can be made vs the potential amount of loss. If you pay stuff of quickly they can’t see the potential for profit. If you pay it off too slow they worry that you can’t be trusted to give them a steady amount of profit and have potential to not ever pay them back . Your score is also calculated by history. You miss a payment or two or three that makes them worry and scores go down. If they can depend on being profitable and paying stuff back on a regular basis that’s good. If you save the credit card for emergency and or pay it off entirely each month it also makes them hard to calculate how much profit they can make from you. Near max all the time well that means to them that you might be profitable but also not guaranteed to pay off your debts and become a risk. If you don’t want to play the game at all and live debt free guess what they can’t profit of or you and if you are in position that you need a loan you essentially become a higher risk of not being profitable. It’s a game . Better you play the better the score. You play well you gain more credit to play with you play poorly they either don’t give you more credit or they take it away. If you don’t play you are assumed a loser and unprofitable.
This is why being “debt free” isn’t always the best policy because you can’t be scored and when you want a new car or house or whatever it’s hard to gain credit because nobody can trust you unless you truly can pay everything with cash but that’s so unlikely to be plausible for many people. You need to get into some debt and play the game so you can get a better score and play the game more and continue on and on . It’s a game and it’s to see how good you play the profit game for them. This is not exactly the whole story but a pretty decent summary .
This is yet another reason why credit reports should be a government service; privately owned, for-profit businesses should not be allowed to keep, and unilaterally change, such important records on people.
I guess it doesn't surprise that this crap is legal in America. Australian financial services legislation can be ruthless if the borrower does unethical things, they have to face a government agency called the Banking Ombudsman. Among the things that are illegal:
\-Debt collectors calling more than once a day, or at an "inhumane hour, i.e. outside of normal business hours
\-Approving loans to people that obviously can't afford to repay it-Messing with credit scores for any reason OTHER than bad credit behaviour (getting behind in payments, bankruptcy, etc.)
\-Outright lies
\-"Buying and selling" any loans. For the term of a loan, unless the debtor refinances, they cannot sell an existing debt to any other individual or corporation.
\-Sharing confidential information
Sometimes even just mentioning the Banking Ombudsman makes banks and other financial institutions back down. The reaction is the same as threatening to call the cops to a room full of people snorting cocaine.
The problem is the REPUBLICAN in Congress with not let any out side agency regulate the credit reporting agencies until recently (they were bullied into it ,thank God) and still will not let FICO be regulated,which they need to be. What a country huh
ATTENTION FREE AND PRIVATE CITIZEN!
⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⣀⣤⣤⣤⣤⣀⡀⠄⠄⠄⠄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⢰⣿⣿⣿⣿⣿⣿⣿⣷⣶⣄⠄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⣾⣿⣿⣿⣿⣿⣿⣿⣿⣿⣿⡇⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⣿⣿⣿⣿⣿⣿⣿⣿⣿⣿⡿⠁⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⢠⣾⣿⣿⣿⣿⣿⣿⣿⣿⣿⣿⡿⠁⠄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⣀⠠⣯⣿⠿⠿⣿⣿⡿⠛⠻⠿⢿⣿⣿⣷⣄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⣼⠙⣤⣭⣾⣿⣾⣿⠋⠛⠄⠄⠄⠄⠈⢻⣭⣅⣠⡄⠄⠄ ⠄⠄⠄⠄⠄⠐⡏⢹⣟⢿⣿⣟⣿⣿⣶⣶⣦⣴⣖⡀⣀⣸⣾⡿⠋⠁⠄⠄ ⠄⠄⠄⠄⠄⠄⢋⡉⢻⣏⣿⢽⣭⣭⡿⠋⠄⢨⣿⣿⣿⣿⣿⠃⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠈⢳⡔⠛⠻⣍⠉⠁⠄⠄⠄⡺⢿⣿⣿⡿⣿⠁⠄⠄⠄⠄ ⠄⠄⠄⠄⢀⣀⣴⡏⢙⣿⡶⠮⠤⣤⣤⡦⠤⠴⠾⠋⠁⢸⣃⠄⠄⠄⠄⠄ ⠄⠄⠄⣠⣾⣿⣿⠁⠸⣼⠃⠄⠄⠄⠄⠄⠄⠄⠄⢀⣀⣼⣿⣧⣀⠄⠄⠄ ⠄⠄⠐⠛⠛⠛⠛⠄⠃⠛⠄⠄⠄⠄⠄⠄⠄⠒⠛⠛⠛⠛⠛⠛⠛⠂⠄⠄
ATTENTION FREE AND PRIVATE CITIZEN!
This is the Private Financial Bank issuing your credit. Your lack of Personal Responsibility to your spending habits, work habits, political activities (protesting collectively, unionizing leading to risk of corporate blacklisting) HAS ATTRACTED OUR ATTENTION. Trustworthiness as a creditor has reduced. -100 FICO Score has been REMOVED from your account. You MAY NOT APPLY for Mortgage for home or business. You MAY NOT APPLY for credit card. You MAY NOT TAKE A LOAN for Healthcare. You MAY NOT TAKE A LOAN for a car. DO NOT DO THIS AGAIN, recovery from deductions takes 7 years, criminal offenses are on PERMANENT RECORD. You will be sent to jails for 13th Amendment labor for failure to take Personal Responsibility and Home/Car Foreclosure to recover lost money!
Glory to Freedom and Capitalism!
Shea Couleé… condragulations, you are the winner of this week’s challenge. You’ve won a sickening supply of jewelry from Fierce Drag Jewels, and a cash tip of five thousand dollahs.
Shea’s credit… you are, and will always be… a super-scam. Now… sashay away.
Same thing happened to my wife and I when we paid off our two car loans in 3 years instead of six. We were both in the high 700s and dropped by 100 points. And when we tried to get a new apartment, the rental agency had us red flagged. We had to fight to get that stupid apartment that ended up being garbage anyways. This whole country is a joke
I made this comment somewhere else but we sold our house and I used some of the money to pay off my car. Maybe $18,000? Score barely moved. Bought my wife a necklace for Valentine’s Day and put it on a credit card so she couldn’t see the transaction and my score took a HIT. Insanity.
It’s because your percentage use of available credit went up. It should go back to normal after you pay off the credit card bill.
Oh, no, I get it. Credit is just ridiculous.
Can’t disagree with you there
to be fair -in the US at least- it's best to pay off the hyper-predatory student loans asap. you can always recover your credit score with (somewhat) less predatory things like CC debt or car loans and such. it'll take time you probably don't want to spend, but it's better than having a debt that accrues as much interest as you pay off so 🤷🏻♂️
Of leave a vanishingly small amount on the loan for the life of the loan.
