Anyone else not have any credit cards & why does it hurt my FICO score?

[Anonymous]

I haven't owned a credit card in over 8 years. Not because I have a problem spending or went through a bankruptcy, but because I don't like them and I sort of generally feel that paying interest is somewhat immoral. If I cannot afford something I just don't buy it and when I do want something I save up for it. DH and I wanted a new car, so we saved specifically for that and got one cash.

I thought this was normal until I was curious about my FICO score the other day so I signed up for a free monitoring service through my bank. I thought I always had great credit, only debt I have is a mortgage, paid my student loans early, but my FICO score was not exceptional. Instead, Experian advised that if I wanted to increase my FICO score 10 points (which would get me over 800), it was recommend to take out multiple credit cards or other revolving loan accounts and pay it off regularly. I am sure there is some logic behind this, but it just doesn't make sense to me. Shouldn't I have already demonstrated how good with credit I am in that I don't actually need any and that I paid off my student loan in 5 years and will pay off my mortgage 20 years early?

Anyone else in this situation? What gives?

[Anonymous]

You can have a credit card and pay the balanc ein full every month. That will build your credit rating, but still you're paying no interest.

REgarding your score, you have no credit history with revolving credit lines (credit cards), which lowers your score.. It's better to show you can get such credit, and handle it, then not get it at all.

[Anonymous]

Shouldn't I have already demonstrated how good with credit I am in that I don't actually need any and that I paid off my student loan in 5 years and will pay off my mortgage 20 years early?

Ah, the old "you should want my business because I don't need your business" approach.

A lot of people think FICO scores are really crazy, but they make a good amount of sense. The best evidence lenders have of your ability to pay on time is how often you pay on time. If you don't have any revolving accounts, you don't have much evidence you pay on time. And while the idea that paying off student loans very early is bad for your credit seems counter-intuitive for a second, the same logic applies: The earlier you pay it off, the fewer monthly payments you've paid on time, and the less data they'll have.

It doesn't sound like you actually need to increase your credit score since you intend to never use it. But if you really want to increase it and you consider interest quasi-immoral, simply take out a credit card, set it up for auto-pay, and buy a few things a month on it. Then once or twice a year, request a credit limit increase. You don't need to feel immoral because you will literally never incur an interest charge, but after a few years your score will be way up.

[Anonymous]

Both PPs are right. But if your credit score is 795 or so (if I read your post right) and you really don't like using credit cards, I wouldn't bother. That is not a perfect score but it's very good.

[Anonymous]

Anonymous wrote:

Shouldn't I have already demonstrated how good with credit I am in that I don't actually need any and that I paid off my student loan in 5 years and will pay off my mortgage 20 years early?

Ah, the old "you should want my business because I don't need your business" approach.

A lot of people think FICO scores are really crazy, but they make a good amount of sense. The best evidence lenders have of your ability to pay on time is how often you pay on time. If you don't have any revolving accounts, you don't have much evidence you pay on time. And while the idea that paying off student loans very early is bad for your credit seems counter-intuitive for a second, the same logic applies: The earlier you pay it off, the fewer monthly payments you've paid on time, and the less data they'll have.

It doesn't sound like you actually need to increase your credit score since you intend to never use it. But if you really want to increase it and you consider interest quasi-immoral, simply take out a credit card, set it up for auto-pay, and buy a few things a month on it. Then once or twice a year, request a credit limit increase. You don't need to feel immoral because you will literally never incur an interest charge, but after a few years your score will be way up.

OP here. I was always taught that the only time you cannot get credit is when you need it most. Maybe that was wrong advice from my mother.

In any event, I am not sure that I want to pay annual fees to use a credit card just to demonstrate that I am a good credit risk. I would assume that my bank balance and nearly paid off house would probably demonstrate that enough, but these FICO doesn't seem to take assets into consideration.

In the end, you are right that I probably don't need to worry about it too much. It is just that I have been considering investment options and thinking about purchasing an investment property. Since we are paying off our primary residence soon, it seems like a good way to keep the mortgage interest deduction which is very useful for us because DH is a consultant and has to pay self-employment tax which is very costly.

Will increasing my FICO score above 800 result in a lower mortgage interest rate?

[Anonymous]

"In any event, I am not sure that I want to pay annual fees to use a credit card just to demonstrate that I am a good credit risk. I would assume that my bank balance and nearly paid off house would probably demonstrate that enough, but these FICO doesn't seem to take assets into consideration. "


I have never had a credit card with annual fees...

In any case, my understanding was that your interest rate doesn't change much once your credit score is over somewhere between ~740-760

[Anonymous]

Oh boy. I am concerned about how little you know about credit and credit cards.

- You only pay interest if you don't pay in full (always pay in full).

