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     | Thursday, January 20, 2000 - 10:22 am  I've been reading the postings on your site, and have noticed that a lot of you seem to be, I feel, a bit TOO concerned with your credit scores and losing focus on the overall picture, namely getting the credit you want to do what you need to do with it. To that end, I would like to open the discussion with the following: John and Jane Doe have just bought their first home. He earns about $ 120,000/year. She is a new mom who has chosen to stay at home. They each have a "standard" VISA card with a $ 3,000 limit, which they use for day-to-day purchases and pay off most (if not all) at the end of the month. Almost from the day they moved into their new home, both John and Jane have received "pre-approved" offers for platinum, titanium, tungsten, diamond, and plutonium credit cards (with the associated teaser rates and gimicks). Strategy - Strike while the iron is hot: John and Jane feel that if, for whatever reason, everybody and their mother wants to give them a credit card right now, then they should accept every offer that comes in the mail. Their intentions are to put the credit cards in a drawer so that in the event of an emergency (job loss, bone-marrow transplant, legal bills, etc, they can "tap", "use", and even "live" off the cards for a few years. They accept ever offer that comes in until they finally start getting rejected because of too many new accounts. The result: each person has (in their own name), 10 cards totalling about $ 100,000 in available credit. Some of the cards are even owned by the same bank (FirstUSA, which is trying to give a card to every person on the planet), ahthough they all have different names (BankOne, Wingspan, GE, etc.). What does everyone think of their method? Did they do anything wrong? What are the ramifications (both short term and long term) to their credit, assuming that they never miss a payment? Assuming that they never miss a payment on any card, can this possibly hurt them? Any advice to them?
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| | Thursday, January 20, 2000 - 01:29 pm The problem is not getting credit. The problem is getting inexpensive credit. Nowadays there are sub-prime lenders that will give a lot of people credit that didn't used to be able to get credit. There is, however, a price charged along with that. Here's an example to take a look at. Basically depending on your credit profile you will get either 8.99% interest, 12.99% interest, 19.99% interest or 23.99% interest. This all depends on how well you score. Your score also controls if you will have an annual fee on these cards. Many people are going to buy a house in their lifetime. The interest rate they get on their mortgage can make a difference of tens of thousands of dollars in interest over the term of the loan. That is why your score is important. Your example makes it sound like it's amazingly easy to qualify for and purchase a house and amazingly easy to have credit cards come rolling in like crazy. For many people it is not that easy. You have only to look over this forum to see that there are quite a few people who have problems.
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| | Thursday, January 20, 2000 - 01:41 pm I understand your point and do not disaggree with any of it. But back to the main issue here - this couple (taken from a real-life example, by the way), now has (between the two of them), 20 cards and almost $ 200,000 of available credit. That is a lot of power. Consider that they can potentaily "tap" it, take the $ 200,000 and invest in the stock market, buy a business, go to Vegas and bet it all on the pass line, pay for a cancer treatment that insurance would not cover, etc. Both good and bad things, but their position is that "to have it available is better than not having it available". At any rate, they have it. The question is, what happens now?
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| | Thursday, January 20, 2000 - 02:03 pm Here's a more accurate scenario. Jose Alvarez, son of Jose Romero Alvarez is 24 married and has a kid. He used to rent the back house of the same duplex his father lived in and so he has a few of his father's accounts mixed in on his credit profile. All accounts were consumer finance, had a few lates and haven't been updated since he moved out the duplex into his own pad two years ago. He works as a construction worker making $24k/yr and has one credit card of his own from Household Bank with a $500.00 limit. Household Bank's policy is not to report his limit, so he is reported as having owed a high amount of $110. He normally charges the card up to around $60 to $75 a month and pays it off every month, so his card is continually reported as though he owes at least $60 on it. He knows nothing about credit scoring, has never looked at his credit profile and he goes to purchase a vehicle. His Beacon score is run and (as we all can imagine) it ain't good -- a 591. He is approved for a vehicle loan at 17% interest. He is never told why he is given such a high rate because the dealer doing the financing doesn't consider that any "adverse action" was taken against him, because he wasn't denied credit. The (consumer) finance company he is with expects that he'll be delinquent a few times, but he pays like clockwork. They are so afraid they'll lose his fine and very profitable business to another company so they just stop reporting on him. He has no idea. He buys most things he needs on his Fingerhut card. They don't report either. One day his pager company takes his pager off the air. He calls all day to try to discover what the problem is, but they've been bought out by a new company and just a recording is playing on the phone number he has on the back of his pager. No matter what time he calls it just says that he's called outside their regular office hours and they are open from 9AM to 6PM. He switches to a new company and four months later he is contacted by a collection agency who demand the last month's payment on his pager. He figures it's not worth his time to screw with it, so he pays the guy the $9.95 and ends up with a PAID COLLECTION on his account. Finally he is renting this 2 bedroom house from this old guy who is getting too old to maintain it properly so he is doing most of the maintenance for the old guy. The guy decides he needs to move to a better climate for his health and offers to sell to Jose for a good price. Jose goes to a mortgage company, his score is pulled and he is told he cannot get a loan. Gee, too bad.
