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PRBori

Credit Score determination approach - does it makes sense?

For the past few years since my divorce in 2006 I wanted to clean up my record, pay off all bills and get a higher score. In any event, I joined careonecredit in 2007 and added every medical bill and non-medical bills into it and made as many payments as I could. Bottom line all bills were paid in full last year. Now, I have a number of credit cards I have gotten in the past two years or so and I always thought that if I buy something and pay it off right away it would build my credit. Boy was I wrong..

Two days ago while trying to see if I qualify for a mortgage I was schooled by the person on the other end. He said that for the score to increase I have to have about 10-20% of the card limit used and that I should not pay it off down to 0, but instead make minimum payments or at least make sure I still had some sort of balance. Had I known that I would have some nice money in my bank and a better score.

In any event, it doesn't compute in my head. If I have credit, then I should only use it when I really need it, not all the time. Also, having 0 balance in most cards to me with the exception of maybe 2 is being more responsible than having more than two bills. Bottom line, it doesn't make sense to me that the score is based on my ability to make monthly payments and maintain a balance on all cards.

But, I'm gonna give the new approach a try, so I used 10% more of some of the cards to start the game for increasing my score.

That said... Does the current approach for increasing the score makes any sense to anyone else? Has anyone made the same mistakes I have? What was your original understanding for increasing the credit score? Just wondering....

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Credit scores do not measure your ability to make payments. If you inherited ten billion dollars tomorrow, your ability to make payments would increase substantially, but your creidt score would be unchanged.

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Credit scores do not measure your ability to make payments. If you inherited ten billion dollars tomorrow, your ability to make payments would increase substantially, but your creidt score would be unchanged.

roger that, but why is it that they need to see a balance and monthly payments instead of 0 balance to increase the score?

You hear all the time, you buy something, you pay it off on due date to avoid interest. You pay highest interest card first, then the next highest, etc until all high interest cards are 0 balance.

In my case, if I used $400 today, I pay it off on the next paycheck so the balance is 0. Granted, sometimes I don't wait until I get a statement, I just know that I owe it so I want to pay it off ASAP regardless of whether is due or not. So if I get something 2 days before pay day, I call and pay it as soon as my paycheck enters, that is 3 days after.

You would think that I'm being responsible by paying the bill instead of waiting until is due. But that does not increase my credit score. I should had had 800 if that was the case.

Edited by PRBori

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Someone once told me to use your credit cards for things like gas, coffee. Little things through out the month and make payments to them bi-monthly. They swore it works for raising your credit score quickly.

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Someone once told me to use your credit cards for things like gas, coffee. Little things through out the month and make payments to them bi-monthly. They swore it works for raising your credit score quickly.

That sounds like a good idea.

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Credit scores reward people who use credit. Owing people is not a desirable situation to be in. So if you want to be a good debtor then you have to choose to embrace that form of slavery if you want to be recognized as 'good at it' per the credit score.

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That said... Does the current approach for increasing the score makes any sense to anyone else? Has anyone made the same mistakes I have? What was your original understanding for increasing the credit score? Just wondering....

Your post intrigued me. So I did a quick Google search and in about 5 minutes, despite a few conflicting suggestions, saw that there was no quick way to improve credit rating.

And of course, I asked myself, "Why did he post this question in the forum instead of doing a Google search"?

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Keep your oldest credit card too, that should be the one you use (if the rate is reasonable). If you cancel your oldest ones, that 'length of time as a creditor during which you created credit history' goes bye-bye, and that's used in the formula.

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Your post intrigued me. So I did a quick Google search and in about 5 minutes, despite a few conflicting suggestions, saw that there was no quick way to improve credit rating.

And of course, I asked myself, "Why did he post this question in the forum instead of doing a Google search"?

I know google provides some answers, but I wanted to see if anyone else had the same perspective. That using the cards and paying them off right away would increase the score. I though having lots of credit with 0 balance would help.

Most sites say this:

"So you might want to charge a recurring bill to one of those little-used accounts or take them out for dinner and a movie occasionally -- always, of course, paying off the balance in full."

Which I did. I buy something, I pay off the balance in full and take it down to 0 ASAP. I think my issue however is that I never waited until I got the statement but rather pay off before a statement was available.

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i had a theory years ago, not so sure if it'll work.

Try increasing the number of times you make a payment. Usually a person makes a one payment in a month, or before the due date. So instead, try making small payments every week, every 3 days, do so to cover the balance. See if that will work?

Umm... i want to expand on that theory. So lets say the following happens in one month. You just bought a new jacked for $400. Credit company shows that you now owe $400 on the day payment was processed. 3 days later, you make a payment for $50, which brings your balance to $350. Still no interest charge because its within the grace period. So credit company reports that you now owe them $350 (hence recurring credit). You make another payment 3 days later for the same amount. Brings your balance to $300, still no interest earned because of grace period (lol). But now credit company reports that you now have a new "recurring balance" of $300. From there just continue the payment pattern until you pay off the balance before the grace period ends. In the credit system, it will show all those logs, recurring balances, payments, etc.. and in just a month, you can fill their data log with so much, that maybe then the formula used to calculate the mysterious credit score can be elevated??

I got that idea from a friend who worked in the bank, was in charge of handing out mortgages. But that was theorized.... 10 years ago, give or take. I always believed a person can turn a R9 rating onto an R1 by making multiple small payments..

Also, i believe lenders also take into consideration how much loan you can afford. Usually that's done over the years, unless you can convince someone to give you a 25K credit limit right off the bat. If you have a $500 credit limit and your applying for mortgage..... :S i dunno. just looking at it from a lenders stand point. But if you had, say 10K recurring credit and you managed to pay it off... as a lender that would look very nice.

---------- Post added 04-16-2012 at 11:26 AM ----------

ps. There is a counter to have credit company only post one update to the credit bureau to avoid credit score inflation (to those that likes to manipulate the system). but i'm sure its not legislative, so not all banks would require to take actions. if it does work, lets just keep it in this forum only :)

oh and ya just wanted to add. even if you have high credit score, the lenders will/should not give person the loan just based on that. it will be based on salary for one, the highest loan ever received, and credit score. some could also demand more, i guess. main thing to remember is that lenders wants assurance they will get their money back. so just pointing out the theory and i'm not promoting any form of embezzlement

Edited by Qjiggy

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