Credit scores have a lot of reach into your quality of life. Luckily, I took an interest in the topic years ago and doing so helped me get my family into a home.
One of my credit cards had been closed due to inactivity (whoops). I called to get it turned back on, and the bank has a minimum threshold of inconvenience they have to put each person through so that people don't feel free to call and talk about their cats. In this conversation, I had my understanding of credit updated.
(not a literal transcription)
Bank: "Why don't you use more credit? You have a couple of credit cards, and you have a very stable balance on them."
Me: "Right."
"Why don't you have more cards?"
"I don't need more cards. I use one for everything and have two as emergency backups."
"Your debt balance is stable."
"Right."
"Can you explain that?"
"I carry a balance because I read an article saying that credit agencies have lower faith in people who pay the entire balance each and every month."
(silence)
Me: "Because it doesn't illustrate that I can manage debt."
"I understand. But it would be better if you had more cards. Better distributed credit."
"I have three, how many should I have?"
"I'd like to see four or five here."
An ideal number of credit accounts. A voluntary and controlled debt load to enhance your credit score. Beyond all that, completely arcane stuff like hard pings and soft pings, and credit/debt ratios.
All of it actually makes sense from their point of view. You read enough, and you understand their motivations and see the system that has been created to address them. However, there's no effort on their part to make it reasonable from the consumer's point of view. 1
It's counterintuitive from the outside, so you have to read up and get in. Thank goodness all of this information is free on the internet.
Once you get the basics of credit scores down, just follow The Consumerist–they have keep you in the know when hoops are added, narrowed. (for example: this article from Sept 2009) If you don't have room for a new web feed, follow just their FICO or credit feeds.
- In fact, there could be a case made that the consumer's confusion helps them. If you have a low score, who is penalized? You. Not the banks, not the credit bureaus. You. Your credit score is one of those things that doesn't matter until suddenly you're paying an extra two hundred dollars a month on your mortgage because your score isn't what it should be. Who pays the credit bureaus? Banks. Do banks benefit from higher interest rates? ↩
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