The Catch-22 of Credit Scores
First, a confession: I have mediocre credit. I used to have actual bad credit, but it has risen to mediocre and remains there, hovering between 600 and 700.
I have been late on a bill only once in my life, but boy, it was a doozy. To make a long story short, in 2010 Mr. FP and I stopped paying the mortgage on a house we no longer lived in, and a few months later, we short-sold it, meaning that the bank agreed to settle our mortgage for less than we owe. We were underwater on the house; we owed more money on it than it was worth. (Perhaps next week I will tell you whole sordid story as a useful cautionary tale about the perils of impetuous homebuying.)
Anyway, as you can imagine, not paying your mortgage really dings the ol’ credit score, and so does settling an account (e.g., our mortgage) for less than you owe. I had a small student loan on which I kept paying, which helped me make up a little bit of ground, but the process is slow.
Despite our traumatic experience, we still want to consider owning a house someday, maybe in the next year or two if we really like Denver. To do that, I personally need to contribute two things: income from a real job (update on this front coming soon) and better credit. So I started researching ways to get my credit up. I seemed to have two main problems, aside from the house debacle: “too few accounts currently paid as agreed” and too little available credit. Any time I use my one card, I come too close to the limit, and apparently that’s bad. You should look like you are using only a tiny bit of the credit available to you–perhaps to demonstrate your restraint?
So I took two steps: I asked my credit union to raise the limit on my card, which they did, and I opened an Amazon Visa in my own name. I’m sure that will see a lot of use as we love us some Amazon, and instead of getting 1% cash back like with our trusty old Chase Freedom card, we will now get 2% back from Amazon. Plus I got a $60 gift card just for signing up, which is, as my father would say, better than a nail in the foot. I’ll be able to use my account at Credit Karma to see whether it helps it go up. (Your Credit Karmas score is not exact, but it’s the best you can get for free, and should show changes over time.)
It all seems a little skeezy. Fake-borrowing money just to prove that I can be trusted to borrow money? And here’s where it gets really unfair: Mr. FP has better credit than me. And the reason is that he took out a loan we couldn’t afford. That’s right. Right before the skipped payments started to hit the credit reports, we realized we needed a second vehicle for a variety of reasons. So while I was at work, Mr. FP went out and financed a three-year-old Honda CRV. I wasn’t on the loan because I was at work, and anyway I disapproved. I thought he should get an older, smaller car. Time proved me right and it is greatly to Mr. FP’s credit that he eventually admitted his error and sold the car. But that irresponsible decision boosted his credit to a remarkable and illogical extent. (Some of the difference in our scores is probably due to our joint credit cards being in his name, I think just because he was the one filling out the applications.)
I wish credit reporting companies had a better idea of your bill-paying abilities. I pay rent, daycare, all sorts of things that don’t show up. Am I the only one who finds it a little unfair that being actually responsible with credit does not necessarily lead to a good score?