A Credit Score Adventure

[umfundi]

Last March, we needed a new car. GM dealers were advertising leases on 2011 Chevy Malibus for $179 (+ tax) a month. So, I went to my local dealer. I was told, "No one qualifies for that." They would go no further. So, I got on the phone.

I found a dealer 20 miles away that would check my credit score. He called back a few minutes later with news that I did qualify. My FICO score was 814, above the 800 required. So, for zero down, I had a 36-month lease for $190 a month.

By November, we were running over the mileage limit, and my 16-year old son seemed ready to drive himself. The same ad then had a Chevy Cruze for $169 +tax. I called back the dealer, and was told I did not qualify. My credit score was 753! The $180 per month I thought I could get was now $223. That's about 25% more! I passed.

A few days later, Susan Tompor of the Detroit Free Press wrote an article on credit scores and loan rates, and I e-mailed her with my story. She responded, and suggested I dig into it. During the Detroit Auto Show, she published this article:

http://www.freep.com/apps/pbcs.dll/arti ... 2201190420

My story aside, her article contains some really good advice. I decided to take it. I laid low for a couple of months, avoiding major purchases and not moving funds around. My credit cards are all auto-paid in the third week of the month so, in the fourth week, my balances are low. Yesterday, my boss told me there is significant travel coming up, so I will be putting airline tickets etc. on my cards. So, I called the dealer. Guess what? My credit score is 840(!!) Correction: Should be 820 and there will be a new Malibu in the driveway tomorrow for less than $200 per month and nothing down.

I am amazed that your credit score can move around so much on a month-by-month basis. 753 to 840 820 in 10 weeks?

What happened? Well, near as I can tell:

1. My job now involves much more travel. So, to leverage the frequent flier benefits, I got new credit cards from USAir (which I prefer domestic) and Delta (international). New credit can nuke your rating, whether you use it or not.

2. Seemed smart at the time: I put my son's tuition on a credit card on September 16, the day after the monthly closing. It appears on my October statement, I have until November to pay. I get 1 or 2% cash back, and a 60-day interest free loan. Moving that $12,000 around may make financial sense, but it damages your credit score.

3. One stated reason for the score in November was "excessive credit score requests". Well aside from the two new credit cards, my wife had fallen off a ladder and broke her arm. We have very high deductible medical insurance. I imagine there were credit inquiries from the emergency care facility, the attending physician, the specialist, the anesthetist, the hospital, the therapist, etc. (She broke her wrist, it needed a plate.) The medical issue is not relevant - see later post

Lessons learned? Well, life happens. The medical issue cannot be foreseen.

The new credit cards I got and the shunting money around for my son's tuition are manageable, but I had no idea that they would have any impact at all, never mind so much.

I am amazed that your credit score is presumed to be such an accurate predictor of your creditworthiness, and that it is so easy to manipulate. Really! Read Susan's article. Apply for the car loan the week after (not the week before) you pay your credit cards.

One other point: I think a car is an appliance. And, I think less than $200 per month is a very good deal, especially for a new car. I have not been able to convince myself that I could get a better deal with a (say) 3-year old used car. The buy-sell spread is too large, not to mention the hassle factor.

Keith

[grabiner]

My job now involves much more travel. So, to leverage the frequent flier benefits, I got new credit cards from USAir (which I prefer domestic) and Delta (international). New credit can nuke your rating, whether you use it or not.

If you have well-established credit, this doesn't hurt that much.

Seemed smart at the time: I put my son's tuition on a credit card on September 16, the day after the monthly closing. It appears on my October statement, I have until November to pay. I get 1 or 2% cash back, and a 60-day interest free loan. Moving that $12,000 around may make financial sense, but it damages your credit score.

Look at it from the credit bureau's point of view. It sees that you have a huge amount of debt, and has no indication that you are capable of paying off the debt (your bank balance is not reported to the credit bureau). This is a major negative factor, particularly if you charged close to the credit limit. The credit bureau knows only what is in the report, not why.

