Debt Score
Jun 12th 2019, 2:20 am
#16
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,446
Re: Debt Score
The purpose of a credit score is for lenders to have access to a convenient, reliable data that is not otherwise easy for the borrower to provide and the lender to verify.
A lender will typically want to know where you live - your home address, and will ask you for evidence of that, typically accepting such things as your driving licence, bank statement, or utility bills. Lenders will invariably ask you for evidence of your income, and it is usually very easy to do so with either pay slips, tax returns, or audited accounts. No calculation is required, and verification is easy, by just matching to credits on your bank statement. For this reason things like your address and income are not part of your credit score.
But other things like your payment history would mean providing a mountain of bank or credit card statements, together with utility, mortgage and credit card bills/ statements, and verification by matching bills to payments, and calculating whether payments are timely would be a considerable administrative burden. Then there are multiple ways that you could calculate your debt/ available credit. And you would also have to provide evidence of recent loan applications, whether or not successful - and obviously there would be a temptation to under-report your loan applications, especially if they were declined. So all these things, that help a lender assess your credit worthiness would be onerous to collect and even more onerous for the lender to verify, so it makes a lot of sense that all these other factors, the ones that are not easily collected and verified, are distilled into a "credit score". The number is widely despised, but mostly because people don't understand its purpose.
A lender will typically want to know where you live - your home address, and will ask you for evidence of that, typically accepting such things as your driving licence, bank statement, or utility bills. Lenders will invariably ask you for evidence of your income, and it is usually very easy to do so with either pay slips, tax returns, or audited accounts. No calculation is required, and verification is easy, by just matching to credits on your bank statement. For this reason things like your address and income are not part of your credit score.
But other things like your payment history would mean providing a mountain of bank or credit card statements, together with utility, mortgage and credit card bills/ statements, and verification by matching bills to payments, and calculating whether payments are timely would be a considerable administrative burden. Then there are multiple ways that you could calculate your debt/ available credit. And you would also have to provide evidence of recent loan applications, whether or not successful - and obviously there would be a temptation to under-report your loan applications, especially if they were declined. So all these things, that help a lender assess your credit worthiness would be onerous to collect and even more onerous for the lender to verify, so it makes a lot of sense that all these other factors, the ones that are not easily collected and verified, are distilled into a "credit score". The number is widely despised, but mostly because people don't understand its purpose.
Last edited by Pulaski; Jun 12th 2019 at 2:24 am.
Jun 12th 2019, 10:36 am
#17
Often not so civil...
Joined: Apr 2010
Location: The Boonies, GA
Posts: 9,561
Re: Debt Score
To quote the line by Christopher Walken from Catch Me If You Can:
'One day you'll want something from these people (the banks).... a car, a house, they have all the money....'
Debt is never a good thing, it stands opposed to building wealth generally speaking. NO self made millionaire ever said 'I got rich on the 1% cashback from my Discover card'
'One day you'll want something from these people (the banks).... a car, a house, they have all the money....'
Debt is never a good thing, it stands opposed to building wealth generally speaking. NO self made millionaire ever said 'I got rich on the 1% cashback from my Discover card'
Jun 12th 2019, 3:37 pm
#18
You aint seen me, right?
Joined: Oct 2005
Location: US of A, TN
Posts: 3,573
Re: Debt Score
No-one said anything about getting rich off it, but it's better to have the 1% than not. Granted I know several people that lack the restraint to keep their spending within what they can pay off monthly so it's better for them to not have credit cards.
Jun 12th 2019, 4:46 pm
#19
I approved this message
Joined: Dec 2004
Location: Chicago
Posts: 2,425
Re: Debt Score
Credit enables people to do things they wouldn't otherwise be able to do. Credit used responsibly can be a huge benefit to the borrower. People seem to be forgetting that: you borrowed the money for a reason that you felt made sense at the time. It's up to the borrower to make that determination and live with the consequences. Banks clearly need to be fully transparent about what people are getting, but similarly borrowers should educate themselves on basic financial literacy in order to make better decisions. Too many borrowers adopt the "babe in the woods" routine when the bill comes due.
The sense I'm getting politically is that more and more people believe that credit is an inalienable right that should be extended on borrower request. Many people resent banks charging interest, many people resent having to earn good credit, they resent having to jump through hoops to borrow, they resent having to pay back what they've borrowed. These people are forgetting about the benefit they derived from borrowing the money in the first place. Too many politicians are indulging this infantile view of credit.
The sense I'm getting politically is that more and more people believe that credit is an inalienable right that should be extended on borrower request. Many people resent banks charging interest, many people resent having to earn good credit, they resent having to jump through hoops to borrow, they resent having to pay back what they've borrowed. These people are forgetting about the benefit they derived from borrowing the money in the first place. Too many politicians are indulging this infantile view of credit.
Jun 12th 2019, 4:57 pm
#20
Austin. TX.
Joined: Sep 2013
Posts: 5,930
Re: Debt Score
To quote the line by Christopher Walken from Catch Me If You Can:
'One day you'll want something from these people (the banks).... a car, a house, they have all the money....'
