Credit score

[disneysteve]

So someone who rents, has never had a loan, pays all their bills on time using a debit card, has no credit cards, no store credit cards...they would have an empty credit report? Would they also have a very high credit score, because their credit utilization would be zero?

It's my understanding that they would have no report.

Their utilization ratio would be non-existent because they have no credit to utilize.

Dave Ramsey talks about this frequently. He says he has no credit score since he doesn't borrow money or use credit cards.

Personally, I think credit cards are an incredibly useful and beneficial financial tool when used responsibly but I get that some people can't handle them.

[JoeP]

You do not have to go into debt in order to maintain a good credit score.

If you pay all of your bills on time, that helps your score.

If you pay your credit card bills in full every month, that helps your score. There are many who still believe that you have to carry a balance and pay interest in order to help your credit and that just isn't true.

So someone who rents, has never had a loan, pays all their bills on time using a debit card, has no credit cards, no store credit cards...they would have an empty credit report? Would they also have a very high credit score, because their credit utilization would be zero?

I get that credit scores are used for purposes other than getting a loan, and that kind of bothers me. The fictitious scenario above would be close to what I would consider to be the optimal situation. Done correctly, this person could in theory buy a house for cash if desired. (Taken to an extreme, one could achieve this easier by avoiding retirement contributions...an unwise move, but separate topic.)

[disneysteve]

If you are buried in debt that will certainly reflect negatively on your score. Credit utilization ratio is a huge part of your score.

I guess "buried" wasn't really the right word. You could have debt that falls within the guidelines - 28% on home, 10% on car, 30% usage on credit cards, etc. - and have a good score but not really be in such good shape.

[Weird Tolkienish Figure]

To be fair to JoeP's point, though, a good credit score does not mean that you are in good shape financially. It just means that you are handling things okay. You could be buried in debt and have nothing in savings but have a good score because you are paying your bills on time.

If you are buried in debt that will certainly reflect negatively on your score. Credit utilization ratio is a huge part of your score.

Best thing to do is to have a ton of credit cards open but no balances on them. That's why my credit is rated as "excellent" despite some missed payments back in 2010.

[disneysteve]

To be fair to JoeP's point, though, a good credit score does not mean that you are in good shape financially. It just means that you are handling things okay. You could be buried in debt and have nothing in savings but have a good score because you are paying your bills on time.

[disneysteve]

It is unfortunate that a low or non-existent credit score resulting from avoiding debt means potentially higher insurance premiums because you haven't demonstrated favorable debt management skills.

You do not have to go into debt in order to maintain a good credit score.

If you pay all of your bills on time, that helps your score.

If you pay your credit card bills in full every month, that helps your score. There are many who still believe that you have to carry a balance and pay interest in order to help your credit and that just isn't true.

[dczech09]

I have read here and elsewhere that one's credit score* can also be accessed and used for decisions by employers and insurance companies. It is unfortunate that a low or non-existent credit score resulting from avoiding debt means potentially higher insurance premiums because you haven't demonstrated favorable debt management skills.

Your credit score can be assessed by insurance companies for purposes of rating, however not all insurance companies do this. Remember though: a 0 credit score or "not enough information" credit score is better than a poor credit score. At least with no credit score, I can be given the benefit of the doubt (depending on the insurance carrier of course). I can simply choose not to do business with insurance companies who give me adverse treatment because of no credit score.

As for "favorable debt management skills" - if I never borrow, that would mean that I have no debt. This means that I am far more likely to be able to afford my bill. Also, someone not having debt (I would argue) could very well be a demonstration of excellent financial management skills.

In regards to employment, potential employers CAN look at your credit score, but most do not. Typically, it is only employers in the financial industry or who require bonding that will bother to check a credit score.

Employers look at your credit report for sure, however. And this is for purposes of protecting themselves from potential fraud and embezzlement. Bad items on credit reports have been found to be correlated with this type of activity, so as a safety measure, credit reports are pulled. However, the credit bureaus provide employers with an "employment screening credit report" which is slightly more limited than a standard credit report.

I echo the notion that it is important to not get credit REPORT and credit SCORE mixed up. These are two completely different items. Your credit report details information pertaining to far more items than just debt (I have a utility company who reports my payments status on mine for example). Your credit score only uses variables that have to do with debt. There are 5 variables used in a standard FICO score and all only have relevance if you have borrowed money.

[JoeP]

Credit reports and credit scores exist for one reason: to alert potential creditors of your credit history
....
Personally, I do not care about my credit score. My credit score is 0 because I do not borrow money. A credit score only pertains to debt anyway, so if you do not borrow, who cares?

I have read here and elsewhere that one's credit score* can also be accessed and used for decisions by employers and insurance companies. It is unfortunate that a low or non-existent credit score resulting from avoiding debt means potentially higher insurance premiums because you haven't demonstrated favorable debt management skills.

The Federal Trade Commission confirms insurers may access your credit score.

And employers can pull your credit report.


*The fact is that people sometimes mix up credit report and credit score. I have included both here as an illustration.

[dczech09]

There should be quicker ways to go about this.

Credit reports and credit scores exist for one reason: to alert potential creditors of your credit history. Why would they want to know this? Because it is indicative of the future. If they are going to lend you money, they have the right to know your history so they can make educated decisions.

Its the same exact thing with bond ratings: bond ratings alert the general public of the risk that a business or government body had some credit problems in the past.

If you do good things, you pay your bills on time, you don't go deliquent, etc, you credit report will show positive information. Your credit score will heal itself.

The question that you need to ask yourself is not about HOW you can get your credit score higher. The question you need to ask yourself is WHY did you credit score go lower. You must have done something wrong and either you don't remember, or you are choosing not to admit it. Pull your credit report if you need to and figure out what the problem is; you never know, it could be a legitimate inaccuracy on your report that is causing problems, in which case you can dispute it (if it is factually inaccurate).

Personally, I do not care about my credit score. My credit score is 0 because I do not borrow money. A credit score only pertains to debt anyway, so if you do not borrow, who cares?

Is there a reason why you want to your credit score to be high? Or is it just the typical you want your credit to be high so you can borrow more? There is no wrong answer; I am just trying to make you think for a second.

But really, stop looking for short-cuts. There is no legal short-cut to "fixing" your credit score. People have been looking for this for a long time and there are a lot of con-artists who have written books on the topic. However, if you follow those practices you run the risk of being prosecuted for fraud! So just do things the tried-and-true way: pay your bills on time, do it over a long period of time, and your credit will repair itself.

[btctony]

Identify the reason that your score took a dive, change your behavior, wait 7-10 years, and your credit will be fine.

I disagree with you. There should be no way to easily and quickly repair your credit. Time is what teaches you to change your behavior.

[Bob B.]

Pay your bills on time every time.

My credit score was low about four and a half years ago. I wanted it fixed fast right now, too. I learned that there really was no way to improve the score quickly. Fortunately, the slow process of rebuilding my credit helped to teach me that it's financial discipline that has kept my credit score at +700 for the past 2 1/2 or so.

Pay your bills on time, and don't ever charge more than 30% of your credit limit on any card. If you have high credit card debt, get it paid down. Your credit score won't be where you want it to be right away, but it will slowly improve, and if you remain disciplined, it will slowly improve.

Playing games doesn't get you there.

[Marngango]

How do I quickly solve my debt so I can move on?

[Marngango]

My credit score dipped a substantial amount within a short period of time. I know I can get a credit card to rebuild my credit, but the process seems so long. There should be quicker ways to go about this.