But remember that your goal with credit scores isn't to keep them high just as numbers; it is to keep them high so that you can use them to get credit. Therefore, you need to make sure that you have a high score when you actually need to get credit, but not care about temporary effects; charging a huge amount in September when you need to get an auto lease in February doesn't hurt your credit.

3. One stated reason for the score in November was "excessive credit score requests". Well aside from the two new credit cards, my wife had fallen off a ladder and broke her arm. We have very high deductible medical insurance. I imagine there were credit inquiries from the emergency care facility, the attending physician, the specialist, the anesthetist, the hospital, the therapist, etc. (She broke her wrist, it needed a plate.)

When you were denied credit, you were entitled to a free report, which would show the actual inquiries (and might catch an error).

You should not have credit inquiries from the medical facilities; they are not extending you credit (unless you applied for a payment plan).

The reasons on credit reports are written in a single phrasing, "too many" of something means that your score would be better if you had fewer, but it could be just one or two. (The first time I checked my FICO score, it was 780, and the second reason was "too many inquiries", which was just one.) The medical bills might also have affected your credit score if you put the bills on a credit card.

I would expect that another negative factor on your credit report in November was the lease opened in March; this was a new account, a credit inquiry, and a large obligation. (However, there are different models used for auto financing; having an open auto lease or loan may not hurt your auto finance score as much as it would hurt your score for opening a credit card.)

I am amazed that your credit score can move around so much on a month-by-month basis. 753 to 840 in 10 weeks?

This suggests different models, or possibly different credit bureaus. I don't think you can have an 840 FICO score with two new credit cards and two inquiries, but if the dealer checked a different credit bureau, the two inquiries would not have been there. Alternatively, the 840 could be a different scoring model on which 850 was not the perfect score.

[madbrain]

2. Seemed smart at the time: I put my son's tuition on a credit card on September 16, the day after the monthly closing. It appears on my October statement, I have until November to pay. I get 1 or 2% cash back, and a 60-day interest free loan. Moving that $12,000 around may make financial sense, but it damages your credit score.

Yes, I often put large charges on my Fidelity Amex for the same reason. Vacation abroad can be expensive too and large charges can show up one month but be gone the next with the autopay. It is not every month for me though, no business travel.

3. One stated reason for the score in November was "excessive credit score requests". Well aside from the two new credit cards, my wife had fallen off a ladder and broke her arm. We have very high deductible medical insurance. I imagine there were credit inquiries from the emergency care facility, the attending physician, the specialist, the anesthetist, the hospital, the therapist, etc. (She broke her wrist, it needed a plate.)

Only if you explicitly authorized them to check your credit. I have never seen that happen with my HMO, but perhaps they asked you because of the high deductible. You can get a copy of your credit report and find out about 3rd party inquiries. Your own inquiries don't count. You have 60 days from credit denial to get a free credit report from the bureau that was involved. Or you can get an annual free one from each bureau.

[Gray]

Go to my myfico.com (a site run by Fair Isaac, the company that owns the FICO scoring algorithms) and see if your score is truly 840. A lot of people are given FAKO scores and told they're FICO.

[umfundi]

Some minor corrections.

I picked up the new car today, and got the current credit report.

The current score is 820 (not the 840 I reported in the OP).

Grabiner is correct. The medical incident appears to have nothing to do with it. I do have a "credit" card for my HSA, it is not clear whether that is tracked on my report.

The inquiries are labelled "excessive". There are five: Two for the lease of the car last March (the dealer, the leasing company), one for one of the airline cards I got soon thereafter, one for the car I did not lease in November, and one for this transaction. I suppose to some people five is a lot.

To me, it's still a mystery. The sales manager at the dealership also remarked today that my score had changed +70 points in ten weeks, he has never seen that before.

All the reports are from Transunion, labelled "FICO AUTO".

Keith

[englishgirl]

Interesting - thanks for posting!

Presumably the credit bureaus must be able to figure out that you are a high-score kind of guy, and that the high charges and other things were temporary dings. Thus, your score bounced back extremely quickly. My guess is that if you were actually rebuilding credit from a low score with bigger issues in your history, it would not go up so quickly. Just a guess, but it's heartening for those of us that work hard to keep our scores high that a temporary ding can be quickly recovered from.