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| | Thursday, January 20, 2000 - 02:09 pm What happens now that they have all this credit? I don't know, it depends on how they want to use it. Do they pull on the credit cards and invest it all in the stock market or do they take those cards to Vegas and put it all on the pass line? I would expect their score to deteriorate. They probably have (004) Too many bank or national revolving accounts and (024) No recent revolving balances. Will that be enough to result in denials and/or less attractive rates? I don't know.
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| | Friday, January 21, 2000 - 02:03 am I'll give my two cents, why should someone be permitted to have almost two times thier earning in available credit? For a mortgage, you are permitted from 28 - 33 % for a housing allowance. This is the inherent problem today, the credit card companies want people to stop declaring BK so that they can force them to pay them off. But they do not want rules governing them. Here is my idea for a better society: prohibit CC companies from extending credit beyond say 10% of their income, in return, there would be very tight restrictions on chapter 7s. If your income falls, your accounts are frozen. It would never fly because the CC companies want it both ways. What people fail to realize is they make billions in just late fees (averaging about $35) and super high intrest rates (which can be upped for no apparent reason). One last thought, how can it be legal for a late fee to assesed based on the "post date" rather than the post mark. Now all of the sudden we are in control of the US mail system. Heck even the IRS gives you the post marked date. I feel we have become a nation of carefree spenders living beyond our means, which is good for creditors but bad for you and I. Whos fault is it: certainly I think a mixture of both but if we can blame a cigarette manufacturer for selling to teens, why can we not blame a CC company for doing the same. I can site several example of 18 to 20 year olds that had were in school with no job and had already racked up 30K in debt. Sorry to go on so long but this always fires me up.
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| | Friday, January 21, 2000 - 05:11 am lfj: Credit card companies sometimes don't know what your income is when they make you pre-approval offers. They are just anxious to sell someone with good credit a credit card. I agree that the readily credit the credit card industry throws out there is rediculous, and we should be blaming them for part of the problem. Frank: If you can get that many credit cards, go for it. However, if after you are issued that many cards within a short period of time, you may find that some of the creditor may rescind your offer and cancel your cards. Other than that, I don't see any reason why you shouldn't have those cards. If you hang on to the credit lines long enough, it will eventually be to your credit advantage, though at first, Sean is right, they will ding you for so many new lines.
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| | Friday, January 21, 2000 - 06:09 am Ok, so the consensus is that, after taking the "shot-gun" approach (sending out every application you get within a very short time) and getting all those new credit cards, two things will probably happen: 1) eventually your "credit score" will drop because of all the new credit lines, resulting in a) denials of applications for more credit (due to too many new lines and no recent revolving balances), and b) companies raising the interest rates or outright cancelling the cards when they find out how much credit you have; 2) As time passes and they have had so many cards for longer and longer, the "too many new lines" issue will no longer become an issue. Since there is nothing they can do about the "too many new lines" issue except to let the accounts "age", let's talk about the second issue sean raised - not having "revolving" balances. I take it that having a lot of cards sitting in a drawer is not as good as using them just a little and paying them each month? 1) Assuming that you are going to "charge" $ 2,000 a month and pay it off every month, are you better off having it all on 1 card or spreading it out over all 10? 2) Should you just use a different card every month so that after 10 months every card has had a high of $ 2,000 on it or should you use every card every month so that every card only has a high of about $ 200 on it after 10 months? 3) If one of the cards has a 0% teaser rate for 6 months, should you let that card "max" for 6 months while you keep your $ 2,000 cash in investments, then after 6 months pay it off in full, keeping the interest your money earned during that 6 months? 4) What if they decide to buy a (used) car, and they determine that they can get a lower % rate by using a "credit card check" than borrowing from their bank or credit union (they probably couldn't get a loan anyway with all that credit outstanding), so then end up with 2 or 3 of them "maxed", but they pay down each one twice the minimum, so that they will be paid off in 3 years (in effect, they write themselves a 3 year car loan on their credit cards) In short, knowing what you know about the credit system, how would you use these lines of credit such that your credit is kept in the best shape possible?
