YNAB BLOG

Credit Score Samurai Tactics

Screen Shot 2014-03-24 at 10.54.29 AMAssemble, budgeting bushido! I, Jeremy, am sporting my pointy hat and fu manchu in preparation to bestow upon you, Grasshoppa, some basic techniques in the ancient art of FICO defense.

[Wooden flute plays while I balance atop my bamboo cane.]

The terms “FICO” and “credit score” are essentially the same creature and those terms are interchanged by bankers, since FICO is the company many use to get your credit report. Despite your or my feelings about it, your FICO…is. Though shrouded in mystery, since it can work either for or against you, it is wise to study its ways. Let us begin…

[Gong!]

If it is a mortgage you seek, you must face your FICO since banks employ it heavily in guiding their lending decisions. If married, you will not face it alone (though you may wish you could if your spouse has been tiger-style with their borrowing, yet sloth-style in paying back.)

FICO has no feelings about your borrowing history. FICO does not hear sincere reasons, nor poor excuses. It peers unbiasedly through you and gives you a score ranging from 300 to 850, with higher being better. Like middle-aged man’s abs, building your score up is long and difficult, while sagging is quick and easy.

FICO sees only darkness. FICO will not mention the time you ate only wild beetles, drank dew droplets, and lived without electricity to pay off your 30 year mortgage in seven grueling months. FICO will, however, point out the time you spent forty days meditating on Youtube cat videos and were late on paying your Target card…five years ago.

Let not your anger control you, Grasshoppa. Neither be seized by worry if you are now trying to remember every little thing you may have ever done wrong. The best course of action is to bring your FICO into the light. Journey to www.AnnualCreditReport.com where you can request your credit report once per year without charge.

[There are many sites (even some banks/credit cards) which offer this service for a fee. Unless you want to monitor your credit score more than annually, this is letting your money take the way of the cherry blossom in the wind.]

Like waxing car and painting fence, checking your score is more than going through the motions since they are not always accurate. Be not intimidated! FICO will back down when confronted with good evidence of payment sent on time. Even a sincere call to the company reporting a genuine late payment may suffice. “Hello, friendly cell phone carrier person. I see I had a late payment last year. I was unconscious due to a nunchaku-induced head injury, but I paid as soon as I woke up and was never late otherwise. What might I do to clear that up?” It might do the trick, if it is the honest truth.

Many an unwary mortgage shoppa has been bitten in the backside by FICO and thus denied in their quest. When next we meet, I will teach of the anatomy of the FICO, and how to avoid those attacks. I will offer you further techniques, but they will be more valuable to you once you have seen your credit report with your own eyes.

That will be all for now, enlightened one. Now go and find what it is you seek.

26 Responses to “Credit Score Samurai Tactics”

  1. Sabrina Allen

    Hello credit guru, wisdom for you: I own a house, still, with my ex husband. He made one late payment (30 days) on the mortgage in the last four years, but it significantly dropped my credit score (last month). Is there anything I can do to get it removed from my credit?

    Reply
    • jeremypeyton

      Ugh, Sabrina! That brings up a point worth making in the next post: going into a mortgage with another person (especially in a community property state) is more permanently binding than getting married. (!) If you are still on the mortgage, there’s not much you can do, sadly. A Quit Claim deed (where you release your entire interest in the property) is a possible way people get around this, but that’s usually before a late payment has been made. The best thing to do is contact the lender directly and ask them that same question. It’s worth a shot, but this is a tough situation.

      Reply
    • Daniel Broe

      Sabrina,
      My advice would be to break away from the financial institution and the people that insist anything FICO related, is what they need to process your proposed transactions.
      First of all, anyone that allows themselves to be “piloted” through the financial system by so called information compiled by someone else, is an extremely weak minded individual to begin with.
      As virtually all of the blogs in ths set (and others) say, it may well be eronious informational data in the first place. Next it is up to you to “beg” your way out of, or around the questionable smear that has been put in place. And, finally, all are fraught with “maybe”, “perhaps”, “might” or any other parts of non-committal pieces of the English language to relieve the authors liability from guaranteeing any entry will be removed from the record that some moron put in to begin with. The entire financial industry is attempting to create another big business section of itself with the idea that by putting the “fear” in the consumer, that the only way to “clear your good name”,is to follow their suggested trail deeper into the complicated mess they have made of our financial system.
      They will try to emplore you to appreciate their position of percieved “risk-taking” by dealing with the public overall. Think very carefully about all of the documents you will or may have already signed to close any major financial deal. Beside inevitable “writers-cramp”, they provide very little information about the immediate transaction taking place. They are by vast majority, all about the financial institutions covering themselves, (ie.should something like a late payment occur).
      If you were to ask for a verbal answer as to why your being requested to sign, you would be met with all of the reasuring verbage they can muster to get you off the subject and back to signing. They will do their best to down play the very issue that was such a catch in their craw earlier on in you deliberations. Ironically, that would be the parts that deal with “late payments”.
      Let there be no doubt in your mind that the entire process in which you are attempting to engage, is completely controlled by the institution your involved with. When they imply that they are in the “risk” business, make no mistake they have them selves covered from any type financial fall-out, from any source it may come from. After all didn’t they even get “covered” by governmental bail-outs when some got caught feeding excessively on the little debaucle of reselling mortgages? They were making money for themselves no matter which way the pendulum would swing. Where’s the risk?
      Don’t allow the “score” to control you. It is a useless piece of uncontrolled, garbage that will not help you in any way, but can be a thorn in your side if you allow the users of it to use it as an excuse for manipulation of the terms of any deal your trying to construct.