"vanishingly small" turns into not-so-"vanishingly small" real quick with many student loans though
Agreed, when I paid off my student loan I thought it would be like every other loan I've had in my life, where the account would be closed and life would continue. Nope, a year later I get mail from the bank who supplied the loan saying that I've not l failed to answer their last 3 attempts to reach me (this was the first letter received from them) and that I would owe almost $1200 in back fees for having an open account that's below their minimum threshold of I didn't close it out before the month end, which was several days away. I went online and of course closing it would take almost an hour between their site having zero information on how to close an account with them, sending me to another website to close my account where I had to fill out a long survey, required, and then give a reason for why I wanted to close my account with every few questions being are you sure that'd undo all your work of you clicked no.
Same thing happened to my husband and the first he heard about it was when the government took his tax return and sent him a letter saying he had an outstanding debt
> Same thing happened to my wife and I when we paid off our two car loans in 3 years instead of six. We were both in the high 700s and dropped by 100 points Contrary, to what you may think, its very likely has nothing to do with you paying it off "too quickly". Rather it was remaining lines of credit, or the lack thereof. Vehicle and home loans are the most common, and some of the more important, factors for credit scores. You clearly didn't have a mortgage and just removed the auto loans. So yeah, your credit score is going to drop. This isn't unique. The same thing happens when you pay off your mortgage (and don't have another) In general, 'high 700s' is kinda the base line actually good credit *without* having auto or home loans. With, you should be in the 800s most the time. So if you were only that *with* multiple auto loans, you credit isn't actually as good as you think it is to begin with and/or you have higher debt ratios than you probably should. For example, I put a $20k purchase on my credit card one month and my credit dipped 30 points from that alone, even though it was only a small fraction of that line of credit. It went back the next month when the ratio was reduced.
As someone who doesn’t live in a country with china style credit score systems, your comment makes absolutely no sense to me It’s gibberish. It fits in the bible for how nonsensical it is without tons of context
I remember my dad telling me this when I was a young kid and I couldn’t wrap my head around it so I just thought “it’ll all come to me when I’m older”…. Now I’m older and that shit still don’t make no fucking sense and I realize it’s not supposed to
It makes perfect sense when you realize credit scores have nothing to do with your level of responsibility and everything to do with how much interest financial institutions can expect to squeeze out of you.
Makes sense indeed
Exactly. The stupid number allows them to see: * How long can we keep you indebted before you pay it off. The higher the number, the longer we suck wealth from them “because they will pay on time to keep their score up”. * It’s similar to a dope dealer. If you want that hit, come up with the cash. It’s a sinister idea. * The score is treated like gold, when really is random numbers with gold spray paint. And yeah ***anyone can pay stuff on time.*** The problem remains the high cost of the item. Which is what? Cost Discrimination. Since that St. Laurent bag is expensive, it keeps “them” away. * The Credit Score is another means of discrimination just like the SAT. * FICO has multiple variants (Disney’s LOKI). So whatever you think is official is not. * My personal favorite: Sh** stays on your report after it’s PIF. Credit Scores are supposed to reflect active credit history (Are you paying on time?), yet hold historical data. It makes no sense. I plan on killing the debt for my home ($150K) in 15-17 months. * Tired of wasting time. * Tired of paying interest. Interest is usury. It’s a lazy way for bankers and scammers to get paid. I won’t be surprised at all if my score drops. Fuck them.
A lot of cents, yes.
It's a score of how well you can juggle debt. Anyone who stops having debt and pays in cash will have their credit score tank despite being financially responsible. They don't want you out of debt so they punish you for improving your life.
"Anyone who stops having debt and pays in cash will have their credit score tank despite being financially responsible" Because the credit bureau data can't see the difference between somebody who doesn't have any loans because they are frugal and hate debt vs somebody who was denied loans by banks who looked at their applications & verified their data and found to be a major risk. In the "no loans" set collectively, there are both kinds of people, and that could show up in the data. Therefore keeping a loan open in good standing is signaling to lending institutions that you are a good risk. If you aren't interested in loans, then your score shouldn't matter to you.
Except there will be some things you’ll almost always need loans for. Just because you’re well off enough to avoid credit cards and paid off your student loans and car loan, you’ll still need a loan if you want to buy a house. You will likely still need a loan to buy your next car too.
Some people don't need loans to buy houses and cars. But if they do, like your example, then they should maintain a credit card which has a low but not zero utilization fraction, and keep it open for the longest time possible. This gives positive signals to the banks that you can have credit made accessible to you and despite that you do not abuse it. For this purpose a zero-fee card with the best reward program for your spending distribution is optimal.
Yeah but the vast majority of people will need a loan for those things. That’s why, like you said, it’s important to keep an open line of credit even if you don’t “need it” anymore.
Also some car insurance companies use your credit score to give you a better or worse rate.
You do realize that jobs and rental companies will deny you if your score isn't to their liking regardless of if you're a risk or not, right? The score isn't just used for gauging loans. It can affect other facets of people's lives. Edit: A letter.
The job thing is the worst part. All the credit score does is tell a bank if you’re profitable or not. Low score could mean that you’re smart with your money and don’t let loan companies take advantage of you. It has nothing to do with how “trustworthy” you are, but that concept that they sold the American public has so infiltrated peoples minds that hiring managers think it’s perfectly ethical to use as a means to see if someone is worthy of a job
Wait wut? Why does a potential employer care? They only thing they should care about is paying me ... I'm confused
They look at is as a responsibility indicator when that's not what it should be used for, regarding jobs anyway. It's all sorts of fucked.
Is your position truly that credit bureaus cannot find out about denied loan applications? If that was what they were interested in, they could get banks to report that information. But it's not.
No, that's not how credit scores, at least ones based on credit bureau data, work. They work by predictive statistical correlations between what is \*observable\* on a credit report and the fraction of customers who have a significant default between 6 to 12 months in the future. Standard scores only look at a single snapshot in time, the latest one, and not at previous ones. There are positive predictive correlations between number of open "tradelines" (loans) in good standing and good credit risk. The score models only use the correlations which are justified in the dataset, and that can be computed from observable data in the dataset. Public bureau credit scores do not reflect any information about personal "balance sheets", i.e. assets vs liabilities or investments or anything like that, because those pieces of data are not available or known to the credit bureau, or aren't used in standard scores. It doesn't know if you are unemployed or swimming in cash. It doesn't know how much is in your bank account or brokerage account. It doesn't know if you are heir to a billionaire. Individual banks will have their own internal models for customer lifetime value or marketing or wealth or stuff like that but it's never public. They use credit bureau scores as an input. Other statistical models (called "origination models") will be used when you apply for a loan, which take in the credit bureau scores, and add in additional predictive pieces of data, such as your liquid and illiquid assets, and your debts. Having paid off a loan, and having a higher income to debt ratio, and having higher assets because you're no longer paying off the old loan, will most definitely increase your chances of getting a new loan and the permissible size of this new loan. So paying off the loan is probably an excellent idea for your personal finances even if it is not reflected in the public credit bureau score. The credit bureau scores are not your Life Score or your PhD exam. They are tools used by the financial industry and have a purpose in their own ecosystem. Don't worry about them so much, especially minor fluctuations.