[coolgoose]

New Credit Cards surely do help one's credit score in long run. Only hit on the score is the credit inquiry that reduces the score short term.

I am a credit card rewards 'churner' - especially for the good ones and still maintain a 800 around score. If done right credit cards offer lot of value these days to the financially secure.

[bertilak]

The inquiries are labelled "excessive". There are five: Two for the lease of the car last March (the dealer, the leasing company), one for one of the airline cards I got soon thereafter, one for the car I did not lease in November, and one for this transaction.

There might have been a mistake that they corrected.

My understanding is that multiple inquiries from auto dealers within some short time period are supposed to be counted as a single inquiry. They know you are shopping around and don't expect you to borrow for multiple cars. Perhaps they mistakenly counted them all individually then did a consolidation (correction) shortly afterward. This might explain a sudden drop followed by a sudden gain in your score. Even if they weren't all consolidated into a single count perhaps just one consolidation dropped you below the "excessive" threshold.

[Majormajor78]

The inquiries are labelled "excessive". There are five: Two for the lease of the car last March (the dealer, the leasing company), one for one of the airline cards I got soon thereafter, one for the car I did not lease in November, and one for this transaction. I suppose to some people five is a lot.

To me, it's still a mystery. The sales manager at the dealership also remarked today that my score had changed +70 points in ten weeks, he has never seen that before.

Hard credit pulls and new accounts will hit your score but not too much compared to payment history and credit utilization. It's pretty clear to me that the culprit to lowering your score to 753 was the $12,000 tuition bill applied to the credit card. According to MyFICO .com about 30% of your credit score is based on amounts owed ( http://www.myfico.com/crediteducation/w ... score.aspx ). Most FICO models put a heavy emphasis on credit card utilization in aggregate and often on individual cards. For example, if your revolving credit utilization rate went from say 2% to 30+% in a month in aggregate and on that individual card it went from 2% to 50+% this would be two HUGE red flags as far as FICO scoring is concerned. You would have to check the credit limits on your revolving accounts to see exactly how your utilization changed.

Besides missing payments, increasing revolving credit utilization rates is the single quickest way to lower your score but the opposite is also true. Lowering revolving credit utilization rates is by far the fastest way to raise your credit score. Basically that $12,000 acted as a big lever to ratchet your score down then right back up when it was paid off.

[bertilak]

Lowering revolving credit utilization rates is by far the fastest way to raise your credit score. Basically that $12,000 acted as a big lever to ratchet your score down then right back up when it was paid off.

Just don't lower it to 0% on any one card. I did that by keeping the card paid off before the statement came so there was a zero balance at the end of the month. Then along comes a month where I had a balance and even though I paid that off I got dinged 25 points when a "previously inactive account showed activity" (or some such). That was last fall and my score still has not recovered.

Previously, even though I paid the balance in full every month, I got dinged for carrying too high a balance. The irony is that it was an attempt to keep this balance down (by paying ahead) that made the card look inactive!

[Gray]

Scores can shift once new data is entered into the mix. I recommend going to myfico and getting your current Equifax or Transunion FICO score and see how accurate that auto report is.

[umfundi]

Scores can shift once new data is entered into the mix. I recommend going to myfico and getting your current Equifax or Transunion FICO score and see how accurate that auto report is.

This is the Transunion score, dated Jan 31, 2012.

In response to another post, there were not multiple car dealer requests. I only shopped at one dealer for one particular car in March 2011, November, 2011, and January 31, 2012.

I guess I was aware that you could do something dumb and nuke your credit score. I was unaware you could attach it to a bungee cord.

Thank you all, for the responses.

Keith

[grabiner]

Some minor corrections.

I picked up the new car today, and got the current credit report.

The current score is 820 (not the 840 I reported in the OP).

Grabiner is correct. The medical incident appears to have nothing to do with it. I do have a "credit" card for my HSA, it is not clear whether that is tracked on my report.

It is a debit card, not a credit card, so it should not appear on your report. (Your HSA cannot extend you credit; however, if you have $1000 in your HSA and $3000 in medical bills, you can contribute $2000 to your HSA if you have not already reached the limit for this year, and then withdraw $3000.)

