Monday, October 12, 2020

The Absurdity of Credit Scores - Again


The mystery of how credit scores are calculated will never be solved.  Who cares?

After being told I am a bad boy for "not using" my credit cards enough, and having my score dinged by 18 points, I get a note from Experian telling me my credit score has been increased by 32 points (29 points and then three more as shown above)  as "inactive accounts have become active."  In other words, I let a small balance carry over past the closing date, and the computers now think I am charging $52.50 a month on a card, when in fact I am charging far more.

Robert, please review your alert
Your previously inactive account is now active.

But what is interesting is that I am now five magical points away from a "perfect" credit score, at least on Experian.   This is becoming like a game.  Could I make it to the "perfect" score?   Well, probably not, unless I had a time machine.   I would have to go back about 20 years and decide not to close my Sears credit card account.   Or I would have to decide not to pay off my mortgage.

You see how the system works - debtors are favored, those with real wealth are not trusted.

Meanwhile, Transunion and Equifax continue to punish me for not being in debt.

Of course, this is just the Experian score that went up. The other two reporting agencies still have dinged me for a low "average age of accounts" and as older mortgages and credit card accounts - now closed - fall off the report after seven years or so, the average age of my credit drops as well.

So when you talk about "Credit Score" the first thing you have to ask is, "which one?" as they all have different means of calculation, although they seem to track one another pretty closely.

Of course, this is all academic to me, now, as I don't really need credit for anything - in fact, borrowing money would be a really bad idea at this stage in my life.  Borrowed money has to be paid back, with interest, and unless you are borrowing money to buy something that may increase in value or generate income (worthwhile college education, reasonably-sized home, legitimate business opportunity, positive cash-flow investment real estate) it is just a way of turning a dollar into ninety cents.

And right now, I don't have any desire to go back to college, and if anything, I want to unload the house I already have.  And I don't see any decent business opportunities or reasonably-priced real estate in this overheated market.  Maybe it is better to be the guy with cash and credit when it all falls apart - if it ever does.

What is funny is that these three credit reporting agencies used to claim your score (and how it was calculated) was "intellectual property" and yet all three companies use the same arbitrary number range - 300 to 850 - and a similar although not identical algorithm, to calculate these scores.  As a (former) Patent Attorney, I smell infringement!  However, if these methods were indeed Patentable (and back in the day, such things were not) the Patents would have long since expired.  Trade secrets, perhaps?

But trying to "game" the system does have one apparent pitfall - what increases your score from one agency might detract from your score on another.   Sure, you might be able to push your score up or down a few points by doing certain things, but what makes your score go up five or ten points on one site, might make it go down on another.

The main thing is to pay your bills on time and not end up in intractable credit card debt, get late on payments, and really screw your score.  All the "gaming" in the world, at that point, isn't going to get you back in their good graces.

Credit Scores - proof of the old adage that, "In order to borrow money, you must first prove you don't need it!"