Friday, August 1, 2008

High FICO Score -- Sitting in the Garage or on the Open Road?

I have a lot of high-FICO friends. I know they're high-FICO friends because they tell me. They can't help themselves. They like to brag. Sigh. Funny thing about a lot of these guys, though. They don't actually apply for a lot of new credit (because they don't want to lose any points). So what do they do with those high scores? Turns out, not much. Which leads to this question: what's the point of a high score if you're not going to use it?

When I think of their scores, and what they're doing with those scores (nothing), I can't help but shake my head. It's difficult for me to reconcile. It's a score that's not being utilized. It's nothing more than a cocktail-party discussion topic. In a nutshell, it's a show score -- akin to a show car. It's like a Ferrari that never leaves the garage. Very cool to look at, I agree. But not much good for anything else if you're not even going to put the key in the ignition every now and then.

Before you start posting a bunch of comments -- saying that I'm crazy -- hold your keyboards for a moment. Given this credit environment, it's probably wise to (mostly) sit on the sidelines until the situation shakes out. But that's not what I'm talking about here. What I'm railing against is the practice of never applying for anything. Ever. Or very, very rarely (like once every five years). These are the people I wonder about. Wouldn't it be nice to use that score every now and then (for something other than qualifying for lower insurance rates)?

I worked diligently to get my scores as high as possible. By the middle of 2006, I had scores that were between 750 and 800. What did I do with those scores? I certainly didn't adore them (OK, yes, I did think they were kinda cute; but still). I didn't walk around bragging about them. They didn't sit idle. Instead, while the credit environment was favorable (and the gettin' was good), I amassed as much available credit as creditors would give me. I did all of this without sacrificing my scores.

Today, despite having all of this available credit, my scores are right around 750. Still good enough to qualify for the best rates. Still high enough to get high-limit cards if I need another one. Still good enough to not worry about being approved for a card (see my recent post on American Express).

To be sure, we're now living during a very difficult credit climate. I think it makes a lot of sense to sit this one out. It's not a bad idea to ease off the credit pedal -- for now. I'll still apply for a card every now and then (I went nearly 300 days between my last two applications), but I realize that 2006 and 2007 are long gone. Now is not the time to jump on the road and do a bunch of dangerous passes.

Still, when the credit environment loosens up again (and it eventually will), what are my high-FICO friends going to do? I'm going to venture a guess that these high-FICO friends are going to keep on doing what they've always done -- not much. They're never going to put a key in the ignition of that high-powered vehicle.

And I'll keep telling them this: it's a nice score. It's a pretty score. It's a score that you can be proud of. But until you guys do something with it, it's nothing more than a show score.

I'd love to get your feedback on this topic. Am I way off base here? Am I crazy for thinking that everyone should use their credit score every now and then? Feel free to leave a comment if you've got an opinion on this topic.

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lupoman said...

Gonna have to agree with you Marcus, as usual. But only to a point, once you have all the cards and limits you need or want, there is no point to keep applying, unless of course for higher limits. I wouldn't apply for a card, just for the heck of it.

A Texan said...

This one have me stumped. I definately understand what you are saying and it's a very good point but as lupoman said if they have all the cards that they want/need then what else is there to apply for?

Now don't get me wrong, every now and then there will be new card offers that pop up but that doesn't happen on a regular. Let's say you have searched and applied for all the cards that you want what more do you apply for?

Credit Matters said...

I think this is a tricky topic. What I see happen is this: someone has a few cards -- and limits that are not all that high. Moreover, the cards that they do have don't offer a lot of rewards or other perks.

For example, I like to tout the Pentagon Cash Rewards card. You get 5% cash back on gas, 2% on groceries, and 1.25% on everything else. Cash is credited each month. In other words, this is a terrific card.

Instead of getting this card, these show-score people would rather not apply -- because it would mess with the score (even if only a little bit).

