Okay, I've read, I've searched, I've googled, and none of the answers adequately explain what is happening: Two months ago I paid off most of the debt that was still on my credit score, I didn't argue, or dispute, I just paid. Reason? I have a security clearance for the US Government going through, and I was hoping that clearing out any negative accounts would help. Today I checked my credit score, and it nose dived from an average score (647) to a poor one (575). What the heck happened? It's also showing that the debt I have paid off is still the same. Do I need to get back on the phone and complain that something has gone wrong? In addition, I should clarify, I don't need lines of credit. I have an excellent income, and a lot of savings. I am single, with no interest in purchasing a home or vehicle in the near future. I have no lines of credit, and I know that can be hurting me, but I don't want any. I got into debt as it is, years ago, which is why I only trust myself with cold hard cash. That's why I have built up my massive savings, why I have been successful for the past few years, and I plan to keep it that way. All I care about is that my security clearance or employment future is not tarred by this trashed score! The financial industry can keep its credit cards, mortgages, and car loans. I want nothing to do with them. What am I doing wrong?
I understand your thought process, but if you want to have a good credit score and clean credit reports, you have to play the game...at least a little bit. First, paying off old debt doesn't remove the negative accounts. In fact, a paid collection or charge-off is essentially just as damaging to your credit score as an unpaid one. So, now that you've paid them off, they should update soon to a "paid" collection/charge-off, but it will still be regarded as a negative account on your credit reports. If anything hasn't been updated to a "paid" status, I would definitely follow up with the creditors to make sure they're reporting correctly. You can also dispute the listings through the CRAs since they're being reported incorrectly at the moment. Second, although the FICO scoring model isn't supposed to penalize you as much these days when a negative mark is updated, this may still be hurting you. By the way, which credit score are you checking? Make sure you're looking at your FICO score, which is the only one that really matters. Anyway, credit scoring models weigh more recent activity heavier than old activity, so in the eyes of the model these debts may now look newer than they really are because you just paid them off. That could be the reason for the drop in your score. Lastly, needing credit and having available credit are two different things. I use a very small amount of my available credit to pay for everyday expenses, and it's not because I need the credit. Instead, I choose to use my credit cards as a way to manage cash flow, budget every penny I spend, and enjoy banking rewards I otherwise wouldn't get when using cash. Credit scoring models reward those who have available credit, use it sparingly, and always pay on time. Unfortunately, income and savings don't factor into the model. If you don't trust yourself with anything but cash, I'm not going to recommend getting a credit card, but don't expect to have a good credit score either if you never give yourself the opportunity to prove that you can responsibly manage a credit card, mortgage, or any other type of installment loan.
Well, most of the accounts are already five years old or so. So it shouldn't be too much longer until they drop off. I don't really give a darn whether or not I get extended credit. I am sure at this point I could responsibly handle debt, all things being equal. The problem is, what if I have a medical emergency, what if I am become unemployed, what if my mother has a stroke and I have to leave my current high paying position to care for her? I can't do it where I am. What I don't trust is a situation where I rely on tomorrow being like today. Tomorrow, despite my best efforts, I may not be able to pay. The risk isn't worth credit lines I don't actually need. My concern has nothing to do with money, and everything to do with future employers, and in the immediate, my security clearance. If they judge me irresponsible because of my horrible credit score/credit history, even if that score/history does not reflect who I am now, then obviously that is a serious issue. If it were just about credit flow, I wouldn't be worried. I have more cash on hand right now than I ever had in debt when I was at my worst off. That hard work should be reflected in my financial history, but sadly, I don't think "they" care much about working hard to accrue savings so you DON'T need lines of credit. And they absolutely should.
Credit and debt are not synonymous - let's get that straight. If you have an emergency, that's what emergency funds are for, and you even say that you have plenty of cash now. If you're living within your means, you shouldn't have any debt, even if you do have available credit that you use on a monthly basis. Once again, having available credit never means you should live outside of your means. Having credit and carrying credit card debt are two very different things. You should only buy on a credit card what you can afford to pay off every month in cash. This is the world we live in today. Credit scores do matter, regardless of whether we like it or not. Think of them like your personal reputation in the financial world. If you choose to ignore them, you need to be ready to accept the consequences, which might even include missing out on future employment opportunities. One last time, we get back to the difference between having available credit and carrying credit card debt. This is really an important point, so I hope you're following me. So many people equate carrying a credit card with having debt, and I can never understand why. It's great that you have worked hard and have savings. Your credit scores won't reflect that unless you give yourself an opportunity to prove that you can manage credit responsibly, live within your means, and always pay your bills on time and in full. Of course, lenders will certainly look at your income and savings when assessing your credit risk for something like a home. So, "they" do care about those things to a certain degree.
