Credit Score: How low is too low?

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ace1400
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Credit Score: How low is too low?

Post by ace1400 »

I have a number of credit cards that I use to buy inventory etc for my business to take advantage of the rewards. Typically I max out 3 cards per month. I could spread it across more cards, but I concentrate on the cards with the best rewards. As a result, my credit utilization is quite high, and I was recently turned down for a store card that my wife wanted for some rewards program they have. In the explanation letter, they stated my credit score was... well it started with a 7 but that's about all you could say about it. There have not been any late payments and the cards are all paid in full monthly.

At what point does a credit score barely above the 600's become a nuisance? I don't plan on refinancing my mortgage or buying a car on credit. I do plan on increasing my credit lines where possible, but they are already quite large and there is no way I will get to the 30% utilization or so that other threads have recommended.
quantAndHold
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Re: Credit Score: How low is too low?

Post by quantAndHold »

I was reading an article in this month's Consumer Reports about car insurance. It had a chart telling what contributed the most to auto insurance rates. A low credit score had a larger impact on the cost of car insurance than having two DWI's. $2090 extra, on average, per year. It was the biggest number on the chart. Go figure.
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celia
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Re: Credit Score: How low is too low?

Post by celia »

ace1400 wrote:... I was recently turned down for a store card that my wife wanted...
Did you use your name and SSN or your wife's? If she was applying for the card, they would have looked at HER credit score.
Ragnoth
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Re: Credit Score: How low is too low?

Post by Ragnoth »

Have you considered paying off the cards before the statements arrives?

You could rack up $10k of spending per week, pay it off every week using the issuer website/app, and show $0 owed on your end of month statement. This can let you keep your reward, and push your credit utilization way down for credit-score purposes.

If you are actually borrowing money on these and carrying a revolving balance I think there may be some bigger issues than just the credit score...

That said, your credit score only seriously comes into play if you are looking for a mortgage, some other kind of loan (e.g., car loan), or new lines of credit. It can tip the scales on insurance premiums or employment opportunities (some employers run credit checks to weed out irresponsible types), but usually the impact is minimal.

I had a friend who was self employed with a paid off home/car. He had a credit score down in the 500's due to some silly circumstances, but it never really made a huge difference one way or the other. It sounds like it your case the impact would be similar... a mild nusance if you want to open up a new card to get rewards, but otherwise irrelevant.
mhalley
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Re: Credit Score: How low is too low?

Post by mhalley »

You could always apply to have the max credit increased on the cards you use the most. I think 760 or higher is the goal to get the best mortgage, zero % car loan etc.
jf89
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Re: Credit Score: How low is too low?

Post by jf89 »

Both of the responses above me are exactly what I was going to say. The credit card issuers should be more than happy to give you a bump in your credit limit if your history is clean, and paying off your balance prior to the statement in months when you think you'll have your credit pulled is an easy way to "game" the system by having the card issuer report zero (or relatively low) balances as opposed to full utilization.
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pangea33
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Re: Credit Score: How low is too low?

Post by pangea33 »

quantAndHold wrote:A low credit score had a larger impact on the cost of car insurance than having two DWI's. $2090 extra, on average, per year. It was the biggest number on the chart. Go figure.
This is staggering to me. My wife and I are paying under $600 a half for full coverage on 2 cars and a motorcycle. My credit rating is hovering right around 700 as I try to improve it. Not terrible, but far from the best.
Caduceus
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Re: Credit Score: How low is too low?

Post by Caduceus »

I think credit scores are a joke and are so easy to manipulate.

When I took out tens of thousands of credit card loans at 0% APR (I used the free loans with no balance transfer fees for arbitrage profits), my credit score was in the low 700s. One week after I paid off all the loans (usually a month before the expiry of the introductory APR period), my score would shoot up to 800.
cherijoh
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Re: Credit Score: How low is too low?

Post by cherijoh »

Caduceus wrote:I think credit scores are a joke and are so easy to manipulate.

When I took out tens of thousands of credit card loans at 0% APR (I used the free loans with no balance transfer fees for arbitrage profits), my credit score was in the low 700s. One week after I paid off all the loans (usually a month before the expiry of the introductory APR period), my score would shoot up to 800.
Why do you think that's a joke? Scoring models like FICO are based on the aggregate historical performance. On average, someone carrying balances of tens of thousands of dollars on a credit card is a much higher risk exposure for a bank than someone who uses their credit card and pays it off in full.
Caduceus
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Re: Credit Score: How low is too low?

Post by Caduceus »

cherijoh wrote:
Caduceus wrote:I think credit scores are a joke and are so easy to manipulate.

When I took out tens of thousands of credit card loans at 0% APR (I used the free loans with no balance transfer fees for arbitrage profits), my credit score was in the low 700s. One week after I paid off all the loans (usually a month before the expiry of the introductory APR period), my score would shoot up to 800.
Why do you think that's a joke? Scoring models like FICO are based on the aggregate historical performance. On average, someone carrying balances of tens of thousands of dollars on a credit card is a much higher risk exposure for a bank than someone who uses their credit card and pays it off in full.

Yes, and I just got declined for a credit card with a 800 FICO score but I managed to apply for four credit cards in six months three years ago when my FICO was 720. Yes, it's a joke.
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Re: Credit Score: How low is too low?