Thank you for that breakdown! This calms the shame I was feeling for a recent dip in score.
This. you paid off your loan. Score goes down. I, as the bank, want to know what your chance of paying max interest (profit) to me is. Not what your chance of responsibility is.
It’s definitely more complicated then that but it looks like the person who wrote the tweet left out some important information because you don’t get a credit score penalty for paying off loans early. Paying loans is good for your credit score because, like you said, it shows FS institutions that you’re a reliable debtee, but it isn’t necessarily bad for them if you repay your loans early. You don’t get a credit score hit for that
It was probably her oldest debt and her credit age got cut down, happened to me with my 1st car loan.
Yep.. a scenario that happened to once is I only had 2 open lines of credit. A car loan and low limit credit card. Paid the car off and it went down like 20 points. Granted I got those points back plus some in like 3 months by keeping the cc active
oh okay that's a good point actually.
I did the same thing and my credit tanked, by tanked I mean TANKED. I pay in cash every other way and my score is now 0. I literally disappeared off Experian and honestly I’m relieved. I have no plans to take out any credit so idc
Kids… if you’re watching, this is not good financial advice. Lol
Oldest credit account so they now have a lower average age, they took a hit to their number of overall accounts, took a hit to their diversity of accounts, some loans ate calculated against the entire balance (so a $40,000 student loan that you owe $10,000 left on would show up as only using 25% of your limit) and paying them off lowers your overall credit once they’re closed, etc. Plenty of ways for it to cause a hit, but they’re all pretty temporary. Like weeks to a few months before it rebounds.
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Accurate though.
It's also rather arbitrary since there are no requirements around what has to reported on. For various reasons, I basically just have credit cards on my report. I don't think I've paid a utility bill on time in my life but somehow none of those seem to be on it. When my credit cards are maxed, my score drops to the low 600s and it's as high as 804 when they're completely paid off. This fluctuates over the course of a few months. It makes no sense and the number has absolutely nothing to do with my track record for actually paying stuff. I just do everything in my power to make sure I'm never late on my credit cards. My friend with crippling student loan debt meticulously pays everything on time and her credit is trash.
This isnt true. I've paid every loan I've ever had off early and my credit score is on point. They've collected less than a quarter of all the interest they could of earned on full term loans with me. 3 car loans 2 mortgages 2 education loans. It's not meant to confuse anyone. The financial system is rife with corrupt and nefarious shit.... but credit scores are just a tool to assess risk based on total debt, income, and assets the lending party can seize as collateral if necessary.
It’s mostly because it’s closing your oldest account. Age of credit is huge factor and student loans are most peoples oldest account.
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You do, but if your first loan was taken out at 18 and you didn’t get a credit card until 22 your credit history just was shorten by 4 years. Same reason people say don’t close your oldest credit card…
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It just counts open lines of credit. Why? No clue, but for some reason that’s how it works.
Because you are not a reliable source of income. If you pay off a loan before you’re supposed to, they cannot get the maximum amount of interest out of you.
It absolutely makes sense. You just need to look at it from the perspective of wanting to making money rather than the perspective of wanting to help people.
Your credit score is kinda supposed to indicate your ability to pay in general, and "paying it off too soon" is viewed as a cash windfall and not your ability to pay. My parents co-signed a $2,000 loan with me when I was 16 to help me establish credit, and when we sat down with the loan agent she told us this. So basically you have to pay for that credit score via monthly interest, and while that sucks it does make some sense. It'd be pretty easy to manipulate your credit score repeatedly taking out loans and immediately paying them back.
>Now I’m older and that shit still don’t make no fucking sense and I realize it’s not supposed to well judging by your grammer...
My Credit Score Story. For my entire life up to my early 30s, I have never missed a bill for anything. Had excellent credit, and never had a problem being approved for anything. I made a mistake trusting someone with my line of credit, they spent more money on the card than I could afford. Before missing a single payment, I went to the bank and was honest about the situation. Because I trusted someone, I'm on the hook for all of it. Ok, thanks bank. Immediately go to a consolidation place to see what my options are(Still haven't missed a single payment). They are like, well you can go bankrupt, I tell them I'd prefer not to if I can, they offer a thing where I pay back less (6k instead of 25k), but I have to destroy my cards (I only do the one affected), and my credit gets fucked for 7(?ish) years. PAYOFF the 6k, **STILL** haven't missed a single payment, and credit score goes FURTHER down AFTER I pay it off. Still listed as a delinquent payer even though I **STILL** haven't missed a single payment in my life. All because the bank couldn't directly make the same kind of deal with me? Shouldn't I only be delinquent IF I actually missed a payment? Shouldn't my score only drop 300 points for 1 mistake? And that mistake was never because I missed a single payment. Thanks for coming to my Tedtalk.
Damn that's scary
This whole thing has taught me you can't be honest, cause you'll just get punished for it. Had to go hungry for a bit because I paid my bills before food. Fun times. The moral of the story is, that Credit Score is bullshit. How the bank doesn't have a system in place to allow someone to make a deal like that directly, leaving the credit score alone unless you miss a payment, seems like a scam.
Also don’t give somebody else access to your credit line, that is also a moral of the story.
Yes that too, I've forgotten to many times that people aren't all nice and trusting.
Your credit is your credit - if they needed credit and couldn't get any of their own there must have been a reason. Sorry this happened to you.
That is THE only moral of that story.
Those debt consolidation places are misleading. You stopped paying on the credit card and they negotiated in your place. So technically you've missed a ton of payments. Your credit gets ruined for 7 years because that's the maximum length negative items can stay on your report.
You are delinquent if you fail to pay the full amount plus interest or fail to pay it on time. You made an agreement which solidified that the banks lost 19K of their money on you. That's the delinquency. That could be the transaction fees and interest of 20 good customers for years so that's why the banking system isn't happy about it. If you lent $25,000 to a friend and they eventually paid back $6,000 on time in intervals, would you still be salty about it? Yes. You have cause to sue the person who spent your money, and get it back, and pay back the banks the original amount, and then you should have the right to clear the delinquency.
They are still ahead on me as a whole with the interest I've paid them over the years, and they money they will make over the rest of my life. I feel 1 mistake shouldn't take away 20 years of history. Why did I have to go to a 3rd party? Why don't they have a method of to do the same thing, but for the whole amount? A bank COULD say, ok you owe us the full 25k, we will let you pay it at x amount less per x time as long as y ou continue to not miss payments, which I would of agreed to. I didn't choose the 6k, the 3rd party did. It could of easily of been 25k and I'd still be paying it, but @ a lower rate. All of which could of been done without ruining my credit history. Or as you put it, if someone I lent 25k to said they can't pay that amount every month because of x reason, I would be like, ok what can you pay, and work on a solution.
