I checked my credit report and credit score a few months back. The report showed that we had no unsecured debts. That we paid all our bills on time. Overall, our score was good. But it should have been excellent. What more could a lender want than someone who pays all their bills on time and has no consumer debt beyond the mortgage? Turns out, they don't want financially savvy; they want people who conform to an over-simplified matrix created from a composite of behaviors that don't take an absurd amount of information into consideration.
There were four comments as to what I could do to improve my score. One was to use my dormant credit cards more often. Another was to have fewer credit cards. Huh? To imporve my credit score I need to use more credit but cancel that credit? I have one general purpose credit that I use to buy everything so we can rack up airline miles. We pay that card off every month. The other two cards I had were for department stores. I opened them for the "save 15% today when you open an account" offer, paid the bills in full and didn't use them again. How does saving money make me a bad risk? The next comment stated that I was being penalized for not having an installment loan, like a car payment. So for driving my old beater and having no payment -- which one would think would free up cash to pay any future debt -- is a bad thing? The last comment was truly the kicker; they didn't like our total mortgage debt. This is because we have a rental property (that we own with partners so there's less risk) and the rent covers all the expenses. But, that didn't matter. What mattered was the total on the mortgages. I thought we were securing how future. How could I be so stupid?
I can see why a score goes south if one is consistently late paying the bills and in consumer debt up to the eyeballs with credit cards from Victoria's Secret and Sharper Image. I would understand if advice to improve one's credit score was more along the lines of, "Pay your bills on time," and "Stop borrowing money you can't afford to pay back." But overall, the matrix they use for the score is dumb. How hard would it be to make a smarter index? Seriously. It's just more savvy programming -- give a few extra points for opening up a consumer card, paying the bill in full and closing the account. It's a few programming keystrokes. Same with changing high interest card to low interest cards or taking advantage of zero interest for a year. But why invest in change when, as a dictatorship, FICO is free to impose its arbitrary rules not only with impunity, but for profit. We lose hundreds or thousands in savings to conform to the ridiculous guidelines. And if we don't conform, we risk losing even more by having to pay higher interest rates on loans, if we qualify at all. Unfortunately, credit scoring models are only as smart as the companies that create and implement them.
So why are there so many books and articles and advice columns on improving your credit score and so few about how inaccurate and stupid credit scoring can be? What's your credit score nightmare?