The inquiries are labelled "excessive". There are five: Two for the lease of the car last March (the dealer, the leasing company), one for one of the airline cards I got soon thereafter, one for the car I did not lease in November, and one for this transaction. I suppose to some people five is a lot.

It would have been three at the time the dealer checked your credit; the two for the car lease in March count as one, and the inquiry for the new lease was the one the dealer was making and thus would not count.

But "excessive" is just the wording. If you have good credit, then even one inquiry can be one of the main reasons your score is not higher.[/quote]

To me, it's still a mystery. The sales manager at the dealership also remarked today that my score had changed +70 points in ten weeks, he has never seen that before.

That's because people don't usually do what you did; most people with bad credit have bad credit for a reason they cannot easily correct. If they owe a lot on credit cards, it is because they cannot afford to pay the balance. If they have past late payments or collections, or short credit histories, only time will improve them. (Actually, the most common reason for a huge improvement is probably that incorrect information gets removed; if someone else's collection is on your report and you dispute it successfully, your score will jump.)

I didn't check my own score when I charged $6000 on a card with a $7500 limit a few years ago, but if I had checked it, I would have expected my score to plummet just as yours did. And the next month, when I paid the card in full and charged the usual $300 on my cards, the score would have gone back up.

All the reports are from Transunion, labelled "FICO AUTO".

This is not the standard FICO score that you would get, but an auto-specific variant. I doubt that you would be able to get an 820 FICO from the standard model with a lease less than one year old and three inquiries, but the auto model may weight things differently.

[umfundi]

Grabiner is correct. The medical incident appears to have nothing to do with it. I do have a "credit" card for my HSA, it is not clear whether that is tracked on my report.

It is a debit card, not a credit card, so it should not appear on your report. (Your HSA cannot extend you credit; however, if you have $1000 in your HSA and $3000 in medical bills, you can contribute $2000 to your HSA if you have not already reached the limit for this year, and then withdraw $3000.)

David, I do not think you are correct here, though maybe this is off-topic for this thread.

Yes, the HSA is a debit card against prior contributions. Mine is a BofA Visa. With our bills last year, we actually overdrew the balance to the tune of over $1,000. We never heard a peep from BofA, and no charge (debit) was refused.

The deficit occurred in 2011. We had made the max contribution. As soon as I saw the deficit in January, I put in a 2012 contribution.

The HSA is don't use it, don't lose it. I don't believe they are required to honor charges against future possible contributions. That is in contrast to the older cafeteria plan FSA (Flexible spending account) which was funded by payroll deductions. There, you could be reimbursed for your entire potential annual contribution in January*. On the other hand, unused amounts at the end of December are lost.

Contributions to an HSA (at least for me) are voluntary, not deducted from a periodic salary or pension.

Keith

* And, there is an interesting ploy. In the year I retired, I was able to get the full year's contributions reimbursed from my FSA, even though I never made some of those contributions.

[baw703916]

That's because people don't usually do what you did; most people with bad credit have bad credit for a reason they cannot easily correct. If they owe a lot on credit cards, it is because they cannot afford to pay the balance. If they have past late payments or collections, or short credit histories, only time will improve them. (Actually, the most common reason for a huge improvement is probably that incorrect information gets removed; if someone else's collection is on your report and you dispute it successfully, your score will jump.)

I didn't check my own score when I charged $6000 on a card with a $7500 limit a few years ago, but if I had checked it, I would have expected my score to plummet just as yours did. And the next month, when I paid the card in full and charged the usual $300 on my cards, the score would have gone back up.

It would be easy enough to record the balance you carry over from month to month, rather than just the current balance. This is one thing that has always annoyed me.

Brad

[umfundi]

That's because people don't usually do what you did; most people with bad credit have bad credit for a reason they cannot easily correct. If they owe a lot on credit cards, it is because they cannot afford to pay the balance. If they have past late payments or collections, or short credit histories, only time will improve them. (Actually, the most common reason for a huge improvement is probably that incorrect information gets removed; if someone else's collection is on your report and you dispute it successfully, your score will jump.)