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| | Friday, January 21, 2000 - 06:57 am Fred: I take it that having a lot of cards sitting in a drawer is not as good as using them just a little and paying them each month? 1) Assuming that you are going to "charge" $ 2,000 a month and pay it off every month, are you better off having it all on 1 card or spreading it out over all 10? 2) Should you just use a different card every month so that after 10 months every card has had a high of $ 2,000 on it or should you use every card every month so that every card only has a high of about $ 200 on it after 10 months? The answer to all these questions is the same. No matter how many cards you have or how many cards you charge on, if you pay them off completely with each statement that arrives, your history for every card will show $0 balance each month. In order for something other than $0 balance to be reported, some amount must have remained on the card until the next reporting period (not necessarily the next billing period, because some companies only report every 60 or 90 days, not every 30 days). I know this because we pulled my wife's credit reports. She had/has about 25 trade lines (most close, some open) over the past 12 years, but she's NEVER (can you believe it?) carried a balance and never paid a dime in interest to any credit card company. And every balance for every month on every card was $0. And she/we charged everything from a couple of bucks to several thousand on all the cards (but, again, paid it off at the end of the month). Additionally, if you just "keep the cards in a drawer" waiting for the need for that cancer treatment or hard times, most credit card companies will close the account due to lack of activity. 2) As time passes and they have had so many cards for longer and longer, the "too many new lines" issue will no longer become an issue. But that doesn't address what Sean pointed out: They probably have (004) Too many bank or national revolving accounts and (024) No recent revolving balances. Sean: I have yet to understand what the hell the Jose analogy has to do with Fred's original line of questioning. What was your point? :)
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| | Friday, January 21, 2000 - 07:55 am So they need to charge "something" (even if it's just a tank of gas) on every card every few months or so just to keep the credit card company from killing the card. And if you are going to pay off every month, it doesn't matter how you "spread the debt around". Then let me ask the same questions assuming a balance will be left for a few months (again, I am only interested in the impact on your credit rating): 1) Is it better to have 10 cards with a $ 200 hanging balance or 1 card with a $ 2,000 balance and the other 9 with 0 (as far as the credit report is concered). 2) Is it better to have 2 cards "maxed" with the other 8 at $ 0 or have 10 cards approximatly 20% used up? 3) If for whatever reason (0% 6 month teaser, or whatever) you let a card be "maxed-out" for 6 months, then pay it off in full, how does that impact your rating? 4) How does having 2-3 cards "maxed", then paying double or triple the minimum each month for a year so that the balance is "delcining", affect your rating, vs. doing the same thing but spread out over all 10 cards (having 10 cards 20% maxed out, but slowly declinig every month)? 5) Do you avoid "maxing out" at all costs, even if it means "spreading the debt" to some higher-interest rate cards?
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| | Friday, January 21, 2000 - 07:57 am I'm not getting this whole thread. He starts out by saying, we're too "concerned with your credit scores and losing focus on the overall picture, namely getting the credit you want to do what you need to do with it." From there this seems to have gone directly into a discussion of credit scores and what makes them tick. My only point was that his Jane and John Doe, with John making $125,000 a year aren't your median American couple.
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| | Friday, January 21, 2000 - 08:22 am My point about being "too concerned with scoring" was a response to a series of postings from people being concerned with "maxing out their score". I understand that some people might want to devote hours and hours of their time to get the absolute highest possible score, seemingly just for the sake of the score itself. I wanted this discussion to be about "how to successfully handle a lot of credit". As far as my fictional couple, they are taken from a real life couple I know. He told me he applied and was turned down for a platinum card 1 month before he closed on his house. 2 months later, the same company approved him for a $ 10,000 card (I guess because he was now a "homeowner" instead of a "renter"). 6 months later he has $ 90,000 worth of cards and his wife has another $ 85,000 . Perhaps the numbers are a bit extreme, but I think it is safe to say that once you buy your first home, you will get flooded with offers, and you can amass a ton of credit cards very quickly before you stop getting approved. The old school of thought was that "too much available credit is as bad as having bad credit", and "no credit is worse than bad credit", so "apply for 1 card, use it, and always pay it on time, and you will be happy". I just want to go further and discuss how you can successfully manage a TON of credit so that (if possible), it does not negatively impact your credit report in the long term, and also what to do in the short term. I would think that the power/advantage of having 50-100 thousand dollars of "potential" credit would outweight the short-term negatives of a lower rating due to "too many new credit lines", but that is an issue that is also up for discussion here. And it may very well be that there is not a feasable way to have that much credit hurts your rating until you cancel some of the cards. These are the issues I want to find out about.