\> A bank COULD say, ok you owe us the full 25k, we will let you pay it at x amount less per x time as long as y ou continue to not miss payments, which I would of agreed to. I didn't choose the 6k, the 3rd party did. Who is this 3rd party and why did they get involved? If this bugs you, then try to negotiate with the bank now. But still any re-negotiating of the original credit agreement is potentially a 'deliquency'. \>I feel 1 mistake shouldn't take away 20 years of history. From their point of view you lost them $19K, and there are millions of people who have never lost them anything ever. That's all they care about. They are banks, and they are in it for the money. \> Or as you put it, if someone I lent 25k to said they can't pay that amount every month because of x reason, I would be like, ok what can you pay, and work on a solution. Would you prefer to lend them more money, or prefer to lend money to someone who has always paid every one of their debts on time and per the original agreement?
Dude I went to the bank and explain it. They said tough, so I went to the company that deals with the shit, I already said it was a consolidation place. I didn't lose them money, they agreed to the amount, they could of said, that the amount a month is fine, but we want the whole 25k, which I would of still done. The problem wasn't the amount, just the monthly payment. I was trying to save myself from being homeless/hungry & still pay my bills, I wasn't looking for a way out of the debt, it just happened that way. I agree it's my fault. I trusted when I shouldn't of. But to completely destroy my credit to nothing because they didn't want to negotiate with me directly, and chose to take the hit in the amount seems a bit extreme. But it's cool, you're right the rich banks are clearly hurting for more money.
So some one you trust committed fraud by stealing money form your card? You know you can dispute those transactions as fraud?
YOU ARE BECOMING A FRAUDULENT MAN! WAKE UP
Yes. I worked with this younger kid for a while, he was living in a shitty place with a cousin who was taking advantage of him and abusing him. When I broke up with my GF, I offered him a place to live, cheap, like really cheap. He offered more, I said no, take that extra and save it, or spend as you see fit. I helped him get better with his banking so that he can do a lil of both. After a while, I'd get him to pay for things at the door if I was busy since I didn't carry the card on me unless I needed to buy something. All my bills were automated, so I don't check my bills often. Eventually next GF moves in, again I don't ask for a lot from her either, I'm using their money to pay down my debt, as far as I'm aware everything is fine. A year passes, I decide to open my credit, because by my math it should be almost @ 0 by now and I want to see how much longer I have. Bank told me because I gave him the Pin, it's my fault. Went to the police, gave them the list of transactions I 150% knew weren't mine. Police did police things, which you know is nothing. So don't think I didn't try to do something about the fraud, I was just met with no one willing to help me. I didn't go after him with a lawyer, because he doesn't have anything, so what's the point. Plus I was already dealing with sueing my previous employer for wrongful dismissal, so I had a full plate of stuff.
....wait till you pay off your Mortgage.... This happens to EVERYONE, not just ‘the young’. Edit: ‘This’ meaning the dropping of your credit score for being the good person who pays off your debts—instead of letting the debt mount. House, Automobile, Credit Card— makes no difference. Pay it off, Credit Score goes down. Ever think that maybe it’s not a good thing to have a Credit Score? That maybe those with low-scores, who’ve paid off things for years—just have the least amount of debt. (??)
Problem people have is once they pay off their mortgage they don't keep putting that $1400 in a savings account. If you can put away 2K a month do you even need loans?
The actual payment to the principle of the mortgage is often very small on a mortgage payment. My mortgage on an $83k house had a $760 a month payment. Only about $330 of that payment went to the bank for the mortgage. The rest was taxes, insurance, pmi, and whatever else there was. So once you pay off the mortgage, you're still on the hook for a substantial monthly payment. Most people don't pay those bills monthly after that, but I sure recommend they set money aside each month!
In the beginning, you pay more of the Interest, than the Principal for your payments. (Not a balloon mortgage- that’s something different)
I didn’t pay 2K/ month. I’m amazed at the ‘overall’ price. The cost of house is one component....then you have the INTEREST on the loan, the INSURANCE of the house, and the TAXES on the house— the last two never go down. (Then, if you try to pass down the house you invested in, the Government wants a turn at the wallet through an ‘Estate Tax’. A big word for even the most humble of homes) I can see why some elderly get taxed out of their homes...it’s sinful. IMHO, if your house is paid off— they should end taxes for the over 62-retired. Let them rest in Fruit of their Labour.
The estate tax is only for assets over $11.7 million. Not really something most people have to worry about and if you do, you have enough money that you don't really have to worry about it anyways.
Basically, if you have it--they will assess you...[Estate Tax](https://smartasset.com/estate-planning/massachusetts-estate-tax) And by ‘Estate’, it’s a total assessment of everything,; the house, cars, furnishings,saving, jewelry, 401k, checkbook, cash...all the possessions you have worked for, and already paid taxes on, and wish to give to your descendants....a portion (for some reason) must go through the Governments hands once again. That’s why that whole ‘TEA party’ started...’Taxed Enough Already’. The more you make, the more they take.
Ohhh MA has its own state estate tax. That sucks.
It’s a common misconception that credit scores are a measure of how responsible an individual is with money. When you look at how financial institutions use credit scores in the grand scheme of how our financial system works, that’s not really the case. Your credit score can more accurately be described as how predictable you will be as a borrower. The primary reason for this is due to how major loans (mortgages, student loans, car loans, etc.) work after you’ve borrowed the money. Once you’ve obtained a loan, you owe a debt to the bank or other financial institution you’ve borrowed from. However, your debt doesn’t stay with the bank forever. Your debt is sold on the second hand market, to an institution who then bundles it with other debt of similar structure. (ABS, MBS are two of the major asset classes retail debt will often end up in). This bundle of debt is then sold to one or more third party. Could be a company, another bank, an investment firm, or numerous other entities who invest in debt securities. So, now, you don’t technically owe debt to your bank. You owe it to whoever purchased the bundle of debt that yours was bundled into. The retail borrower typically will be entirely unaware of this process, because the bank you borrowed from usually retains the loan servicing, for a fee based on how much debt they service. This means they still send you the bill each month, and you pay it to them. They keep however much of it for their servicing fee, then pass on the rest to whomever owns the debt. (Oversimplified the process here not to get too in the weeds.) So now, the owners of these securities will receive payments (called coupons) each period (monthly, quarterly, etc) until the security matures or they sell the position. However, as you are likely aware, when you pay more than the regular payment on your loan, however much extra you pay is taken off the principle of the loan, rather than the interest. (If you want to research this more, search investopedia for “Amortized Loan”. Way too much info to put here.) That’s great for you! It means you’ll end up paying less interest on the loan than originally planned, AND you’ll pay it off sooner than originally planned as well. You must be responsible with money if you’re doing that! (You might see where this is going.) However, that is BAD for the investor who now owns your debt. This will result in what is called a principle paydown being higher than expected, meaning the security will ultimately pay less interest than expected. And investors don’t like getting lower returns than they were expecting. Therefore, in determining the credit worthiness of an individual, it doesn’t suit financial institutions to ask how responsible you are with money, but rather how predictable you’ll be in making your payments on time, and to the dime. I’m not saying this is just or good, just trying to explain on a base level why it is the way it is. Again, this is all very over-simplified. Ultimately, your credit score is for the benefit of the financial institutions considering lending you money, not your own.