I didn't check my own score when I charged $6000 on a card with a $7500 limit a few years ago, but if I had checked it, I would have expected my score to plummet just as yours did. And the next month, when I paid the card in full and charged the usual $300 on my cards, the score would have gone back up.

It would be easy enough to record the balance you carry over from month to month, rather than just the current balance. This is one thing that has always annoyed me.

Brad

For me, that has been zero for all of my accounts for the last 25 years.

So, yes, it is mystifying that the current balance is such a great factor.

But, on the other hand, the point of this thread is: Understand the game, and don't play it to your disadvantage.

Keith

[rylemdr]

I would recommend reading up on creditboards.com.

If you come to the bogleheads for investing advice, you go to the creditboards forum users for all the info on credit.

[baw703916]

But, on the other hand, the point of this thread is: Understand the game, and don't play it to your disadvantage.

Keith

Which is a good point, but reminds me of one of my other pet peeves: usually when you are playing a game, it's possible to read the rules. In this case, however, they're kept secret.

[umfundi]

But, on the other hand, the point of this thread is: Understand the game, and don't play it to your disadvantage.

Keith

Which is a good point, but reminds me of one of my other pet peeves: usually when you are playing a game, it's possible to read the rules. In this case, however, they're kept secret.

I completely agree.

Keith

[Gray]

Pick your algorithm flavor...
http://www.transunion.com/docs/rev/busi ... erview.pdf

[baw703916]

Pick your algorithm flavor...
http://www.transunion.com/docs/rev/busi ... erview.pdf

Thanks. Now if someone will kindly post the source code for the 00R82 algorithm...

Brad

[Carl53]

Pick your algorithm flavor...
http://www.transunion.com/docs/rev/busi ... erview.pdf

Not sure what all those options mean, but very interesting.

[Gray]

It means that the OP is possibly incorrect and that TransUnion was using a scoring model that has a higher range than 850, but he doesn't want to face that reality. Scores can jump around a bit before all the data in your reporting accounts is reflected in the algorithm. But again, the easily accessible method of obtaining your FICO score from Equifax and TransUnion is myfico.com, not bureau sites (which peddle all sorts of nonsense like Vantage and other FAKO scores).

[dyangu]

I am amazed that your credit score is presumed to be such an accurate predictor of your creditworthiness, and that it is so easy to manipulate.

Me too. I would guess that the default rates for car loans to people with score of 750 vs 800 are about the same and certainly doesn't warrant a 25% increase in payment.

I recently got a mortgage for the first time and I couldn't believe how much lenders rely on credit scores instead of better predictors like down payment, and income. When I got my pre-approval, my score was about 750, but I waited more than 45 days to apply for the mortgage, so the credit inquiry counted as separate inquiries and lowered my score by 5-10 points. My credit utilization went up by a few hundred dollars, my score dropped by another 5-10 points. All of a sudden, I had below 740 score and am considered a risky borrower they added 0.5% to my closing costs (despite having 25% down pay and income high enough to pay off the entire mortgage in 3 years).

I paid for credit monitoring for a few months and figured out the rough patterns. Your credit score is updated around the statement date, regardless of when you pay, unless you pay before the statement comes out. Paying off your balance in full every month means nothing to them. If you use more than 2% of your limit, on the statement date, you score will be impacted. I played the game and got my lender to pull my score again after I hit 740.

[umfundi]

I would guess that the default rates for car loans to people with score of 750 vs 800 are about the same and certainly doesn't warrant a 25% increase in payment.

Yes, but the likely default rate is not the point.

The point is to publish some lowball cost in the Sunday paper without actually lying. That gets you into the dealership for the bait & switch.

Keith

[Saving$]

If you use more than 2% of your limit, on the statement date, you score will be impacted.

This explains alot. Is this 2% of each card or a total of 2% of the total of all limits? Some people concentrate all spending on one card, so might ok with the latter, but get quite a ding to their credit score with the former.

The other comment above about a ding to your credit score if you don't use a particular credit card is also interesting. Lots of folks have a card or two they use only every few months for the sole purpose of keeping the card active. Sounds like this strategy also dings the credit score.