Post by High Income Parent »

Caduceus wrote:
Yes, and I just got declined for a credit card with a 800 FICO score but I managed to apply for four credit cards in six months three years ago when my FICO was 720. Yes, it's a joke.

If I was a betting man I would guess it was a chase card that turned you down and you have applied for 5 or more cards in the last two years. They have a stupid rule about that.
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dm200
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Re: Credit Score: How low is too low?

Post by dm200 »

ace1400 wrote:I have a number of credit cards that I use to buy inventory etc for my business to take advantage of the rewards. Typically I max out 3 cards per month. I could spread it across more cards, but I concentrate on the cards with the best rewards. As a result, my credit utilization is quite high, and I was recently turned down for a store card that my wife wanted for some rewards program they have. In the explanation letter, they stated my credit score was... well it started with a 7 but that's about all you could say about it. There have not been any late payments and the cards are all paid in full monthly.
At what point does a credit score barely above the 600's become a nuisance? I don't plan on refinancing my mortgage or buying a car on credit. I do plan on increasing my credit lines where possible, but they are already quite large and there is no way I will get to the 30% utilization or so that other threads have recommended.
1. Even though there was a reference to credit reports in her denial letter, your wife may have been turned down for other reason(s). Read the "adverse action" notice very carefully.

2. For mortgage (and perhaps other) lending one common threshhold for approval is a credit score of 640 and above.

3. Note that there are many credit scores (from different agencies and multiple models from the same agency).

4. The car insurance premium link to credit scores is disturbing to me. I cannot understand how a person's credit score affects their car insurance risk to the insurance company. [Unless it relates to whether they pay the premiums regularly on time?]
Ragnoth
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Re: Credit Score: How low is too low?

Post by Ragnoth »

dm200 wrote: 4. The car insurance premium link to credit scores is disturbing to me. I cannot understand how a person's credit score affects their car insurance risk to the insurance company. [Unless it relates to whether they pay the premiums regularly on time?]
It's one of many "weird" factors they can consider. Similar to the way that insurance companies might adjust rates depending on whether you went to college, or if you work in particular professions.

It's tempting to assume that people who are reckless in one part of their life (e.g., personal finances), are often shown to be reckless in other ways... but in reality insurance companies only base this stuff on correlations, not causations. It may or may not be true that credit worthy college graduates are actually better drivers, but we know for sure that they file fewer claims statistically (and can be offered lower rates accordingly).
cherijoh
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Re: Credit Score: How low is too low?

Post by cherijoh »

Caduceus wrote:
cherijoh wrote:
Caduceus wrote:I think credit scores are a joke and are so easy to manipulate.

When I took out tens of thousands of credit card loans at 0% APR (I used the free loans with no balance transfer fees for arbitrage profits), my credit score was in the low 700s. One week after I paid off all the loans (usually a month before the expiry of the introductory APR period), my score would shoot up to 800.
Why do you think that's a joke? Scoring models like FICO are based on the aggregate historical performance. On average, someone carrying balances of tens of thousands of dollars on a credit card is a much higher risk exposure for a bank than someone who uses their credit card and pays it off in full.

Yes, and I just got declined for a credit card with a 800 FICO score but I managed to apply for four credit cards in six months three years ago when my FICO was 720. Yes, it's a joke.
Every lender has the right to choose their own thresholds and criteria to choose to whom to offer a credit card. FICO is just one criteria they can use. How many other cards you have opened and closed in the past xx months, the total number of cards you have open, whether you revolve a balance, and what % of your credit limit you use are other criteria.

As I believe I posted on your other thread, the credit card companies are getting wise to people who game the system; many have decided that customers like you are not profitable. So I suspect you will have more credit card companies deciding they don't want you as a customer in the future.
Caduceus
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Re: Credit Score: How low is too low?

Post by Caduceus »

cherijoh wrote:
As I believe I posted on your other thread, the credit card companies are getting wise to people who game the system; many have decided that customers like you are not profitable. So I suspect you will have more credit card companies deciding they don't want you as a customer in the future.
Oh, guess what? You're wrong. They just called and said the problem was with verifying my ID. Looks like I'll be gaming the system a little while more!
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dm200
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Re: Credit Score: How low is too low?

Post by dm200 »

They just called and said the problem was with verifying my ID.
That is a common situation when applying online.
bayview
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Re: Credit Score: How low is too low?

Post by bayview »

As mentioned above, all you have to do is pay off your cards a day or two before the next statement drops. That way they will report with a $0 balance instead of reporting as maxed out. The credit reports aren't able to show that you pay off one balance before running up another, so they interpret a large balance as having a worrisome amount of debt.
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grabiner
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Re: Credit Score: How low is too low?

Post by grabiner »

quantAndHold wrote:I was reading an article in this month's Consumer Reports about car insurance. It had a chart telling what contributed the most to auto insurance rates. A low credit score had a larger impact on the cost of car insurance than having two DWI's. $2090 extra, on average, per year. It was the biggest number on the chart. Go figure.
This was misleading, as Consumer Reports only counted those factors which made a difference, and averaged the nonzero numbers/ All auto insurers raise rates for drivers with accidents or convictions. Not all insurers base scores on credit; it isn't allowed in some states. Thus, of those insurers which did raise rates based on credit, the average raise was very high, but that isn't useful.

In addition, most insurers would completely decline to insure drivers with DWIs, rather than raising their rates.
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