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Comment by xxpor | Hacker News Reader

I see where you're coming from, but on the other hand, the biggest rules are well known and quite simple: If you take a loan and pay it back on time, you'll have high credit. If you fail to meet your obligations, you won't. The existence of an underclass which is constantly on the edge of not being able to pay their bills is true though.

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Those are not the only rules though... you can have low credit for not taking out enough loans and not having debt. You get dinged for opening and closing credit card accounts too quickly, even if you've never missed a payment.

Your score goes down if you simply inquire about loans a bit too often...

All of these are "rules" made up unilaterally by the credit bureaus.

I have a few credit cards that I no longer use. If I cancel them my score would go down because the average age/length credit history would go down.

Not by that much, but it is surprising that leaving these cards open is incentivized whereas the more secure and less risky thing to do would be to close those accounts.

It make a a bit more sense when you think about it - Risk isn’t really the main thing incentivized here, making interest payments is haha. Risky lenders don’t make payments, but neither do people who never take on debt

Credit scores actually are designed to measure risk, not interest payments. Otherwise high credit utilization would be a positive:) There are certainly edge cases where the score has low predictive value, but overall the correlation between credit score and risk is quite large.

The closed card drops off your account history after ~10 years, so your score shouldn't immediately go down. Technically, I'm not sure that the credit scores can differentiate between you closing a card and the bank closing your card (the latter might be some sort of signal of potential change in creditworthiness)

In general, credit scores are optimized for the average consumer - and so behaviors around the edges don't always make sense in terms of your score going up or down. If you think about the system that was replaced by credit cards (i.e. keeping a tab open with many different stores), you'd be hard pressed to say that the amount of credit extended is lower now (overall), than under the old system. Whether that's a good thing or not is a different question.

In general, your score would immediately go down as your credit utilization would go up (outstanding balance over total available credit).

0/infinity is still zero

…depending on the languages used in their backend and the quality of their development efforts…

The balances are instantaneous balances, not ones that are being financed. So, if you use and pay off your card every month (as makes sense to me for points/cash back, ease of chargeback, and convenience), then your numerator won't be zero on most days. (For me, it's not $0 on any days, because of the timing of statements.)

You could theoretically pay off the card before the statement posts to keep the balance at zero. Usually not worth it, but if you want to boost your credit score before getting a mortgage, that trick usually works.

In Canada, Equifax et al tend to reduce score at each over 80% revolving credit account utilization.

Those are minor and often temporary dings compared to not paying back loans on time or at all. For example, if you don’t have a loan history, your score isn’t low enough that you can’t get an apartment or get a car loan. Then by doing those things you can build credit. The other things, open and closing accounts too quickly, or making lots of loan inquiries over a short period of time, lead to temporary dings that recover in a few months (they just throttle your credit). The rules are not explicit enough I agree, but it’s not like most of them couldn’t be covered in a high school financial literacy class.

Almost everyone significantly disenfranchised by bad credit are actually for things that would obviously lead to bad credit (to their fault or not; i.e. identity theft could be involved).

> if you don’t have a loan history, your score isn’t low enough that you can’t get an apartment

This is not true. Many places will deny an applicant for zero loan history, effectively forcing people to get a credit card in order to obtain housing.

Technically, people with no credit history aren't denied for having low score -- they're denied for not having a score at all.

That never happened to me when I came back from China (unable to get a credit card for 9 years because I didn’t have a Chinese ID card, so no credit history within the 10 year window they keep track), nor did it happen to my wife, who obviously didn’t have any history as a new immigrant. We didn’t have problem getting a rental with proof of job/income. And without the job/proof of income, even with 10 credit cards, many of these places won’t rent to you regardless of your credit rating given eviction laws.

I get it, there must be some place that denies rental based on lack of credit history, but I would guess it is so rare that you’d have to stretch really hard to find an example.

Correct, but a nitpick: it's not quite an issue (as the parent said) of the score being low per se. From my own experience, in the time when I had no credit history, when I went on annualcreditreport.com or the alternatives, it would happily tell me that I had a credit score of 720-740, but any time I would apply for an apartment, or even the most usurious credit department store credit card, I would get rejected.

So yes, the lack of a credit history makes you look artificially like a bad risk, leading to rejections, but not because the system reports you as "normal person with low credit score" -- that would actually be an improvement!