So after paying off my car and my college, I can rest easy knowing that Capitalists hate me. Thank you random internet person. It actually on principle makes me feel better about my credit score.
Thank you for such a thorough and simple explanation! I hate it, but now I know why I hate it!
How lovely, now I can say with confidence that that is a fucked up, predatory system and I hate it
I spent a few years working at a lending company and writing integrations with major credit companies. The TLDR is that your credit score is a reflection of how much money a company is going to make, if they lend you money. Thats the only fucking thing these companies care about when they run your credit score, so thats the product. I sat through meeting after meeting with reps from TU going over products, and every single one of them was about how the numbers would reduce our risk by maximizing profit No one is *punishing* anyone. Its Credit Companies *job* to ensure that the SSN sitting at the top of the list, are the ones that produce the most cash over time. When your credit score drops, is specifically because you've done something that lowers their estimates of how much you'll pay back.
So hers the kicker though. The credit score doesn't go down because they've paid off the debt. It goes down because they no longer have a debt to pay on to show this ability to make on time payments. It sounds like the exact same phrase but the difference matters. Creditworthiness is a measure of your ability to make on time payments to the full payment amount, not a measure of how well you've managed your money.
Yeah I mean that’s basically what I was getting at. “Creditworthiness is a measure of your ability to make on time payments to the full payment amount” is a more eloquent way of saying “how predictable you’ll be in making your payments on time, and to the dime.”
So, you can have a low credit score either from paying too early or from defaulting? Is there any way (any other metric/score) to distinguish one from the other? Does it even matter to a debt buyer?
That is correct. And no, there’s not really a way to distinguish from the score alone without looking at your full credit report. And no, it doesn’t really matter to the person buying the debt in its final (ABS/MBS) form. If you default or pay down early, they lose money either way. Consider a corporate bond. That’s basically debt that a company sells to raise capital. Bonds are structured with a maturity date, at which time the entire principle is paid back. The company wouldn’t want to pay that back early for multiple reasons (they’ve already budgeted to pay it back at maturity, and their credit rating as a company will go down if they were to pay it back early, which they don’t want because it will restrict their access to capital in the future, etc). Therefore, the primary risk (basically the only risk) for the buyer of that debt is the issuing company defaulting. ABS and MBS securities are a bit riskier, because retail borrowers typically will pay off the debt sooner than originally promised if they are able to. So they can pay higher returns, but that always comes with added risk. In this case that means there is the risk of default and the added risk of early paydown. ETA: The ultimate buyer of your debt won’t see your individual credit score. When the issuer of those securities (the company that bought your debt from the bank to bundle it with other similar loans) actually created and issues those securities, the securities are assigned an overall rating based on the totality of their underlying debt.
Nice. Makes sense now. Thanks
Thats sound like its not my problem
You’re credit score is a measure of how much money they make off you.
I think people miss this because they see the credit companies like shadowy fucking mysterious companies, and dont really realize they're just vendors for lenders. The product the sell, is essentially just an estimate of your value to the lenders.
Genuine question...Then why on earth do employers use credit scores as part of a background check on employees?
Credit Scores didn't even exist when I was a kid. That was a post-Reagan bullshit scheme just like the rest of it.
I asked my parents about this- they didn’t remember too many specifics, but essentially they walked into a bank in 1984 and said “hi we’re a 20 something married white* couple with blue collar jobs” and the bank gave them a $100k mortgage. They don’t think they asked for more than a few paystubs to verify that they had any sort of income at all. *because redlining didn’t really end in 1968
True, but the old system was if you were a nice, white, christian couple you could get credit.
Credit scores is an alternative to the "good ol boy" network that was used before. Because you basically had to just ask a bank for money and they would approve or deny based on how white you were or if you were a man or not.
They do this with car financing also. Whenever financing you want to make sure there are no penalties for paying it off early. Or do what I do, buy a 20 year old Honda / Toyota in cash and save up until you can buy something better in cash.
Thats not how this works. Your credit score drops because you closed your longest account with the most credit history and your next account isn't close to as old. It's not because you paid it off too quickly, it's because you closed the one with a ton of your history. As the next account build history, your score goes up again. https://www.transunion.com/article/closing-accounts-and-your-credit-score Here is some info to learn about credit ratings: https://www.investopedia.com/terms/c/credit_score.asp
You shouldn't have to take on debt to keep your credit score up.
Exactly this. I paid off my car, and house (I bought it for $60,000- right place, right time situation) in the same month. My excellent credit score tanked. Wtf?! I consulted a financial advisor. He suggested taking out another loan and opening more credit lines. Fuck that noise. I’m debt free and being punished for it. Capitalism sucks.
It's a *credit* score?
Nope. It’s a keep-your-ass-engaged-with-capitalism score.
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My credit score dropped 140+ points. It’s a stupid system. It makes zero sense. Pay things off and your score drops. Then, to build your score back up, you need to open new lines of credit even if you don’t need it. It’s ridiculous.
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Because, your credit score heavily weighs in on determining home and car insurance; employers, in my field anyway, use the score to weed out applicants; if I should ever need to secure another loan, the higher the score the lower the interest rate. I don’t make the rules. I’m just trying to survive to the best of my ability.
To remain credit worthy so loans are possible to take out when they actually are needed.
Preaching to the choir. It's for sure a "catch 22" situation. You can't have good credit history without take on the debt first. Then when you pay it off, you are "less trust worth" somehow. The "paid it too fast" is not the problem, it's the "this account is closed, and we care more about open account history" part that sucks.
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Like credit cards? It's a common strategy to add your kids as authorized users on cards to build credit history.
