I suspect that those numbers may be higher now, though. $90k won’t buy you a house in any sizeable city, you really need to be at the $150l+ level. I take your point that $500k may have been a bit of an overreach in my original comment.

A lot of the FICO scores (there are different scores for different things) don’t ding you for it, but most of the monitoring apps use Vantage.

I find the difference between my FICO 8 and Vantage 3 to be as much as 100 points. Most people seem to have higher Vantage scores, but my FICO tends to be higher. They’re different companies that use different systems.

It only negatively impacts your credit score if you are a bad credit customer.

A good credit customer with low credit would be one that has a few credit cards. They likely have a low limit because they have poor credit…say $750 each on three cards. A good credit customer would not let the balance exceed 1/3 to 1/2 of the limit, and pay the statement balance in full.

Now, suppose this person has these cards for one year, and another person with no credit cards or history, buy a 36 month car loan valued at $5000. To make the math simple I’ll say 0 interest, it doesn’t really matter for this level of explanation.

Customer A understands the game. They do exactly what they are supposed to, and are rewarded with a better reputation with the creditors, as well as a higher limit on their cards…lets say $2000 (though being a good credit consumer, they still do not charge more than they can afford to pay each month, and keep their balances under 1/3).

At the 35th month of this car loan, Customer A has:

• 4 accounts total - three credit cards that are ~48 months old, and one car loan that is ~36 months old. Average age of accounts is 57 months.
• A total available credit of $11,000 (the 5k loan and three 2k cards), with a total reportable balance of $139 (the last car payment).

Meanwhile customer B has:

• One account that is ~36 months old. Average age of accounts is 36 months.
• A total available credit of $5000 with a reportable balance of $139.

Right off the bat, Customer A is looking like a far safer customer to lend money to.

At the 36th month, Customer A has:

• Three open accounts that are 49 months old and one closed account that is 36 months old. Average age of accounts is 58 months. Still trending up.
• A total available credit of $6000 with a reportable balance of $0.

Customer B has:

• No open accounts and a closed account that is 36 months old. Average age of accounts is 36. Now stagnant.
• A total available credit if $0 with a reportable balance of $0.

At the 40th month, customer A has:

• Three open accounts that are 53 months old and one closed account that is 36 months old. Average age of accounts is 62 months. Still trending up.
• A total available credit of $6000 with a reportable balance of $0.

Customer B has not changed.

It’s not that Customer B did anything wrong by laying their bill on time, it’s more like a divide-by-zero error. The sole source of information on their credit reputation has stopped reporting information and reported that they have ended their business relationship on good terms.

Had customer B been more like customer A (and honestly, those rules aren’t that hard to stick to…don’t charge too much and pay it off every month. That’s a very low bar to set for responsibility), it would be a little blip on their report that would even out over a few months. But because they didn’t, there is no new information coming in about their behavior as a credit customer. For the lenders, they aren’t following “no news is good news”. They need data to show that you are still willing to play by a very simple set of rules.

It’s not a perfect system. It’s just the best so far.

Everybody starts at the same baseline. Being born to a poor family doesn’t set you off lower than anyone else as far as credit goes, unless your parents start running up bills on your SSN, which happens, a lot. Cash and investments aren’t part of credit score at all.

Really as far as cash/cash-equivalent accounts go, just pre-paid credit cards that can impact credit, and they can only impact positively, and they are marketed exclusively towards the poor and those with bad credit.

If you want to be mad at anybody, really, it’s the predatory lenders. The payday advance companies, rent-a-centers, slumlords, and especially buy-here-pay-here car lots. Those guys that will sell and repo the same car over and over again when people don’t make payments with exorbitant interest rates.

Hell even Sprint PCS back in the day. They’d give anybody a phone with a $150 deposit.

All of them will pull a credit score at the start and then only report delinquent accounts. These are all aimed at people who are poor or have bad credit, and can only negatively impact the score.

Most of these are all run by sleazy local businessmen. Wealthy, but still exceptionally far from the super rich.

Honestly this sounds like one of the few times where the banks actually have the customers best interest (bank pun) in mind. The credit score formula is well understood (even if it’s not fully known by most people, since it’s proprietary). The risks and benefits are disclosed and agreed upon. Customers are expected to know how to use their products properly. If they do, the bankers may even sweeten the pot with some cashback or points, and provide an improvement to their reputation with the banks. If they don’t, they pay the pre-disclosed interest rates and late fees, and they earn a bad reputation with the banks.

I know it sounds like I’m shilling for the banks here. I’m not. I’m just saying this isn’t the right fight.

To turn it around, suppose you are a wealthy lender. You have three total strangers asking you to lend some cash. On what basis do you determine how risky it would be to lend them money? Or do you assume they are all an equal risk and give them all the same offer? Credit scores serve the purpose of determining how risky a credit customer is, based upon their reputation with others lending goods and services. Assuming an equal risk will either make you a loan shark, or you won’t be a wealthy lender for long.

Now, I’d be very impressed if the banks adopted a fully disclosed formula. It’s great that we can pull our full credit reports for free and see what they see, but what would be better would be to know exactly what they are basing their decisions on. It’s understandable that they’d want to keep that close to the chest, though. In a time of formula-based automatic approvals/denials, it’s only a matter of time until someone figures out how to game it.

They can/do include rent, but landlords tend to only report it if you’re delinquent.

But we, the consumers, did. By putting all our money in them, and continuing to bank with them as they gobbled up all the local banks and became mega banks.

It’s a consequence of the barely-regulated capitalist system that we have, sure, but it was driven by decades of consumer (mostly boomer) complacency.