- There are dozens and maybe hundreds of cards with no annual fee (for the record, I once swore I'd never pay an annual fee and I laugh at that now bc I have several that I'm happy to pay an annual fee for)

- You're missing out on tons of rewards but, hey, whatever works for you.

And finally, you should know that once you go above a certain amount - around 760 I think - it doesn't matter in the slightest what the score is. For example, if you need a certain score to qualify for the best interest rate, the person with a 780 is getting the same rate as the person with 840. In other words, there is no benefit - none - to getting it above 800 or 820 or whatever.

Credit doesn't quite work the way a lot of people assume. It's worth learning more about.

[Anonymous]

Your credit score (very high 700s) is outstanding. There is no need to increase it; you will qualify for the lowest interest rates available.

At the same time, there are plenty of credit cards that don't charge an annual fee, as well as credit cards that charge an annual fee but offer various bonuses (points, miles, etc.) that make the annual fee worthwhile.

[Anonymous]

Anonymous wrote:Oh boy. I am concerned about how little you know about credit and credit cards.

- You only pay interest if you don't pay in full (always pay in full).

- There are dozens and maybe hundreds of cards with no annual fee (for the record, I once swore I'd never pay an annual fee and I laugh at that now bc I have several that I'm happy to pay an annual fee for)

- You're missing out on tons of rewards but, hey, whatever works for you.

And finally, you should know that once you go above a certain amount - around 760 I think - it doesn't matter in the slightest what the score is. For example, if you need a certain score to qualify for the best interest rate, the person with a 780 is getting the same rate as the person with 840. In other words, there is no benefit - none - to getting it above 800 or 820 or whatever.

Credit doesn't quite work the way a lot of people assume. It's worth learning more about.

+1. Also, as long as you know you are not going to get a loan anytime soon, it doesn't really matter. Also, credit card companies charge merchants a small fee every time you use a credit card. Since most people use credit cards, merchants set their prices with that fee in mind. So you are essentially already paying a fee for credit card usage in the form of higher prices, but you're getting none of the rewards credit cards offer to users with good credit scores.

[Anonymous]

I'm surprise your score is as high as it is since you know about very little about cc's. Annual fees are so 80s and you don't pay interest if you pay on time.
I have many cards, never paid annual fee and never paid interest. I have many more on time payments to show Fico people than you do. We also pay mortgage on time, cars cash and students loans.
One thing is to have a credit card and the other thing is to overuse it. Open it, hide it, take it out only once a month for groceries. Not having a credit card was important for you, now is having a better credit score, so open one since it's tied to use of cards and how you repay them.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Shouldn't I have already demonstrated how good with credit I am in that I don't actually need any and that I paid off my student loan in 5 years and will pay off my mortgage 20 years early?

Ah, the old "you should want my business because I don't need your business" approach.

A lot of people think FICO scores are really crazy, but they make a good amount of sense. The best evidence lenders have of your ability to pay on time is how often you pay on time. If you don't have any revolving accounts, you don't have much evidence you pay on time. And while the idea that paying off student loans very early is bad for your credit seems counter-intuitive for a second, the same logic applies: The earlier you pay it off, the fewer monthly payments you've paid on time, and the less data they'll have.

It doesn't sound like you actually need to increase your credit score since you intend to never use it. But if you really want to increase it and you consider interest quasi-immoral, simply take out a credit card, set it up for auto-pay, and buy a few things a month on it. Then once or twice a year, request a credit limit increase. You don't need to feel immoral because you will literally never incur an interest charge, but after a few years your score will be way up.

OP here. I was always taught that the only time you cannot get credit is when you need it most. Maybe that was wrong advice from my mother.

In any event, I am not sure that I want to pay annual fees to use a credit card just to demonstrate that I am a good credit risk. I would assume that my bank balance and nearly paid off house would probably demonstrate that enough, but these FICO doesn't seem to take assets into consideration.

In the end, you are right that I probably don't need to worry about it too much. It is just that I have been considering investment options and thinking about purchasing an investment property. Since we are paying off our primary residence soon, it seems like a good way to keep the mortgage interest deduction which is very useful for us because DH is a consultant and has to pay self-employment tax which is very costly.

Will increasing my FICO score above 800 result in a lower mortgage interest rate?

I pay my credit card off every month- so I pay no interest. I have a credit card that has no annual fee. I use it instead of carrying tons of cash around. I use it as a cashflow tool. I love that I can download my purchases directly into Quicken, saving me time on input. If a local place will accept a personal check, I will write a personal check so that they do not have to pay the credit card fees.

[Anonymous]

You sound really old school. We pay our credit card in full every month. Have never spent any money on interest. We earn points and get upgrades on flights and free hotel nights using the points we earned on our credit cards. About half our charges are personal. Other half is business related expenses. Some are reimbursed. Others are written off during tax time. You can export all your charges year end and it is easy to itemize for taxes.