      Reply
      • jeremypeyton

        Thanks for your feedback, Daniel! A couple things to clarify: I am not a Loan Officer, so I have no dog in the fight.

        I agree: the credit score system is flawed. However, it is a tool which lenders are required to use. Getting upset with your local Loan Officer about that is a bit like chewing out your local police officer about new seat-belt laws. The Loan Officer cannot use your credit score to manipulate terms. Instead, she is legally obligated to use them as guidelines.

        I agree: you should not let it control you! You can avoid the whole FICO thing by PAYING CASH–no credit score required! If you are not in a position to do that, I’m afraid you’ll be meeting up with FICO. Might as well be savvy about it.

        Reply
      • Sabrina Allen

        First of all, I resent the personal attack. Secondly, your response was not at all helpful to my situation but seemed more like a venting session by you. Lastly, for the average human being, it is not at all easy to step outside of the financial institutions that are in place. Congratulations to the few that can. The rest of us are trying to do the best we can in the situations we are currently in.

        Reply
        • jeremypeyton

          My most sincere apologies, Sabrina. That was not my intent at all, but I can understand how you would be offended at feeling personally attacked. I am very sensitive to your position as I am also one who cannot pay cash for a house.

          I was responding to the comment made by Daniel where he stated, “anyone that allows themselves to be “piloted” through the financial system by so called information compiled by someone else, is an extremely weak minded individual to begin with.”

          I’m not totally sure who he was implying, but I don’t believe that you and I are weak minded if we go through a loan process that includes FICOs. I was attempting to sympathize with his frustrations at an imperfect system, yet maintain the value of learning about FICOs since most of us will face it at some point. I can tell that my aim to serve and encourage you missed its mark, Sabrina, and I hope that you will forgive me.

          Reply
          • Sabrina Allen

            Jeremy,

            I’m sorry, my response was actually aimed at Daniel, not at you, but got posted in the wrong place. You have been very sympathetic and helpful and not offensive at all. I sincerely appreciate the advice as financial waters can be very difficult to navigate and good financial advice is often expensive and hard to come by.

            Reply
  2. Rebecca K.

    What I have found amazing is how many people have misconceptions about how credit scores work. You will not believe how many misinformed people I have spoken to that think your score will go down if you pay your balance in full every month. Who started that rumor? is what I want to know! Someone who wanted you to pay interest on your balance, I’d think.

    I have found this advice to be helpful though: Check one of each of the 3 free reports on a rotating cycle (~ 4 months), instead of doing all three together once a year. You can then check for discrepancies more often, and still not pay for the reports.

    Reply
    • MrMcLargeHuge

      The two biggest misconceptions I’ve been told, often numerous times:

      1. Paying your balance in full every month will negatively impact your score. You should only pay the minimum.

      2. An unblemished credit report is suspicious. Lenders want to see some kind of mistake somewhere in your credit history, be it a late payment, or something else.

      The first came from my parents(!!) when I was 18 and had just signed up for my first credit card. Luckily I was adept at using the Internet, and didn’t take their word as Gospel.

      The second came from a good friend, a man I consider quite intelligent, after the auto-pay system on one of my bills screwed up, thus making my payment late. Given that I’ve never made a late payment in my life, I was upset. Luckily, they recognized the error and assured me that the “late” payment would not be reported (which I have since verified by pulling my credit report).

      Reply
    • jeremypeyton

      Wow, that’s a dangerous misconception! Thanks for pointing it out.

      I’d never heard that tip before about checking with the 3 credit companies–that’s cool. How do you go about getting a report from just one of them instead of all three?

      Reply
      • catesalim

        When you log on to the site, you are given the option of checking the box for one or all three reports. It even says that if you are rotating, to set a reminder on your calendar for the remaining ones. So essentially, do Experian in July, the second choice in November, etc. For those with digital reminders, just set those specific reminders (ie: Print new Experian report) with a reminder for the same day each year.

