Thursday, August 13, 2020

Another Reason Your FICO Score is Bullshit

Your credit score reflects how desperate you are as a borrower.   And they want you to be desperate!

When I started this blog, the credit reporting agencies treated your credit score as some sort of state secret.  It was "intellectual property" they claimed, and thus if you wanted to see your own score, you had to pay.  This was at least better than in previous years, where if you even wanted to see your own credit report you had to pay - if they would even let you do that.

Thank God for Republicans! They protected the almighty intellectual property interests of these credit reporting agencies for as long as they could, before those evil Communist Democrats made the credit agencies cough up your credit report once a year, for free, at  If left to their own devices, those same evil Democrats would establish some sort of "Consumer Protection Agency" to protect people from predatory lenders and force lenders and other financial institutions to disclose things like interest rates and payment terms (intellectual property also, right?)  Can you imagine what would happen if they came to power?   Your financial advisor might actually have to obey the laws of agency and act in your best interests, rather than his own.

And we can't have that, can we?   All those storefront financial advisors (and you know the brand name I am talking about) would have to close.  Honest hard-working people would be out of  a job!

But I digress.

Since those days, the credit card companies and credit reporting agencies hand out your credit score like it was crack.  They went from the chaste girl in high school to the town bicycle - everyone's ridden her!   The state secret is no more, and every credit card company and bank, as well as online sites like CreditKarma, hand out scores in one form or another.  It wasn't such a big freaking deal, in retrospect, was it?

What made me laugh this morning was a dire warning from Bank of America that my FICO score has dropped eleven points!  Oh my God!  How will I be able to finance my next car?  Oh, right, by writing a personal check for the purchase price, like I did with my last four cars.   Can't pay cash?  Think hard about borrowing money and borrow the least amount you can/  If you can't pay cash for a depreciating asset, that is God's way to telling you that you really can't afford it. Seriously. Going into debt for "things" is about the dumbest thing I ever did in my life.

Why did my FICO score drop 11 points?  Well, I pay off the balance on my credit card every day, so I am not carrying a revolving balance, and thus paying no interest.  Well, that's no fun, is it?  I mean, how are our friends at the banks going to make money by charging me interest for a meal I ate and pooped out last month, if I pay off the balance daily?   People like that are what cause unrest.

They helpfully tell me why my score dropped with this quixotic explanation:
Score Factors
What affects my FICO® Score?

You have an exceptional FICO® Score, with minimal impacts from the information below. Keep up your good financial habits! 
No recent bank/national revolving balances

FICO® Scores evaluate recent balances on the credit card accounts shown on a person's credit report. Your FICO® Score was impacted because you are not currently demonstrating active bank/national revolving credit management.
Keep in mind:

People who demonstrate moderate and conscientious use of revolving credit card accounts, such as maintaining low balances and paying them on time, tend to demonstrate lower risk to lenders.
Did you get that?  They dinged me not because I pay my bills on time but ahead of time and thus have no "balance" at the end of the month.  To game your score, you need to have some balance by the statement date and then pay it before the due date.  They are encouraging you to play the float, and playing the float is a very, very dangerous game.

Simply stated, if you fail to pay that balance on time, for example, forgetting to make the payment, or sending a check through the mail - and having it arrive late - can cause you to not only pay interest on the balance, but pay a late fee as well - which may negatively impact your credit score.  Now that your credit score is trashed, you can't get that low-interest credit card or home equity loan to pay off the ever-increasing balance on your card, which, by-the-way, has now ratcheted up to the "punishment" rate of 25% or more.  Welcome to your own personal credit card crises.

The banks love this.  You played the FICO game and lost.  You thought you were being "smart" by playing the float - after all, you got all that "free interest" for a month, right?  Between that and clipping coupons, and leasing cars to "free up your cash-flow" for sure you will be a millionaire - provided you "invest" in the right "stock tip" from the shouting guy.

Geezus Christmas on a Stick.  They must think we are really dumb.   Well, actually they know this.

You aren't going to win at the game if you play by their rules.  It is funny, but I get indignant e-mails from some readers who inform me that I am full of crap because "everybody knows" that playing the float and opportunity cost arguments make sense, because all the banks and finance companies and salesmen make these arguments.  And they should know - they are financial professionals!  And what do I know?  I'm just the chump who fell for these arguments and spend years digging myself out of financial holes as a result.

Anyway, I had to laugh at the FICO people.  Oh, I am so scared now, my score has dropped - now that I have absolutely no debt whatsoever, nor the need for debt.  Yes, no need for debt.   People claim that debt is a need, and indeed, when you start out in life, it may be inevitable.  Maybe to get a good college degree at a reasonable price, you should borrow - but as little as possible.  If you are going to college on loans and sending out for pizza, something isn't right.  Remember, I was the guy who delivered that pizza.  Thanks for the tips and the bong hits.  How's those student loans working out?  Pooped-out pizza, financed over 30 years, that makes sense - right?

And buying that first house - you don't have a hundred grand or more laying about, doya?  So you have to borrow - to get a mortgage.  But don't kid yourself that you are "making out" on the home mortgage interest deduction and the "more home you buy, the more you save!" or anything of that sort.  And don't fall for the trap - as I did - of refinancing a house to pay for credit card debt.  It is just dumb.

But once you are retired - and you will be retired someday, likely at a time and place not of your choosing (for most people) - you will have to live off your savings and what little you get from Social Security.  At that point in life, it makes no sense to be borrowing money - effectively turning a dollar's worth of buying power into 80 cents or less.   Maybe if you are one of those lucky dinosaurs who has a State pension, you can get away with paying interest - but even then, you are decreasing your wealth (and increasing the bank's) by borrowing money at a point in life when you shouldn't need to.

To create wealth, you have to own money, not owe money. The banks would rather you owed, not owned.  They make a lot of money from the owers - sometimes 22% or more - but make very little from the owners.   People like me want free services, higher interest rates paid for savings, and cash-back on the credit card.  And if we don't get it, we move our money somewhere else, because we have choices.  When you have money, banks are your friend.  When you owe money, they are your mortal enemy.  It is as simple as that - and you can't go from being an ower to an owner by borrowing more and more money.

I tried that.  I report reliably that it doesn't work.

Post Script:  Every time I try to Google, "Living Stingy Owning Money" good old Google says, "surely you mean owing money, right?  Because no one owns money!"  Interesting how this is so ingrained into our culture that even the Google search engine doesn't recognize anything other than perpetual debt.

Showing results for Living Stingy Owing Money
Search instead for Living Stingy Owning Money