I'm a SAHM and I think I have a credit score of 820 or 840. It is very high. Our main credit card that we charge $10-20k per month was under my maiden name. We spend a lot on that card and pay off every month. I also have 2 other store credit cards that we pay off every month. I have no other debt.

DH has a credit score of 780 or so. Both our house mortgages are under his name. All the bills are under his name.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Oh boy. I am concerned about how little you know about credit and credit cards.

- You only pay interest if you don't pay in full (always pay in full).

- There are dozens and maybe hundreds of cards with no annual fee (for the record, I once swore I'd never pay an annual fee and I laugh at that now bc I have several that I'm happy to pay an annual fee for)

- You're missing out on tons of rewards but, hey, whatever works for you.

And finally, you should know that once you go above a certain amount - around 760 I think - it doesn't matter in the slightest what the score is. For example, if you need a certain score to qualify for the best interest rate, the person with a 780 is getting the same rate as the person with 840. In other words, there is no benefit - none - to getting it above 800 or 820 or whatever.

Credit doesn't quite work the way a lot of people assume. It's worth learning more about.

+1. Also, as long as you know you are not going to get a loan anytime soon, it doesn't really matter. Also, credit card companies charge merchants a small fee every time you use a credit card. Since most people use credit cards, merchants set their prices with that fee in mind. So you are essentially already paying a fee for credit card usage in the form of higher prices, but you're getting none of the rewards credit cards offer to users with good credit scores.

+2

OP, it doesn't sound like you need a card for the credit score, but you really should consider getting a rewards card, setting it on autopay, and using it for recurring payments that are cc eligible and anything you use a debit card for now. The rewards programs really are about as close as you can get in life to free money. You can do this without every paying a cent of interest or an annual fee. Although as other posters mentioned, some fees are worth it. The AmEx extension of warranty on electronics alone is probably worth the cost, for example.

[Anonymous]

Anonymous wrote:I haven't owned a credit card in over 8 years. Not because I have a problem spending or went through a bankruptcy, but because I don't like them and I sort of generally feel that paying interest is somewhat immoral. If I cannot afford something I just don't buy it and when I do want something I save up for it. DH and I wanted a new car, so we saved specifically for that and got one cash.

That's silly. Who said you had to pay interest to use a credit card? You don't pay interest if you pay off the balance every month. Credit cards to those with good financial sense isn't about borrowing money, but about convenience. I typically don't like carrying cash because cash gets lost, I have to remember how much I have, and it makes my wallet thicker than I like it. Not only do I not pay interest, but I get *paid* for using my credit card. At a minimum I get 2% cash back on all my credit card purchase. Gas and Amazon.com purchases gets me more. When it comes to buying cars, some times a manufacturer will offer additional incentives if you finance the car. In those cases, I will absolutely take the financing and pay it off after about a month.

Anonymous wrote:
I thought this was normal until I was curious about my FICO score the other day so I signed up for a free monitoring service through my bank. I thought I always had great credit, only debt I have is a mortgage, paid my student loans early, but my FICO score was not exceptional. Instead, Experian advised that if I wanted to increase my FICO score 10 points (which would get me over 800), it was recommend to take out multiple credit cards or other revolving loan accounts and pay it off regularly. I am sure there is some logic behind this, but it just doesn't make sense to me. Shouldn't I have already demonstrated how good with credit I am in that I don't actually need any and that I paid off my student loan in 5 years and will pay off my mortgage 20 years early?

Anyone else in this situation? What gives?

Your logic is like saying that a student has demonstrated he is good at math by not even needing to do any homework. To demonstrate that you are credit worthy, you have to use credit and repay as agreed. Your lack of credit utilization represents a chunk of missing information for lenders. Missing information represents risk. Risk decreases your credit scores.

Having said all that, 790 is pretty good credit score already. I don't understand why you want to go over 800 if you don't intend on using credit.

[Anonymous]

Agree with what other posters have said. I am conservative financially, buy cars with cash, have both my mortgages on 15 years and still pay more each month, and I use plenty of credit cards. I pay them in full each month so never incur interest. The rewards are totally worth it in my view. Last year I got $1000 back on my Costco Amex. Literally $1000 in cash. And I have a United miles card (free the first year, I am paying a fee this year) that gives me so many point boosts, combined with being a frequent flier, that I have gotten 200k miles this year alone (as in the first 5 months). In the past year I have used it for 3 international tickets and 2 expensive domestic tickets. So it helps my score (over 800) and gives me "free stuff". As pp pointed out, as a consumer you are paying for these benefits anyway so you might as well get them.