Credit Score Shenanigans
Inspired by a WaPo article from Michelle Singletary who paid off her house which caused her credit score to go down. We long ago "opted out" of most of the credit world. We have not had a mortgage through a bank since 2001, our last car loan was paid off in 2009 or 2010 but we do have one cash back credit card that we've never been charged interest on.
There are pros and cons here. Net net, we are far better off not owing money to anyone (just a mortgage on our rental cabin to a private lender) but being off the credit grid could cause a hiccup if we ever needed to borrow money again.
This list is a few of the comments on the article.
1. "I would take no mortgage and a paid off house over a perfect score."
2. "The only thing better than having an ideal FICO score is not having to depend on one."
3. "...But it is a problem that not being in debt negatively impacts your credit score - which after all isn’t just used to estimate credit risk."
Credit scores impact things like insurance rates so a low score because of being debt free leading to more expensive insurance is perverse.
4. "After you have paid off everything you owe everyone, give it about 2 years debt free and your score really tanks."
This was not our experience. I am surprised our score isn't higher but it did not tank.
5. "It also does not count in my favor that I have always paid my credit card balance each month. Seems like that would be good, but no."
We do this and it doesn't appear to help.
6. "I get the impression there is no government oversight of these FICO scoring institutions."
Someone replied to this saying that there is no government oversight. Assuming that is the case, I'm not sure the government would make it better.
7. "Credit scores are scams created by the credit industry to encourage debt. Paying off debt should increase your credit worthiness, not decrease it."
"...to encourage debt?" Well that is an interesting and astute observation.
8. One little anecdote from me.
A couple of years ago, we had a plumbing issue at our rental that cost $6000. Our limit on our one CC is $7000. Ok, we'll use the CC to get the cash back. The day that it hit our balance, I paid it off, literally that day. The transaction caused our score to drop 40 points for getting too close to our limit. FFS.