"Loan balances are too high"

Thread from 2016

There's a ding on my credit score with the reason stated in the thread title. The remaining balance on my car loan is $238.60. I have 2 credit cards that I pay off every month, but it's the middle of the month, so both have balances. One is $58 and the other is $35. You just can't win this game.

Have you pulled your free annual credit report and looked through it?

In reply to Dr. Hess:

Perhaps obsessively so!

And it pretty much says what the scores say, although the car loan was a few hundred dollars higher on that date.

Mine always says that even when i had almost zero balance before I bought the truck

Isn't it related as a percentage of your total credit available?

So if you owe 300 on a 500 credit limit card that is seen as very different from owing 300 on a 15k limit card.

Robbie wrote: Isn't it related as a percentage of your total credit available? So if you owe 300 on a 500 credit limit card that is seen as very different from owing 300 on a 15k limit card.

Possible. The balance on my car loan is 3.5% of the original balance.
The balance on my Discover is 0.7% of my credit limit.
The balance on my Visa is 0.35% of my credit limit.

It's nothing to worry about. They have to list some reason why your score isn't perfect and it seems like their algorithm defaults to that one. I have tens of thousands is available credit and a balance of say $800. And it'll say that on my report.

dculberson wrote: It's nothing to worry about. They have to list some reason why your score isn't perfect and it seems like their algorithm defaults to that one.

I'm sure you're right. My hatred of the entire system is so deep that I've run out of words with which to express it.

Robbie wrote: Isn't it related as a percentage of your total credit available? So if you owe 300 on a 500 credit limit card that is seen as very different from owing 300 on a 15k limit card.

Cannot be I have darn near 500K in available credit between the stuff at the office and I use like 2K a year of it to book travel and pay it off immediately. I still see it when they pull my credit.

They aren't really saying your loan balances are too high, they are saying that your loan balances affected your credit score.

BTW your free credit report, and actually any report a consumer can pull, don't have your real credit score. Mostly because there isn't such a mythical beast as your one & only real credit score.

You score will vary according to the purpose of the pull. A credit card score will be different than a mortgage score which will be different than a car pull, than a . . .

Don't constipate all or most of your credit on 1 or 2 cards, spread it out. The credit bureau looks at "activity units" which to you and I just means how many payments do you have. So spread your credit out over multiple sources.

But don't go deep in debt, just spread it out. The available credit increase doing it this way alone will raise your score significantly.

Don't hate the game, just learn the rules and learn to play the game better.

In reply to EvanR:

carguy123 wrote: BTW your free credit report, and actually any report a consumer can pull, don't have your real credit score. Mostly because there isn't such a mythical beast as your one & only real credit score.

I get this. I check it with 3 services, and there is a 34-point variance. It's just part of the game.

carguy123 wrote: Don't constipate all or most of your credit on 1 or 2 cards, spread it out. The credit bureau looks at "activity units" which to you and I just means how many payments do you have. So spread your credit out over multiple sources.

But that would mean getting more credit cards. Having a new bank check my credit for the purpose of issuing a new card will hurt my credit. Getting a new card would hurt my credit.

carguy123 wrote: Don't hate the game, just learn the rules and learn to play the game better.

Eh, I have it mostly figured out. Based on the average of the 3 scores I pull, I'm probably better at the game than the CEO of the bank is.

I signed up with credit karma a couple of years ago. You can check your credit score and get your full credit report anytime you want for free from two of the three reporting agencies. Absolutely no cost, as long as your willing to get about 1 email from them a month suggesting a certain card may work well with your particular profile. (I have no affiliation with these guys in any way, if that matters here ...)

While the ding to your credit for getting the other credit cards will temporarily drop your score, the long term benefits far out weigh the downside. Your credit score can determine what types of loans you can get and the interest rate you receive so a higher credit score is a goal worth pursuing.

In reply to carguy123:

How high is high enough? Our only debt with a balance is our mortgage, the balance of which is in the lower half of 5 figures and will probably be paid off in about 2 years. We move about $25k a year through our single credit card, but never carry a balance. Our score is more than solid. What's considered the bottom threshold of the best score achievable by mere mortals?

Also, I'd like to keep it there after the house is paid off. I think I have an unused CC through our regular bank. Sounds like I should start using that one, too. Any other strategies? Thanks.

Actually Duke you DO carry a balance.

Keep in mind that the creditors don't report every month AND you probably have a balance on the day they report.

Because you only have the one credit card your credit score should fluctuate wildly. It could be high one month and low the next depending upon the reporting cycle and, God forbid, if they should accidentally report your credit wrong or one of you have to go in the hospital or you go on a trip and miss a payment and end up with one 30 day late your score will take forever to recover.

Look at it this way, if you put a drop of ink in a shot glass it colors it a lot, but if you put that same drop of ink in a buckey you'd never know it was in there.

You don't need a big bucket of credit to get & keep a high credit score but you do need a bucket rather than a shot glass.

As to how low a balance do you have to have in order for it not to make a difference? That's proprietary information and they won't share it with us or people would learn better how to manipulate the scores.

Keep in mind your credit score is more about credit usage than how you pay your bills. It's the legal way the credit bureaus have to sell your information. Credit bureaus are FOR PROFIT corporations and they charge every time their information is accessed. The credit score is just another way they've developed to make money.