Debt is never a good thing, it stands opposed to building wealth generally speaking. NO self made millionaire ever said 'I got rich on the 1% cashback from my Discover card'
'One day you'll want something from these people (the banks).... a car, a house, they have all the money....'
Debt is never a good thing, it stands opposed to building wealth generally speaking. NO self made millionaire ever said 'I got rich on the 1% cashback from my Discover card'
Most people I know bought their houses with debt and have made a pretty penny from it.
Businesses "leverage" debt all the time.
Many self made millionaires had a loan to get them going in the first place - the absence of family friends with a bit of cash to lend is one of the stumbling blocks for poor/third world countries which hinders their development. Look at the micro-lending successes and Yunus Mohammed got a nobel prize for his work here.
On a very small scale, I pay $90 per year for my credit card, never pay a penny in interest/charges and got 2 return flights for next christmas which even with paying taxes/charges saved me $2k.
Having an excellent credit score saves me money on my car insurance
And shall we talk about how much taxes Trump has saved because of debt?
Jun 12th 2019, 6:17 pm
#21
BE Enthusiast
Joined: Mar 2017
Location: Austin, TX
Posts: 455
Re: Debt Score
Jun 12th 2019, 6:21 pm
#22
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,446
Re: Debt Score
Which is precisely why people get turned down for credit, even sometimes when they do have a good credit score.
Jun 12th 2019, 6:37 pm
#23
BE Forum Addict
Joined: Jan 2014
Location: Anchorage, AK, USA
Posts: 1,347
Re: Debt Score
Jun 12th 2019, 7:18 pm
#24
Account Closed
Joined: Jan 2006
Posts: 0
Re: Debt Score
Ask Trans Union, no clue how they are determining my score.
I pay on-time every month before the due date, typically they receive and post the payment 10 days prior to due date.
I use about 20%-30% of the available credit in a typical month.
I dont carry a balance month to month, balance is currently $0 and credit report shows a $0 balance.
All payments on-time, never missed a payment or been late on a payment, the report shows 3 years of history for payments all on-time.
There are 4 inquiries listed, spread over several years, most recent inquiry Oct of 2017
Nothing derogatory on the report such as collections, bankruptcy or public records.
Score as of today is 646 it fluctuates very little month to month.
I pay on-time every month before the due date, typically they receive and post the payment 10 days prior to due date.
I use about 20%-30% of the available credit in a typical month.
I dont carry a balance month to month, balance is currently $0 and credit report shows a $0 balance.
All payments on-time, never missed a payment or been late on a payment, the report shows 3 years of history for payments all on-time.
There are 4 inquiries listed, spread over several years, most recent inquiry Oct of 2017
Nothing derogatory on the report such as collections, bankruptcy or public records.
Score as of today is 646 it fluctuates very little month to month.
Please can you explain that, as I don't believe that it to be true as you describe it.
From what I have seen on line, Canadian credit scores are calculated in a very similar way to those in the US. The make up (in both countries) is as follows: 1) 35% – Payment History, 2) 30% – Credit Utilization Ratio, 3) 15% – Length of History, 4) 10% – New Credit, and 5) 10% – Type of Credit Being Used.
Of the five factors above, if you have some debt, and use credit it responsibly, then 1) is likely to be close to perfect, 2) is likely to be good or better, assuming you pay off your credit cards before the balance is reported (not before it is due*), 3) is what it is, but if you have had a credit history of ten or more years then this element will be high (positive), 4) if you apply for very little credit then this should also be high/ very high, and 5) I am not sure how this might affect your score if you're using very little credit, i.e. have no mortgage and no installment loans, such as a car loan, it might be negative so you might not have access to most of this 10% of your score.
So of the five factors, anyone should able to score highly on all of 1) - 4) which covers 90% of the score. So if you have a very good history of paying your debts on time, what is it that is driving down your credit score?
There are of course other legitimate reasons why people are denied credit, so just because you have a high score you doesn't mean you are guaranteed to be offered credit. And some sorts of credit are easier to obtain, such as a car loan, because if you default on the loan there is a good chance that the lender can get a good part of the debt back be seizing the vehicle and selling it.
* If you have a single credit card with a $500 limit, and spend $400 then that will be reported as 80% usage of revolving credit as at the statement date, which is fairly high. If you pay off the balance before the due date and don't use the card again the next month, then the following month the statement, and reported usage will be 0%, which is very good.
From what I have seen on line, Canadian credit scores are calculated in a very similar way to those in the US. The make up (in both countries) is as follows: 1) 35% – Payment History, 2) 30% – Credit Utilization Ratio, 3) 15% – Length of History, 4) 10% – New Credit, and 5) 10% – Type of Credit Being Used.