Actually, I am not following. I do live within my means. That's how I save money. I don't understand why one needs credit available, if they're not going to use it. It seems farcical to make me create a "credit reputation" by getting a credit card and using it, and spending on it, and paying it off, when that is so much harder than just using cash or a check card. If I have the money, why do I need to ask for the money from someone else? Why should I have to stress about one more bill, one more contract? If the benefit is solely to create the "credit reputation" so I get better employment opportunities, this seems unfair, and probably unethical. Whatever happened to the concept of self-sufficiency being considered an important American value? I think you've answered my question, not that I liked the answer very much. I'm doing everything I can do within my philosophical framework, the only thing I am doing "wrong" is refusing to play a game I fundamentally disagree with.
I can certainly understand where you're coming from, so if you've decided you'll never have a need to rely on your credit score, that's perfectly fine. Don't play the game. It's a personal choice. But to me, it's really all about making economically smart choices - not just playing the game. Do I pay with cash and get nothing in return, or do I use my credit card, benefit from the 30-day interest free float and purchase protection, and then get a big fat cash back check at the end of every year? The latter is obviously the smarter choice, economically speaking, and I personally think it's way easier to use a credit card than cash. But, like I said, it's a personal choice.
Never say never. If in fact OTHERS use it to make judgements about me, whether I take out lines of credit or not, and whether I consider it ethical or not, then it's not really accurate to say I don't need to rely on it. More accurate to say I am being forced to, and I don't like that one bit. What's the catch? There's always a catch. I'm all about paying in cash and getting exactly what I paid for in return: the item or service I was paying for. Cash is already interest free, and as long as I purchase from reputable sellers, and observe a buyer beware mentality, I shouldn't have to worry about purchase protection. I place cash in bonds, CDs, and savings accounts (despite my youth, I do not trust stocks, and am not even really sure I trust mutual funds). Although the returns ("cash back") is lower on the types of investments I do have now because of the recession, it's safe, and it's reliable. I'm not sure I agree that it is a smarter choice across the board. Economically speaking is such a reduction of the definition of "value" as to be meaningless without context. Smarter how, and for who? Perhaps in the long run, you may be end up able to get higher and higher lines of credit, but if you do not need them why is this important, and you may even be able to physically create more wealth, but will this make you a better person? Will it make you happier? Again, I think the issue at play here is that there is more than just a purely dollars and cents benefit; the one about non-financial agents using your credit score or credit history to determine the "truth" about your character. Unfortunately, I just find that "game" to be distasteful. I feel the exact opposite about cash, and would offer an opposing view point to each of the points being made. Cash gets spent slower because I can physically look at it, count it, and budget for it when I remove it from my bank account (sending a large chunk of it to OTHER accounts, where it stays, of course). I also save every coin in a big jar. At Christmas, I easily find I have like $200, $300 dollars, and I buy Christmas presents with it. My system WORKS, and I am very much a believer in the "I worked hard to get here, why do I want to risk screwing it up?" I don't. If it ain't broke, don't fix it. I also am an American living in Japan, and perhaps Japanese attitudes towards lines of credit have significantly influenced me, given my own earlier experiences with debt (ie, only buy what you can pay for in cash, do not get loans unless necessary, do not carry credit cards unless necessary, buy cars outright, etc). I believe homes and businesses are the only real loan vehicles in Japan. I respect this philosophy, I agree with it, and practice it. If having a fairly short and useless credit history and having a low credit score is the price I have to pay for standing up for what I believe is wrong about the modern financial industry, so be it. It just means I'll need save even more, buy even less. That's fine with me.
You came here seeking advice regarding what you were doing wrong and how you could improve upon your bad credit score. I've tried to help, but it doesn't seem like you're interested in taking any of the necessary steps. That's fine...I've done my best to help, and I respect your decision. Best of luck to you, and enjoy Japan!
Don't think that I don't appreciate your help, I do. I just didn't realise that the only ways to improve my credit score would be to participate in actions I disagree with. When I first posted, I thought surely there must be things I both can do and am willing to do. However, given the fact I know from lurking that your advice is well founded, that means that such actions either do not exist or have so little effect as to be useless to me. Not a knock on you, but a recognition that the framework governing the American financial situation... well... sucks. Thanks for the help anyway, I'll probably wander back into the depths of the internet now. If I have a very specific question I may return.
You're welcome, and you may want to watch the growth of PRBC (Pay Rent Build Credit). This is a relatively new CRA that let's you build a credit score by simply reporting things like paying your rent on time and other utility bills. FICO just did a deal with them and more lenders/employers are starting to consider these scores as well. Take care, Josh