Right now I find it takes 3-6 pieces of good, open credit to get and maintain a low 600 credit score. I mostly look for 620+ scores because that's one of those lines drawn in the sand that affects a person's mortgage interest rate &/or what loan types they can qualify for. I can go down to a 500 score, but there's an additional cost & an additional underwriting/qualifying criteria.

OK, you're right. I do have a balance; I guess more accurately I should say I don't revolve it. It's typically less than 10% of the line limit at its maximum during a given the cycle.

I don't know whether Canada does stuff differently, but a couple of years ago, I needed to buy half my house again. I have two credit cards, one that seldom gets used, the other that rolls $2k or so a month. Its paid in full every month. Mortgage free for 5 years or so, until the divorce.

I don't know what my credit score was, but the dude at the Royal Bank said he'd never seen a lower interest rate offered after entering the requirements and my name.

I guess I have good credit, even though I'm self employed...which is usually the kiss of death.

If you can get to the point that you only use your credit card(s) as a true 'payment system', and pay them off in full each month, that obviously is a great start. One factor that is heavily weighted in determining your credit score is your ratio. Basically, the amount in total that you owe at the end of the billing period divided by your total available credit. Even if you pay them off in full once the bill(s) show up each month, you still take a major ding on a monthly basis if your consumed credit is higher than 30% of your available credit. Crazy, I know, but that's a big part of your score calculation. What you can do to - if you either occasionally or 'worse yet' often go above a 30% ratio - is prepay the majority of what is due that month BEFORE the credit card company closes out that bill. Yup, it's a PITA to do, but not too bad if you can access your account online and use online bill pay. I do this if a month of using my card is higher than normal ... which means I try real hard to stay below a 10% ratio regarding what posts to the bill if at all possible. Result for me has been a consistently good score.

Other huge factors: payment history (NEVER be late, ever, as this is super hard to recover from), how long your history runs (I'm old, so mine is long), and how many 'activities' (credit cards, loans outstanding, etc.) you have currently active. This one is a bit tricky, as too few is bad as is too many.

Sorry - I kind of rambled on here, but this is a subject I'm pretty up on, so I hope it helps a bit!

I'm sorry; this post has drifted off topic, quite likely because I didn't make my point completely clear in the original post.

To me, the credit scoring system is as rigged as any carnival game. That was my original point.

Most people on the inside of the game will tell you that any score over 750 will get you any loan you want to get, and at the best terms possible. If that truly is the case, why not just make the maximum score 750, rather than making a "perfect" 850 score an (essentially) unachievable goal?

My score was in the low 500s during and after my divorce in 06-07. I learned the game. I played by the rules. I took loans of money I didn't need to borrow and paid interest I didn't need to pay, just to get my score back up.

Now my score is up. WAY up. The average among the 3 scores I pull (Discover, Quizzle.com, and my CU) is 830. Like I said, anything over 750 will get you whatever loan you want, so my current status is beyond excellent.

But I can't rest. I don't need to borrow any money, nor do I want to, but in order to maintain good credit, I must have both revolving and installment loan balances.

That smells like a racket. I don't like rackets. That was the point of my post.

carguy123 wrote: Right now I find it takes 3-6 pieces of good, open credit to get and maintain a low 600 credit score.

Really? 3+ open lines of credit? I don't check my score often at all, but the last time I checked it was well above 600. I have one credit card that sees a couple hundred per month in charges and is always paid in full. I had 2 student loans that were paid off much earlier than anticipated, and had been in the rearview for years before the credit checks. That's pretty much my entire credit history. When I bought my first house earlier this year, my mortgage company didn't even blink to offer well above the amount we were asking for, at sub 4% interest. I'm with EvanR here. Seems like a silly game to play, and nobody knows all of the rules except for the ones making the money.

Every time I see the title I want to add the word "damn"

In reply to EvanR:

It makes more sense if you think about what a credit score actually is. They're not scoring your financial solvency or intelligence. They're scoring how likely you are to pay back your debts. That's it. And they can't score that if you don't have and pay debts. If you don't utilize the credit system at all then you have no record by which to track your responsibility with credit, and new users of things tend not to be good users of things so the default score is not going to be high. If you use it only a little it's similarly hard to know. Compounding that is that it's an automated scoring system - since nobody has the manpower to manually score 319 million people's credit and update it frequently.

It's not a "racket" and it's not "rigged," but it is meant to favor the industry because that is who it was created for. It may not be all that good but that doesn't mean it's rigged.

dculberson wrote: In reply to EvanR: It makes more sense if you think about what a credit score actually is. They're not scoring your financial solvency or intelligence. They're scoring how likely you are to pay back your debts. That's it.

I would be fine if that was actually "it". I wouldn't worry for a moment about my credit score if it was only about getting a loan, because I don't need loans.

But when entities that are not at all in the loan-making business started looking at credit scores, it became a whole other ballgame.

SWMBO had a great job interview. She was a shoo-in. Until they pulled her credit score. Then they hired someone else. Her car insurance is ridiculous for the same reason.

So if it was just about "paying back debts", I'd agree with you 100%.

But it isn't.

It is all they are scoring, and the companies using it for other purposes are doing themselves (and others) a disservice. Read again what I said and it's correct - they're scoring your likelihood of paying back credit extended to you. That is it. Using the score for other purposes doesn't mean they're suddenly scoring something else.

Side note: I think any other use should possibly be illegal, or at least heavily restricted.