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| | Friday, January 21, 2000 - 10:30 am The most important thing for maintaining a good FICO score is to pay your bills on time. I think most of us are aware of that. The second most important thing is to have a long track record. A guy who's had a credit card open a couple months isn't going to score as well as a guy who's had a credit card open 7 years. The third most important thing is to keep a lot of your credit available and only a little used. As a rule of thumb you should have at least 65 percent of your total credit lines unused, possibly more. From there we descend into the murkiness of the scoring models. We know that you can have too many, as well as too few revolving accounts. We know that you can have too many consumer finance accounts. We know that you can have too many inquiries in the past 12 months. This has lead many people to ask questions like, 'What is the right "number of revolving bank accounts"? Two? Five? Ten? Fifty? Four-hundred sixty-three?' -- this is one of the hardest questions to answer about the scoring model. At least with inquiries and consumer finance accounts you know that if you have zero, you're fine but with revolving accounts you can have both "too many" and "too few" so you need to find the optimum number somewhere in the middle. All I can really say is that having good credit is difficult. There is nothing you can do to make good credit. On the other hand making bad credit is marvelously simple. The only way to make good credit is to avoid making bad credit for an extended duration of time.
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| | Friday, January 21, 2000 - 11:10 am Your link let to a most entertaining read - I cannot imagine someone going through that long a bureaucracy before giving up. I guess we can agree on the following: The credit bureaus (for obvious reasons) are not going to voluntarily release information as to how the scores are calculated. Nothing short of a specific federal law will force their hands. My guess is that, eventually, some disgruntled former employee of Fair Issacs or the credit bureaus will one day write a book on how the score is determined. That having been said, the 65% free rule seems like a good idea. I wonder if someone filed a lawsuit against a credit bureau, could they compell disclosure of the formula via discovery? Just a thought.
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| | Friday, January 21, 2000 - 12:46 pm The credit bureaus don't know how the Fair, Isaac scores are calculated. Fair, Isaac & Company, Inc. (NYSE: FIC) knows how they're done.
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| | Sunday, January 23, 2000 - 07:57 am Fred: The court of public opinion is in session. Regulators forced the agencies to release the score. Then congress passed a law allowing the national credit reporting agencies to keep the score secret. Bad move. Then, before asking about the specific inner-workings of scoring, a consumer gave them a chance to disclose the score and answer a logical question (only one among others that could have been asked): what is the right number of credit cards to have? Of course, they couldn't even do that, proving the preposterousness of the system. Now, there is a congressional bill proposing forced score disclosure. See http://creditscoring.com. Regarding your premise of the lawsuit, should a company be forced to disclose their secrets in the name of justice for an individual-- no matter the prospects for the company due to the disclosure? Did the company use their monopoly power to the detriment of others? The big joke in all of this is that the scoring system is based on erroneous data-- a much bigger problem supposedly corrected by a corny band-aid (which didn't work; see http://www.ftc.gov/opa/2000/01/busysignal.htm).
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| | Monday, January 24, 2000 - 07:48 am OK - lest we get too far off the track - it is a given that, unless an insider at Fair Issacs would like to post (anonymously, I'm sure) the formulas, we can never know "for sure" what the couple should do manage their large credit lines most effectively. (And again, I'm less interested in "maximizing the scores" than in just getting sould discussion on how to manage the credit.) Sean's message stating that you get good credit by avoiding bad credit for as long as possible is an interesting point. RCB's point about making sure to not let the cards "sit idle" for too long is also good. Let's have more!
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| | Tuesday, January 25, 2000 - 11:27 pm Since your interest is more in managing the credit, rather than maximizing the scores, here's the answer: Pay down the balances on the cards as quickly as possible, and then cancel all of them "at the CONSUMER'S request". Don't just pay the minimum-- You'll be their indentured servant forever. Break free from the credit card trap. That's your answer.
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| | Wednesday, January 26, 2000 - 07:26 am I'm afraid you are missing the point - the couple is not "drowning in cc debt and trying to get out". They simply have amassed a ton of credit cards. The question is, how do they manage them? Is just having so many cards a negative to their credit? If so, is the only way to get rid of the negative is to cancel some of them? Is it possible to perform some tasks so that after, let's say, 1 year, despite having so much credit that they would still be considered good credit risks? Or are they forever sacrificing their credit "rating" in exchange for the priv. of having close to $ 200,000 in "available" credit to them? They want the credit. Is there a "smart" way to "have it"?
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| | Wednesday, January 26, 2000 - 09:07 am Just having that many cards may be negative to their credit. It is possible to have 'too many' revolving accounts, although no one is 100 percent sure exactly how many is too many. They would be better advised to try, if possible, to have let's say 7 accounts with $20,000 limits than 14 accounts with $10,000 limits or 28 accounts with $5,000 limits. Fair, Isaac research indicates the median consumer that is approved for new credit has seven revolving trade lines and four installment loans. If they are seriously concerned they should contact a lender (such as myself) that would (for a small fee) run their credit profile and generate an adverse action notice to them showing the reasons why they didn't score higher.
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