These are really the kinds of things I am talking about. To apply willy nilly just for the sake of applying? No. I would never advocate that.

But to not get a card -- a card that would make a lot of sense in the portfolio -- just because you're worried about your high score, well, that seems foolish.

Thanks for reading, as always.

A Texan said...

You're right. I think this topic ties back to yesterday's topic....people not taking 5 minutes out of their time to "know" about credit.

Even those with high credit scores may lack the 'knowledge' of knowing which cards to apply for and what cards are out there that offer great rewards because they dont search. They are content with what they already have in their wallet.

Credit Matters said...

Tex, this upcoming week I am going to explore my own portfolio. I'll rank them from top to bottom. Should be educational. It will also help me as well -- since I may learn that I no longer need a particular card anymore.

lupoman said...

Now THAT will be an interesting read!!
Ok now I see what your saying. If the card appeals to you, or you actually say to yourself, " I want that card!" then do it!

Credit Matters said...

Yes. That is exactly what I am saying, Lupo. If it's a card that fits into your plan, and you want it, you should grab it (high FICO be damned).

Just having a high FICO doesn't impress me. I've seen people with three cards who have high FICOs. I'd like to see them do something with it. Leverage it.

We're all beholden to FICO. Why not let it do something for us?

Credit Matters said...

Lupo, my portfolio piece will go this Monday.

SpaghettiBender said...

I agree with your post. However, I think it really depends on where you are in life with credit, and whether or not you have a home yet, need a car loan etc.

My mom is way over 800 in all three of her scores.
She never applies for credit any more because she's got everything she needs along with all the credit etc.
She never checked her credit scores till last year and she's 78!
She always paid on time every time.

Me, on the other hand, a FICO junkie. Mine sit around 715 as a middle score. I am still watching creditboards, and your blog to learn how to get it higher so when I do need to apply again, I will have the nice fat score to get the best deal.
I check my scores about once every three months.
I came out of having virtually the lowest score of all to the 700's by learning and reading and disputing!!

I am taking your advice on how to increase credit lines and making credit work for me as a tool to gain better things.
I have no debt on these cards with the exception of 15.00 per month that I spend on truecredit.

I recently put an offer that was accepted on a home. My first home.

I am in the phase you speak of: Using my score to gain more credit and higher limits, better rates etc.

Credit Matters said...

Spaghetti, congrats on the house. And congrats on building your limits and giving yourself options.

You're right, though. People like your mom don't need to take their score for a ride. On the other hand, I doubt she's running around with her friends and talking up her awesome FICO score. As far as she's concerned, she doesn't even need a score.

I'm still a youngin', though. I've still got some driving to do. Sounds like you do, too.

Thanks for reading.

Anonymous said...

Hi Marcus,
Some good reading here - thank you! I don't consider myself to be an expert by any means on the topic of credit as I began researching it about 5 months ago. I have "seen the light" and used used my great scores to get me over 200K in credit cards - many of which gave me 0% in interest for an entire year. Many of my friends/family make fun of me and say that I'm crazy for getting so much credit, but if you're responsible enough to handle it, you'd have to be crazy to not get excited about the doors that can be opened with this resource. I'm amazed at all of the great info on the net and attribute all of my success to learning from others, like yourself, who are willing to share knowledge with everyone else. Also, if this is a bad environment for credit, I sure wish I knew this stuff when it was good! 'Cause I'm doing donuts with my "ferrari fico" and it's paying off big time!

Credit Matters said...

Anon, I know that what I write is often counterintuitive but I know it works. I've succeeded at this stuff. I have a boatload of available credit (not debt) and I have high FICO scores. Regardless of what environment we're in, I am well situated.

Looks like you are enjoying the same kind of success. Amazingly, you are picking up this available credit during a difficult time. When the gettin' was good, it was a lot easier to grab nice initial approvals (with nice limits). Creditors are now issuing more conservative limits. But you're proof that high-FICO people can still grab credit -- during the toughest of times.