For those who want to know, I eventually got out of the catch-22 by following up with the service department of a financial-advisor-affiliated credit card, and answering some questions like about employment history.

My parents taught me that debt was bad. They told me that credit cards were traps to get you into debt, that preyed on poor impulse control, and that it was better not to have one. If you can't tell, my parents grew up in a time when the credit score system didn't really matter, and didn't understand it.

I did not get a credit card. I did not have any loans, for school or anything else.

My credit score wasn't even a number, it just didn't exist. Even the bank I banked with, which could see that I had more than $8k USD deposited monthly, that could see I had $30k in an account with them, would not give me a loan to buy a car.

Even if I were to get a credit card and pay it back on time, my credit score would be quite low due to having no history, and I still could not get a loan.

I'm fortunate that the apartments I have rented so far have not done credit checks, only background checks and looked at salaries / offer letters, but there are many apartments I simply could not rent since I would obviously fail their credit check, despite never having had any debt.

>My credit score wasn't even a number, it just didn't exist. Even the bank I banked with, which could see that I had more than $8k USD deposited monthly, that could see I had $30k in an account with them, would not give me a loan to buy a car.

Right, because it's a credit score, not a finance score. I'm not sure what you want here. Do you want credit bureaus to collect even more information about your financial life so they can have a more accurate picture?

I see this as an education problem. People need to be taught the specific rules of credit scores in addition to general personal finance.

I feel like my parent's point about credit cards and college loans being bad were correct though.

Like, I believe they're right that going to college on a full-ride scholarship was better than going to a more expensive one on a loan.

I also believe they're right that credit cards are bad. Like, banks make money on credit cards by: 1. hoping you miss a payment, and collecting interest, and 2. charging merchants, thus raising the price of goods for everyone (typically)

I guess you're saying that we should teach people "Yes, use credit cards, these tools designed to put you in debt, but be careful. Why use something designed to put you in debt? Because there's another private company that will punish you by not letting you rent certain apartments if you don't use a credit card"

I wish I had parents like yours.

Overall, credit is not advantageous to most people that use it for consumerism. Credit should only be used for investments with a commensurate return above the interest rate.

100% this.

My parents were quite well off, and my dad often times tried to get me to use a credit card, not because it was free money (i was very well financially educated by them) but because things like credit scores do get checked by employers (sometimes) or housing companies to determine all sorts of things, so it would make sense to buy 1-2 small things (say, like a pack of gum or a sandwich) a month on the card to immediately pay it off, so the credit score would be good.

I protested, and to this day have never owned a credit card. I live within my means, don't splurge on stupid shit, and do money-saving things as much as I can. I don't own a car, and since I'm fortunate to live in a dense city in a warm environment, I can walk almost anywhere at any time of year. There's also free public transportation.

The only "credit" I have is a small amount of margin I have in my trading account, which I only use on topping up low-risk, dividend-paying investments that I also sell deep OTM calls against. It's a slight risk, yes, but it's as delta-neutral as I can get while still making consistent money.

> Do you want credit bureaus to collect even more information about your financial life so they can have a more accurate picture?

I mean, if instead it was the government, and they could also draw information about my salary, yeah, that sounds kinda nice. Not having to own a credit card to prove that I exist to a landlord does seems pretty good to me.

But my overall point here is that a credit score is not as simple as the above poster made it sound. Someone who's been financially responsible can still run into issues because of this weird system leaking into so many places.

> Right, because it's a credit score, not a finance score. I'm not sure what you want here. Do you want credit bureaus to collect even more information about your financial life so they can have a more accurate picture?

To some extent _yes_, if that's how this has to work. If my ability to make significant life steps is based entirely on their view of my ability to pay debts then I would rather they at least have the full picture. As it is it's extremely inconsistent, one place I rented reported my rent payments to some of the credit bureaus (but not all of them), the others did not. Additionally utility bills don't appear, despite them probably being a reasonable gauge of whether you can pay for stuff on time (at least as reasonable as everything else they use).