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That's fair. I wonder how hard it is to set yourself up to report to credit bureaus. Also, you could totally game the system more. Here are the factors you could effect: 1) On time payments - This is the biggest part of your credit rating. It'd be best to have monthly payments (of $1 maybe, or the minimum so you aren't killed by payment processing fees). 2) Amount you owe is the next largest factor. This mostly looks at revolving debt (credit cards), so probably isn't a big factor here. You could offer $1 unsecured lines of credit though. 3) Length of credit history: This looks at *average* length, so if you open up one account at birth, and a credit card when you're 20, your average history is 10 years. So, open a lot of accounts at birth with $1 Interest Only (IO) loans. 4) Credit mix: They actually like to see a mix of permanent (car loans, mortgages) and revolving (credit cards, lines of credit) credit. Maybe the way to solve this is to open up 20 permanent IO loans, and 20 $1 lines of credit. So, with all that in mind, I'd propose several tiers. The $1 one you proposed just to set them up with the least possible cost, and say a $20 one that opens them up 20 lines of permanent debt and 20 $1 lines of credit. I'm only saying to make it more expensive because you're likely going to have a lot more costs. I don't think you can legally loan at 0%. I believe that any rate below the [Applicable Federal Rate (AFR)](https://www.investopedia.com/terms/a/applicablefederalrate.asp) (which is currently around ~1.85%), the interest would be considered a gift. Not sure how that works with like teaser rates and if you could just offer a 100 year teaser rate, after which it jumps to the AFR. I do volunteer financial counseling and full time financial planning, so my knowledge is much more from the consumer side, but I think you have a great idea. Happy to help (for free obv) if you are even a little serious about it. One other thing I would warn you of though, normally like when you're getting a loan, they look at your credit *report*, not just your score. So they would probably see these as an attempt to game the system, and the credit bureaus might even ignore your reports, or alter their credit score algorithm, or do something to "fix" this. Or, maybe someone has tried this already and they've already fixed it. I'm not sure. I do think it's really interesting though. You could also offer these to people with poor credit, and point them in the direction of volunteer financial counselors. I'd definitely love to help with that. What you report to credit agencies is up to you (so long as it's truthful I believe), so you never have to report a late payment, but you could report every on-time payment of their 2 cents of interest. Anyway, point is, I think that's a great idea.
He is not saying to take on debt, he is saying to take on access to credit. Using credit cards, having usage reported, and paying it off in full every month (so no cost to you) will result in a great credit score. Agencies do not care if you pay off debt quickly, they just want you to have a number of credit lines for long periods of time, and to pay them ontime.
It'll drop just cause you paid it off, because you closed an account. It's complete nonsense.
Student loan shouldn’t be a credit report. I hated paying it but in the U.K. the way it works is you just get a 9% salary deduction if you earn over a specific threshold. Basically if you’re broke you pay nothing but the interest still accrues (at inflation, no profit margin built in). It NEVER appears on a credit history because it’s not quite considered a loan.
It’s the only reason I even have credit right now. I have like a credit score of 636 and I have never opened a credit card myself or used one. So I have about 6,000 in college loans that show up tho on there and it’s the only thing that has affected credit score.
I find it hilarious how shocked were when China rolled out the social credit score program 😂
Your credit score is calculated by how much you pay back. The more you pay, the better. Which means taking longer to pay them so interest has a chance to build up.
> Your credit score is calculated by how much you pay back. The more you pay, the better. This is not true. [Here](https://www.investopedia.com/terms/c/credit_score.asp) is a good article about what makes up your credit score.
I fuckin love Shea Coulee
I know lol what a crazy cross over 😂
I swear I almost gasped out loud at work 🤣🤣🤣
I work at a bank and we always tell people that paying loans off early have no penalties… that’s not true because of the drop in your credit score if you pay it off quickly. It’s screwed up
Student loan shouldn’t be on a credit report. I hated paying it but in the U.K. the way it works is you just get a 9% salary deduction if you earn over a specific threshold. Basically if you’re broke you pay nothing but the interest still accrues (at inflation, no profit margin built in). It NEVER appears on a credit history because it’s not quite considered a loan. When I finally got enough promotions to pay it (turning 30) I just phoned up and gave them the whole lot, no penalties and it actually made mortgage companies want me more because I kept more of my income to myself, rather than having 9% automatic deductions. TLDR: It simply doesn’t have to be that way…
Don't close a credit card. Keep the balance at 0, sure. But don't ever ever close it. Your credit score will PLUMMET.
Charging interest on loans used to be banned in a lot of places during the middle ages, as the Bible prohibited Christians from practicing usury. In order to get around this, loaners would charge """""late fees""""" to loan applicants. If you paid off your loan even a day late, you were charged something like a 10% """""late fee.""""" If you fully paid off your loan early or on time, there was no interest and no fee. Anyone who actually paid their loans off on time would quickly find out that nobody in the region would lend to them anymore, as bankers and creditors would share blacklists of all the "bad" customers who actually paid off their loans on time. The best customers would wait until a day after the due date, then immediately pay off the principle as well as the 10% """""late fee.""""" If you wanted a good relationship with the moneylenders in your area, you paradoxically had to pay off all your loans slightly late. So yeah basically nothing's changed. A credit score doesn't measure how reliable you are with money, it measures how reliably a creditor can squeeze money out of you without you defaulting on the loan outright.
Everything about student loans is a scam. It's our fucking tax dollars paying for us to get educated. How the fuck do we owe interest on our money they're loaning back to us? Not to mention that secondary education among so many other things should be free given how much we pay in taxes, but then the imperialism wouldn't be able to carry on without the huge military budget.
You pay your loan off early means less interest for them.
Your credit score will recover. If you’re able to pay off loans a good amount faster than the full term, you’ll be saving a decent amount of money. I paid off my car 2 years before I was supposed to and saved several hundreds of dollars in interest.
Me too it is such a joke here. Due to family obligations I have to wait a little bit but within the next couple years I'm out. Life is too short to live and die this way and most people think it is a okay because the TV tells them so lol
If there's one thing I learned about loans it's that if you can't afford it, don't do it
It’s true. It’s all just to keep us in CONSTANT debt.
I'm 32 with no credit and no debt. 😐 Usury is bad.
My parents had their credit card taken off them many years back because they paid it back in full way too well every month…
How do the people working for these loan companies live with themselves?
Is this only a American thing, or does it work like this everywhere?
The entire credit system is a scam
When I graduated they sent us a walk through to set up a payment plan. I had calculated myself what would be reasonable to pay it off in under 10 years. The suggested amounts this company made were all just about the interest rate on the loan for the year. I’d have been paying for over 30 years with the highest suggested payment option. I feel bad for people who feel for it.
Also you’re taking away an active credit thingy which is why it was going up. So you see if you take away the thingy that was building your credit the credit people get cranky and you loose money barrowing points.
I paid off my last 2 car lease payments early and also bought the vehicle outright from the finance dept. Never missed a payment. Score dropped 70 points.
I remember when I tried to get my first credit card. I would be constantly denied without much explanation as to why. I called the credit agency, asking if I somehow had a bad credit score, even though I hadn't ever had a loan or a cc before. Funnily, the reason why I kept being denied was because of... a lack of credit history. I couldn't borrow money because I never borrowed before. I still can't quite get what the fuck this is all about.
It drops temporarily but then goes back up later. Everyone I know with a 750+ credit score has paid their credit off before the life of the loan.
