And The Reasons You Should
If you think you are old enough to leave your credit rating in the rearview mirror, think again. Even if you have no plans to buy anything on credit or make a big purchase, like a condo in Florida, taking your eye off your credit rating can cost you money. Insurance companies use your credit score to determine the cost of your insurance, especially car insurance. Pitch a fit if you want about that not being fair, tough! It’s so. It is an annoyance we must put up with, even as old coots. I’ll explain four ways you can trick the credit scoring Artificial Intelligence programs that are behind calculating your rating.
Important FactsAbout Credit Scores
Here are some facts about credit scores; the company that is the big dog in this arena, FICO has multiple scoring formulas. One is used for home loans, one for car loans, and one for credit card issuers. FICO gets their info from three different gatherers of data, Experian, Trans Union, and Equifax. They collect info on what credit you have, how much of that credit you have left to use, and how well you repay those debts. How much you have left is known as your use rate. If you open up more lines of credit, (New cards, car loans, and such) you lower your score temporarily until you give them a payment history to measure your payment trend. It has nothing to do with your ability to pay. Every time you use a greater percentage of your credit, your use rate goes up and your score goes down.
Every time there is an inquiry about your credit, you get dinged (just for the inquiry.) FICO is not the only player in the arena. They are the largest and best known. There is another company, VantageScore which does the same thing. The trouble is your use rate and other data points not only vary from reporting companies, it’s very arbitrary. You can’t win if they don’t play by consistent rules, and they don’t. I believe that they are using AI to predict your credit future. It has a long way to go before it is actually intelligent.
How To Win This Game
So, how do you win at this game? Three things will make the AI love you; Always pay on time, period. Always pay at least the minimum. Never pay the whole balance at once. You are playing their credit game. They expect to make money from you. If they don’t, you will be penalized. That monthly interest is their only profit.
We will pay down large balances (If we ever have them) to a few bucks, and then whittle them down. They make their profit. Their AI doesn’t care if we are paying them pennies of profit or big bucks as long as we are paying them something. Keeping very small balances gives you the added advantage of lowering your use rate and raising your credit score. I cannot emphasize enough how bad, bad, bad missing payments will be on your credit score. That one thing can take an unfairly long time to make up.
How to Be Cautious
The annoyance is even greater if you are overly cautious like we are. We are in that boat of not wanting to make credit purchases and not wanting a condo. We keep our credit locked. That means nobody can take out a loan or credit card in our name. If you don’t think that’s a problem, guess again. The problem is a double gotcha. First, you may not know that some low life has opened a credit account in your name until after they have run up a lot of debt on you. Ours is locked. We had 6 credit denials in 2023 from banks. Some scumbag tried to hijack our account. The lock protected us.
As for the second little problem, we found our car insurance went up more than we anticipated in the year when we first locked our credit. Turns out insurance companies ping your credit as part of their risk analysis before they set your rate. Now, each year, we must unlock our credit with all three companies around the time our insurance company renews our policy. Of course, they can’t tell us exactly when they will do the check, so we have to leave it unlocked for several weeks. It’s like going to sleep each night with all your doors unlocked. It’s unnerving. Once they have confirmed they have done their thing, we go back and re-lock it for another year.
On a closely related subject, I have another report for you on a similar subject; watching out for electronic fraud that can ruin you financially, including losing your home. Here’s the Link: Fraud and you.