Of the five factors above, if you have some debt, and use credit it responsibly, then 1) is likely to be close to perfect, 2) is likely to be good or better, assuming you pay off your credit cards before the balance is reported (not before it is due*), 3) is what it is, but if you have had a credit history of ten or more years then this element will be high (positive), 4) if you apply for very little credit then this should also be high/ very high, and 5) I am not sure how this might affect your score if you're using very little credit, i.e. have no mortgage and no installment loans, such as a car loan, it might be negative so you might not have access to most of this 10% of your score.
So of the five factors, anyone should able to score highly on all of 1) - 4) which covers 90% of the score. So if you have a very good history of paying your debts on time, what is it that is driving down your credit score?
There are of course other legitimate reasons why people are denied credit, so just because you have a high score you doesn't mean you are guaranteed to be offered credit. And some sorts of credit are easier to obtain, such as a car loan, because if you default on the loan there is a good chance that the lender can get a good part of the debt back be seizing the vehicle and selling it.
* If you have a single credit card with a $500 limit, and spend $400 then that will be reported as 80% usage of revolving credit as at the statement date, which is fairly high. If you pay off the balance before the due date and don't use the card again the next month, then the following month the statement, and reported usage will be 0%, which is very good.
Jun 12th 2019, 7:37 pm
#25
BE Forum Addict
Joined: Aug 2013
Location: Athens GA
Posts: 2,134
Re: Debt Score
Ask Trans Union, no clue how they are determining my score.
I pay on-time every month before the due date, typically they receive and post the payment 10 days prior to due date.
I use about 20%-30% of the available credit in a typical month.
I dont carry a balance month to month, balance is currently $0 and credit report shows a $0 balance.
All payments on-time, never missed a payment or been late on a payment, the report shows 3 years of history for payments all on-time.
There are 4 inquiries listed, spread over several years, most recent inquiry Oct of 2017
Nothing derogatory on the report such as collections, bankruptcy or public records.
Score as of today is 646 it fluctuates very little month to month.
I pay on-time every month before the due date, typically they receive and post the payment 10 days prior to due date.
I use about 20%-30% of the available credit in a typical month.
I dont carry a balance month to month, balance is currently $0 and credit report shows a $0 balance.
All payments on-time, never missed a payment or been late on a payment, the report shows 3 years of history for payments all on-time.
There are 4 inquiries listed, spread over several years, most recent inquiry Oct of 2017
Nothing derogatory on the report such as collections, bankruptcy or public records.
Score as of today is 646 it fluctuates very little month to month.
Jun 12th 2019, 7:45 pm
#26
Account Closed
Joined: Jan 2006
Posts: 0
Re: Debt Score
If your credit report shows $0 balance every month it means that you are paying before the cc company reports to Trans Union. You therefore appear not to be using any credit and therefore your score suffers. They don't know that you are a responsible user of credit. Don't pay so early, but certainly don't be late because that will definitely ding you . If your credit report shows a less than 20% utilization each month, but not zero, your score will increase.
Jun 12th 2019, 7:52 pm
#27
Joined: Dec 2001
Location: Dixie, ex UK
Posts: 52,446
Re: Debt Score
Ask Trans Union, no clue how they are determining my score.
I pay on-time every month before the due date, typically they receive and post the payment 10 days prior to due date.
I use about 20%-30% of the available credit in a typical month.
I dont carry a balance month to month, balance is currently $0 and credit report shows a $0 balance.
All payments on-time, never missed a payment or been late on a payment, the report shows 3 years of history for payments all on-time.
There are 4 inquiries listed, spread over several years, most recent inquiry Oct of 2017
Nothing derogatory on the report such as collections, bankruptcy or public records.
Score as of today is 646 it fluctuates very little month to month.
I pay on-time every month before the due date, typically they receive and post the payment 10 days prior to due date.
I use about 20%-30% of the available credit in a typical month.
I dont carry a balance month to month, balance is currently $0 and credit report shows a $0 balance.
All payments on-time, never missed a payment or been late on a payment, the report shows 3 years of history for payments all on-time.
There are 4 inquiries listed, spread over several years, most recent inquiry Oct of 2017
Nothing derogatory on the report such as collections, bankruptcy or public records.
Score as of today is 646 it fluctuates very little month to month.
Jun 12th 2019, 8:06 pm
#28
Account Closed
Joined: Jan 2006
Posts: 0
Re: Debt Score
I am not sure exactly how the score is calculated myself either, but I can't help but wonder if you don't score strongly for payment history (35%) because of the (small) number of payments you you have. In other words those with a mortgage, car loan, personal loan, credit cards, etc, have more data points and score more strongly.
Jun 12th 2019, 9:00 pm
#29
Forum Regular
Joined: Jul 2018
Location: California
Posts: 254
Re: Debt Score
I suggest you find out why your score is low and if possible fix it. I have a low income but my score is high. I hate credit cards but have to use them to avoid paying a 1.5% penalty on my spending.
Jun 13th 2019, 2:12 am
#30
BE Enthusiast
Thread Starter
Joined: Apr 2019
Location: Northern Nevada
Posts: 520
Re: Debt Score
Equifax provided convenient access to data for pretty much anyone, whether invited to store that data or not.