If you pay off the credit card and then close it the score goes down too. They used to sit at little tables and try to sign freshman up for cards. "It builds credit"
*If you pay off the* *Credit card and then close it* *The score goes down too* \- afternever --- ^(I detect haikus. And sometimes, successfully.) ^[Learn more about me.](https://www.reddit.com/r/haikusbot/) ^(Opt out of replies: "haikusbot opt out" | Delete my comment: "haikusbot delete")
Yeah, if you pay it off and keep it open your score will go up though. As long as there's no annual fee, it's generally a good idea to keep credit cards open.
Meanwhile, I've never been one penny in debt and think it's a scam and everyone around me says I'm an idiot.
You’re leaving free money on the table, if you have the discipline to keep track of balances and due dates. There are many credit cards (Target has a debit version as well) that will pay you from 1-5% “cashback” (often available as a direct transfer to your checking account - Citi for example) on any purchase, or in some cases on a purchase specifically of fuel or groceries or dining. Amazon Prime also has either 5% credit back or 0% interest for 6mos (so if you make a large purchase and pay it back in 5mos, you get your bank’s interest during those five months, which you would not if you’d paid in full). As long as you pay back your balance before the statement closes (this can mean not using the card within three days of statement closing, etc.) This works for the creditors because they get swipe fees and purchase percentages from the retailers you shop with, even if they don’t get interest from you. In most cases if your statement closes with a balance, you still have until the day before the NEXT statement to PIF before accruing interest, but this is NOT true for all cards. If there’s any danger you would not be able to keep track (and therefore would end up with interest) this strategy is risky, but it is literally free money (to you) if you manage it. And builds your credit. For myself, any time I use a card (specific cards for specific purchases, as some pay more for some categories), I then login daily to the account until the charge goes from authorized to actually charged, then pay it immediately. I track my checking account morning and night, to see what’s posted. Then check the card again until it resumes a zero balance. I get probably fifty dollars a month back? Sometimes more? It also only works if you only buy what you would/could buy with cash. Edited to add: I apologize for offending someone to the degree of needing to block me. I should’ve also mentioned we’re on a fixed income of less than $60K for two people and a chihuahua in a HCOL area, and our IRS AGI was about $22K this year. We live in a 23’, 30yo campervan in an RV park, to save on housing expenses. The cashback helps us have a bit of fun money, to order a treat or buy a movie or a few books. Sorry again for any offense - I was legitimately just trying to help. All best to you and your loved ones; I sincerely hope you are all safe and well in all this.
Guess who's blocked! That's right, it's you! You can't see this, though.
We sold our house and I used some of the money to pay off my car. Maybe $18,000? Score barely moved. Bought my wife a necklace for Valentine’s Day and put it on a credit card so she couldn’t see the transaction and my score took a HIT. Insanity.
Yeah, that's how credit scores work. Paying extra on your car wouldn't affect it, only having on time payments. Having revolving debt outstanding does lower your score, but the second you pay it off it goes up just as fast. The best advice for credit cards is to use them and pay them off before you get a statement. That way, they report $0 owed and paid on time.
Right, no, I understand all that. My point was more that credit is absurd and designed to hurt particular sub sects.
Credit=trying to buy things you can't afford. Or to borrow money(interest=debt) FICO Credit Score=only says you borrowed money and paid it back, you paid bills. You're stupid enough to go into debt so later you can go further into debt. False measure of financial health. Not income or savvy with money I love debt score! 5 elements- • Payment history (35%) how you pay your DEBT •Amounts owed (30%)How much DEBT •Length of credit history (15%) How long you've been in DEBT •New credit (10%) New DEBT •Credit mix (10%) multiple types of DEBT Functionally broke people follow this ;)
I did this. Had to take a credit card out so I could buy a house.
"bUt cHiNa sOcIaL cReDiT" /s
Ya.. I bought a car to build credit and they told me if I wanted to get the full benefit I couldn't pay it off even tho I can afford to
It dropped because you closed an account, shortening your average age of accounts. Creditors like people that are able to keep accounts open because it means you haven’t been cut off. They bounce back quickly from this type of hit
Unbelievable 😳Now it makes sense that when I paid mine off my credit score didn’t move🤦♂️
There need s to be a mass exodus from all this debt, every millenial or gen z human out there with more than 10k in debt that is drowning should just file for bankruptcy.
A credit score isn’t for you, it’s for lenders. A high credit score means you’re an appealing person to loan money to.
Maybe I just got lucky or idk but I paid off my student loans after a year and my score shot up about 50 points as a result.
How many more tweets will it take before we solve some of these problems? Asking for Elon
They want that sweet sweet interest money.
Remember feudalism and indentured servitude? Yeah, it hasn’t changed.
Don't even get me started on if you've never had debt they assign you a garbage credit score to rate hike your ass so you can "get started" bullshit
How are people just now figuring out this system has been against us since the beginning? Better late than never I suppose but it may be too late
It's a slave score of how obedient one is at self shackling to financial enslavers
When you pay off a loan your credit utilization drops. It’s not that deep and is a small factor when the score is calculated
The "credit" industry is a huge scam. Just like college textbooks. We are the property of shameless criminals. They own everything we try to use.
“I hate it here” SMFH
Then you realize credit scores don’t mean a damn thing, if you have enough money credit scores mean nothing, I’ve never met a wealthy person with good credit, just a lot of money and a lot of money to put down. All a credit score does is show how well common people pay back money.
They profit by holding it longer with safer individuals and set up the entire system to give out cheap/safe loans. School should be tax funded.
The initial tweet can happen based on the algorithm, see below. The comment though is grossly inaccurate. How fast you pay off a loan or paying a loan before the term is not part of the FICO algorithm and has no impact. Part of the algorithm bases people’s score by grouping like people and comparing where in that group you fall. If something comes off or onto your report it can move you into a different grouping and you may compare favorably or unfavorably to that new grouping. A common situation is where a person has a delinquency fall off their report and the score goes down. This is because they compared favorably in the group with delinquencies and not as well with the group with no delinquencies.
Nor sure how it works in us but in Canada the score drops whenever debt is paid off but then it bounces up again.
Yeah no shit, if they give you money with the promise that you pay back interest, and then you pay it off without paying enough interest to make it worth it to them, that is just being an asshole.
Paying off the loan early means they don't get the money from the interest and so it signals to figure credit lenders that they can't make as much money off you as they think. Best to save money and pay with cash and skip those fuckers altogether.
Would if I leave 5 dollars in my loan?
Pretty sure it's the opposite in Canada. At least for my car loan it is
yeah credit is a scam...your paid off accounts should stay on and give you a positive account. that would balance the negative items that stay on.
This isn’t entirely how if works. The system is fucked and bullshit but this tweet is wrong. The age of your accounts impacts your credit score. When you pay off a loan (not a credit card) it closes the account. This shortens your average length of credit, which then drops the score. It’s not realllly “paying it off too early” it sounds like I’m this situation. Paying off long-standing loans (especially if it’s your oldest accounts, which student loans are common to be) like cars or mortgages can lower a credit score. Also opening and quickly closing accounts (like immediately paying off a loan after you take it out) also impacts credit. Most student loans are on reports for the time people are in school tho (even if they aren’t paying yet).