It is what it is, but I was in that poster's same position and agree with them that it feels like a very dumb situation. I'm lucky that I at least saw it coming and a few years before buying a house I opened a credit card with the only purpose being to build my credit history. I have one thing that charges about ~$8 a month to it and it gets auto paid, and apparently _that_ was a big key to determining whether I'll be able to manage paying for a house. IMO that's just silly.

Same here, but it has not been a problem with good job and finances. Buying a car or renting apartments.

Many people I’ve talked to have very little idea what the factors affecting their credit scores are. Many are unaware or uninterested. I have helped many people improve their credit scores because I have spent hours learning how to game this system. Much of this information is not taught to people until they need credit at which point it’s too late to start establishing a history and your best bet is some bs predatory card that locks up more money than you can afford.

Have you thought about publishing your tactics in gaming the credit system?

There are already tons of articles and videos that have already been published on this. And now Experian / other bureaus offer score breakdowns along with calculators where you can explore how hypothetical actions would affect your score. I think the space is pretty well covered:)

(For an example, Google for AskSebby - How to Increase Your Credit Score)

Just tried it and received a 404

Google Search: AskSebby - How to Increase Your Credit Score

First AskSebby result. https://www.asksebby.com/blog/how-to-improve-your-credit-sco...

I'll keep digging.

As someone else mentioned there is a ton of existing content. The problem is people don’t look until it’s too late because nobody cares about this stuff until it causes issues. Unless schools start teaching real life financial basics the problems will continue.

Credit Karma has been one of my most useful resource for improvements because they break down the factors very well. Many banks have stepped up their game but some don’t give you as much detail.

On the contrary, the actual rules and methodologies for credit score calculations are not documented anywhere public.

Saying essentially "just don't do bad things to your reputation" is at most a very hand wavy "rule of thumb", but it's not a codified "rule" of the sort we should expect to see of such a consequential system.

> On the contrary, the actual rules and methodologies for credit score calculations are not documented anywhere public.

The exact formulas might not be, but the general factors aren't exactly a secret. Hell, the "free credit score" service my bank offers even provides a simulator tool to estimate what would happen to my credit score if I did certain things (eg. get a car loan, or pay off an existing loan).

My credit is tanked from an ex opening up accounts in my name and running up the tab while I was being treated for leukaemia and Crohns. Six years later and I’m still fixing the damage.

Fucking hell, why are people such monsters? That’s terrible to hear, hope you’re doing alright.

[deleted]

I think it’s fairly clear the monster here is the ex that took advantage of a vulnerable person.

Question from someone not in the us: can you legally open a creditcard in someone else's name or does it have to involve some form of fraud?

I'm pretty sure my application was only valid when signed by the requester by that was in Europe and rules may differ. I do know you can open them for shared accounts, but that is not what I am talking about.

It was/is fraud, yes. Typically the way you open a card in someone else’s name on your account is by adding them as an authorized user.

I agree with you on the current state, but I think parent may be concerned about future state where unelected, private entity determines your societal worth based on yet unknown rules; or known, but less bound by 'loan paid off' type of information. Right now, it appears to be mostly limited to various financial events, but current state is not guaranteed not to change in the future.

> future state

GP's comment was written in present tense.

No, that isn't even remotely how it works. My credit score has gone down consistently after getting rid of all my debt.

If you understand how credit scores work, you'd realize that what you've experienced doesn't contradict the parent's claim. Specifically, having low credit utilization (ie. low credit used compared to available credit) and high diversity of accounts is beneficial for your credit score. Closing accounts is bad for both of these, hence why your credit score dropped. It doesn't invalidate the parent's claim that you can have good credit by just using credit and paying it back on time. FWIW I have a few credit cards that I pay on time every month, and my credit score is pretty good.

> If you take a loan and pay it back on time, you'll have high credit.

Unless you're on the Equifax blacklist. Journalists who wrote anti-equifax articles tend to find their way there, as do ex-girlfriends of upper management. And conversely women who do NSA hookups with a VP or above tend to find their way onto a whitelist that boosts your credit score by 150 or so - it's considered an unwritten perk of the job.

(The above is purely speculation, I have no idea whether any of it is actually true, but honestly, why wouldn't it be?)

This is a good reason for most finance companies to take the middle of the 3 scores.

That helps some, but realistically it's a small industry and there are lots of channels (formal and otherwise) linking the competitors. A lot of people working at one previously worked at another.

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