Is My Credit Score a Rip-off?

Maybe. Or maybe it's something based a bit on you, a bit on everyone else, and a lot of your reliability.

Transcript

SPEAKER_00 0:00

Getting outside of politics for a second, I actually want to take a moment to talk about credit score. I'm not here serving the service or anything. I am not a financial advisor very clearly, but I do seem to understand something about a credit score that seems uh very curious to folks otherwise. So credit score is a weird thing because it measures your responsibility with debt. Now it's kind of a weird thing because, yeah, some companies will get richer the more in debt you are, but even then they cannot help giving you a good score if you behave well. And so I'm gonna talk about what happens when you do behave well and your credit score drops. Now, this is particularly in terms of long-term credit. I'm not talking your credit card that you try to pay off every month, I'm talking your student loans, your car loans, your mortgage on your house. When you're going about paying these off, and you finally say, you know, I did this with my student loans. Believe it or not, I did go to college. Paid off my student loans, and the first thing that happened was my credit score dropped about a hundred points. Oh, this is only one of the three big credit scores. This is the one that measures the longest term loans and how responsible I am with paying it off. Now I had to do a little bit looking things up, and I actually had to do a lot more thinking about that, and here's generally what I got. With all of the data aggregation technology that we got available to us these days, it doesn't take as much work as it used to to look at sections of the population and how they deal with money. As large as a nation, and uh, you know, you can look at sections as large as a nation over the course of a century, and you can look sometimes all the way down to a single person over the course of a day to get your understanding of credit and credit scores. So once you got that, you have a general what's called a profile of your people. This is a profile of everybody who spends money in the area. Now you cannot help what other people do. You can't help what you do, but you can't help what other people do. But it is what other people do that determines why your credit bounces low. Because if you think in terms of a less responsible person who is going to be a higher risk, that person, once they're out of that debt, they might look at all that fancy, fresh new money they got and say, Well, we this actually looks real darn nice. I'm gonna go and spend a whole bunch of money now. Now, of course, that's not what you're supposed to do, but what you're supposed to do and what you do do are two little bit different things, and what everybody else does may not be what you do. That's all to the side. That's no never mind, neither here nor there. But that is why credit score drops so suddenly, so harsh for good behavior. Because other people in your circumstances who are less trustworthy and the credit company might not know what kind of person you are. You are suddenly debt-free in a significant way, and the question is, are you now gonna do something stupid to get yourself into riskier debt? And so the score goes down. They say you are at this point a little bit more dangerous to lend money to. Now, the way to avoid this is to continue being responsible with money. If you don't pull out another set of student loans, your score will drive back up. If you finish paying off your car loan and you don't immediately turn around, sell it, buy another car, and apply for another car loan, your credit score is gonna go back up. If you finish paying off your mortgage and you don't go around and just buy a second house, which is gonna draw questionable amounts of credit against you, then your score goes back up. Because the score going up means that you are more responsible with debt, and score going down means you are less responsible with debt. And nowadays, with people even looking at whether they can finance their hamburger, the understanding of debt and how responsible you are with it is what drives a lot of the lending economy. So all you gotta do is be responsible through and through. The numbers will bounce around, you are not being punished, you are being profiled, and the best way to break out of that profile is with good behavior. So, yes, maybe credit card companies are docking you because they don't because they're losing their tracking points on you, or maybe, just maybe, it's all part and parcel of building a good long-term credit score to watch it bobble up and down a little bit because things happen, people change. Cheers.