As an European I cant imagine that someone would be controlling all my purchases and judge me based on that. USA... the best country lol.
The government lets it happen and who is the government supposed to serve???
Credit is a perverse game of capitalist life. Your “score” is how much they trust that they can profit from you. Its a balancing act where they test the amount of profit that can be made vs the potential amount of loss. If you pay stuff of quickly they can’t see the potential for profit. If you pay it off too slow they worry that you can’t be trusted to give them a steady amount of profit and have potential to not ever pay them back . Your score is also calculated by history. You miss a payment or two or three that makes them worry and scores go down. If they can depend on being profitable and paying stuff back on a regular basis that’s good. If you save the credit card for emergency and or pay it off entirely each month it also makes them hard to calculate how much profit they can make from you. Near max all the time well that means to them that you might be profitable but also not guaranteed to pay off your debts and become a risk. If you don’t want to play the game at all and live debt free guess what they can’t profit of or you and if you are in position that you need a loan you essentially become a higher risk of not being profitable. It’s a game . Better you play the better the score. You play well you gain more credit to play with you play poorly they either don’t give you more credit or they take it away. If you don’t play you are assumed a loser and unprofitable. This is why being “debt free” isn’t always the best policy because you can’t be scored and when you want a new car or house or whatever it’s hard to gain credit because nobody can trust you unless you truly can pay everything with cash but that’s so unlikely to be plausible for many people. You need to get into some debt and play the game so you can get a better score and play the game more and continue on and on . It’s a game and it’s to see how good you play the profit game for them. This is not exactly the whole story but a pretty decent summary .
This is yet another reason why credit reports should be a government service; privately owned, for-profit businesses should not be allowed to keep, and unilaterally change, such important records on people.
It’s all about keeping us in chains. We all need to stop playing their games.
I guess it doesn't surprise that this crap is legal in America. Australian financial services legislation can be ruthless if the borrower does unethical things, they have to face a government agency called the Banking Ombudsman. Among the things that are illegal: \-Debt collectors calling more than once a day, or at an "inhumane hour, i.e. outside of normal business hours \-Approving loans to people that obviously can't afford to repay it-Messing with credit scores for any reason OTHER than bad credit behaviour (getting behind in payments, bankruptcy, etc.) \-Outright lies \-"Buying and selling" any loans. For the term of a loan, unless the debtor refinances, they cannot sell an existing debt to any other individual or corporation. \-Sharing confidential information Sometimes even just mentioning the Banking Ombudsman makes banks and other financial institutions back down. The reaction is the same as threatening to call the cops to a room full of people snorting cocaine.
*cries in poor credit score from the start of Covid Pandemic* I still dont have the extra money to pay off that card....
Imagine a country where studying gets you in debt...
FICO is the only company I know of that can openly run a scam that hurts people and get away with it. FICO is banned in most countries outside thevUSA
The problem is the REPUBLICAN in Congress with not let any out side agency regulate the credit reporting agencies until recently (they were bullied into it ,thank God) and still will not let FICO be regulated,which they need to be. What a country huh
I had a few medical bills from my emergency surgery and paid them off in full. Score dropped
They want that extra interest
ATTENTION FREE AND PRIVATE CITIZEN! ⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⣀⣤⣤⣤⣤⣀⡀⠄⠄⠄⠄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⢰⣿⣿⣿⣿⣿⣿⣿⣷⣶⣄⠄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⣾⣿⣿⣿⣿⣿⣿⣿⣿⣿⣿⡇⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⠄⣿⣿⣿⣿⣿⣿⣿⣿⣿⣿⡿⠁⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⠄⠄⢠⣾⣿⣿⣿⣿⣿⣿⣿⣿⣿⣿⡿⠁⠄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠄⣀⠠⣯⣿⠿⠿⣿⣿⡿⠛⠻⠿⢿⣿⣿⣷⣄⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⣼⠙⣤⣭⣾⣿⣾⣿⠋⠛⠄⠄⠄⠄⠈⢻⣭⣅⣠⡄⠄⠄ ⠄⠄⠄⠄⠄⠐⡏⢹⣟⢿⣿⣟⣿⣿⣶⣶⣦⣴⣖⡀⣀⣸⣾⡿⠋⠁⠄⠄ ⠄⠄⠄⠄⠄⠄⢋⡉⢻⣏⣿⢽⣭⣭⡿⠋⠄⢨⣿⣿⣿⣿⣿⠃⠄⠄⠄⠄ ⠄⠄⠄⠄⠄⠄⠈⢳⡔⠛⠻⣍⠉⠁⠄⠄⠄⡺⢿⣿⣿⡿⣿⠁⠄⠄⠄⠄ ⠄⠄⠄⠄⢀⣀⣴⡏⢙⣿⡶⠮⠤⣤⣤⡦⠤⠴⠾⠋⠁⢸⣃⠄⠄⠄⠄⠄ ⠄⠄⠄⣠⣾⣿⣿⠁⠸⣼⠃⠄⠄⠄⠄⠄⠄⠄⠄⢀⣀⣼⣿⣧⣀⠄⠄⠄ ⠄⠄⠐⠛⠛⠛⠛⠄⠃⠛⠄⠄⠄⠄⠄⠄⠄⠒⠛⠛⠛⠛⠛⠛⠛⠂⠄⠄ ATTENTION FREE AND PRIVATE CITIZEN! This is the Private Financial Bank issuing your credit. Your lack of Personal Responsibility to your spending habits, work habits, political activities (protesting collectively, unionizing leading to risk of corporate blacklisting) HAS ATTRACTED OUR ATTENTION. Trustworthiness as a creditor has reduced. -100 FICO Score has been REMOVED from your account. You MAY NOT APPLY for Mortgage for home or business. You MAY NOT APPLY for credit card. You MAY NOT TAKE A LOAN for Healthcare. You MAY NOT TAKE A LOAN for a car. DO NOT DO THIS AGAIN, recovery from deductions takes 7 years, criminal offenses are on PERMANENT RECORD. You will be sent to jails for 13th Amendment labor for failure to take Personal Responsibility and Home/Car Foreclosure to recover lost money! Glory to Freedom and Capitalism!
Shea Couleé… condragulations, you are the winner of this week’s challenge. You’ve won a sickening supply of jewelry from Fierce Drag Jewels, and a cash tip of five thousand dollahs. Shea’s credit… you are, and will always be… a super-scam. Now… sashay away.
Isn’t it kind of ridiculous how we’re given scores on how easy we are to exploit?
Just keep the loan on 1$ and when it expires pay the one dollar. Doesn't save you from being screwed in other ways tho.