        Reply
  3. Julie

    Perhaps the myth about paying your bill in full every month negatively affects your credit score comes from this scenario – I got a credit card when I was 18 and went off to college. I paid my bill in full every month and never took out student loans or any other kind of loan. My husband and I got married when I was 22. We were renters – no mortgage. We lived within our means and never had any credit card debt. Then, at 24, we went to buy our first car. We had a small down payment but needed to take out a loan. I figured I had a great credit score, right? Not really. I had NO credit score. Obviously looking perplexed, the financing person said that since I had paid in full every month and had never taken out a loan,I had never established any credit. He said that if I had not paid in full monthly then it would have established credit. Since my husband had student loan debt and had been responsibly paying them back, he had a pretty good credit score. Even though we could have gotten a better interest rate by just having him on the loan, we put both of us on it so that I could establish credit looking ahead to the day we would want to buy a house. Seems like a messed up system…the one who has been super responsible with money can’t get an auto loan by herself because she has no credit score.

    Reply
    • Agamede

      Julie, I work in credit counseling and while the ways of FICO can be mysterious even to us in the industry, I am darn-near-to-certain your finance person was mistaken. That is, you had a very thin credit file because you had only one credit line, not because you didn’t carry a balance. Whether you carry a balance or not, just having one card can result in a “no score” result depending on the scoring model used. My first thought reading your story was that maybe you hadn’t USED that credit card much. Just six months of complete inactivity can easily lead to no score.

      Reply
      • Julie

        As I have been thinking about it more, I had 2 other credit cards open at that time – one was a store credit card and the other a MasterCard account with my husband. Both of those were also paid off monthly. We never used them heavily but at least the MasterCard had monthly activity.

        Reply
        • Agamede

          Well, that’s a bit of a mystery. Did you sometimes/always pay off the cards *before* you received your monthly statement? That can result in the cards reporting as zero balance.

          There’s not actually a difference in how paid-in-full-every-month cards and carrying-a-balance cards are reported to the credit bureaus. What matters is A) did you pay at least the minimum payment on time? and B) what was your balance at the second the creditor made the report (usually the amount shown on your monthly statement)? I know some people who make online payments almost the second they use their cards… which is a good way to avoid interest AND overspending, but doesn’t help much in creating an active credit line.

          Another possibility– just wild guessing/rationalizing here– is that the MC with your husband wasn’t actually showing on your report because you were an authorized user and not legally responsible for the account.

          Or your card companies were lazy and didn’t report your credit activity correctly. Or the loan officer pulled the wrong report. Or the scoring model your lender used was super weird. Or, or, or…

          Reply
          • swanbird

            There are many diiferent variations on the traditional FICO score (these variations are all real FICO scored, not FACOs). More than likely, the car loan company used an “auto-enhanced score” that weights history with installment loans higher than credit cards. You did not have any installments loans (mortgages, student loans, personal loans, etc.) but your husband had student loans with a good payment record. That’s why his score was hihjer than yours.

            Reply
  4. Julia Richards

    Good information and greatly entertaining writing style.

    Reply
  5. catesalim

    I was lucky enough to speak personally with Liz Weston (she has several books, etc. about debt and finances and is considered highly in her field), and we discussed credit scores. What she told me were that numerous things went into the fico score, and that the score we see on-line often doesn’t match up with the one our creditors see. It actually can change day to day.

    Some of the tips she gave me were:
    - Never close a major credit card once you’ve opened it, because that will reflect badly on your score. For instance, on a whim years ago, I opened a Master Card with Scheels, but never used it. She recommended putting an automatic payment on it, and pay it in full each month. Apparently having credit cards and never using them negatively impacts your score.
    - It’s fine to close store cards.
    - Carrying a large balance on a card through the month can have a negative effect on your score. I always pay in full the day the statement arrives, but if I’ve made a large purchase, I pay half-way through the cycle to reduce that large chunk (and thanks to YNAB, those purchases are already budgeted for, so the money is in the bank).
    - Having alot of credit checks (not the one mentioned above, but by companies) in a short amount of time can negatively effect your score.

    Hope this helps a bit.

    Reply
    • jeremypeyton

      All good tips! I’ll cover those and more next time when we poke around on the anatomy part. That way folks can get a feel for what affects it, why, and how much. Thanks for sharing!

      Reply
    • Agamede

      Caveat: close old major credit cards if they carry annual fees. Your score will recover over time, but you’ll never see that $75 again… and you’ll keep paying, year in and year out, as long as you’ve got the card. Try calling to get the fee waived or the card converted to a no-fee version, but if that doesn’t work, ditch the albatross now and get the pain over with.

      Reply
  6. Lisa

    I can also report that we have had no long-term debt…paid off the mtg nearly two years ago. In that two years, I continue to use my credit card and pay it off every month. My credit score has hovered between 815-825 for the past two years.

    Reply
  7. Jerry

    Great tip on the free annual reports, but I couldn’t complete the online process because I had to guess on the answer to one of the security questions from decades ago.

    Reply

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