My friends smile and giggle at me, too, by the way. I giggle at them as well, though, when they tell me that they've got 2 credit cards with $7000 in total available credit. They have their way; I have mine.

I like my way better.

Thanks for commenting. And thanks for reading.

Joel said...

It's an interesting topic because I can agree with both perspectives. That said, I think credit should only be used when needed. The plan should always be:

Rebuild, Repair, Use diligently
Grow, Use diligently

Once somebody has their cars and houses and 2/3 high limit cards, there really isn't need to use them outside of establishing a business.

The idea is that you want to raise it so you have the power of choice. That's what a high fico score is, power. Power to choose.

Credit Matters said...

Joel, thanks for the note. I agree with your last statement. A high FICO gives you the power to choose. But choose is a verb. What's more, you said that a high FICO is power.

If you're not using that high FICO, then you're not getting much power from it, right? Or are you saying that a high FICO gives someone the power to choose to sit it out?

If that's what a high FICO does, then I would simply argue that it doesn't matter if the FICO is low or high; it's simply not being used at all.

Joel, I appreciate the comment. If you get a chance, post another comment. I'd enjoy getting a little more color on your previous post.

Thanks for reading.

Charles Clarke said...

To me, high FICO scores are nice because lenders tend to treat you much better. Lower rates, higher limits, great balance transfer offers. So I like to keep my scores high. I'm working on expanding my business(and learning about business credit versus personal credit along the way) and I've seen how lenders like the high scores, but really want more and larger credit lines. Since I've dropped the limits on lines in the past because of the feeling I had too much credit, this was a surprise to me. So now, I'm building the lines back up and getting more credit.

I think that if you like the high score and don't feel like you really need to do much, you should still try and expand your limits, lower the interest rates(even if you - like I - pay personal lines in full each month), etc. I also think you should try to have 5 or more times as much credit as you think you need so that if some situation comes up where you need to use the credit, you don't have to wreck your score as much to do so.

Having the extra credit available, but not used, will increase your score even more due to lowering your utilization rate.

And if you think it is crazy how companies start sending your no fee, 0% for 12 months balance transfer offers, you can always use to earn extra money(hundreds or thousands a year) by taking the offer and investing it(or put it in a CD if you like). said...

Charles, I agree with everything you said. I couldn't have said it better myself. Surf around my site and I suspect that most of the content will resonate with you.

You're my twin, pal.

Thanks for posting.

Anonymous said...

To me, being 800+ means that I've proven, more or less publicly, that I've organized my financial life to the point that credit no longer needs to be thought as a risk when given to me. Since it isn't a problem for me, it isn't something I think about so much, because the habits that got me here are ingrained. 800+ means I speak (spend) softly but carry a big (credit limit) stick.

And the FICO score has evolved to signify more than "just" creditworthiness; it's become basically a measure of character in an overly materialistic world. The Ferrari analogy, though understandable, isn't quite right because owners of Ferraris can't smugly claim that if the rest of the world owned Ferraris, the world wouldn't be as screwed as it is presently.

Charles Clarke said...

This is interesting to run across nearly a year later in this credit environment. And to see my typos... :-(

I loved my Advanta account and used it for the business purchases (for one of my businesses) to the neglect of Capital One. The same month I got a notice from Capital One that the credit line was dropped 95% due to non-use (and they couldn't raise it back up), Advanta told me they were going out of business and the line went away. And Swift Financial had started charging fees for using their line of credit unless you used it through the card, though without a grace period. Ugh! Apparently didn't have enough lines of credit ready for use!

I had just received a new Bank of America business credit line (nice 0% BT offer, promptly invested) after a weird conversation with an underwriter.

First more background: Since I knew less about credit in the 1990's (no then :-) I had closed my credit lines that weren't as good and kept the nice ones open. After 10 years or so, those old lines dropped off the credit reports. I had picked up some business lines in the mid 2000's not really knowing anything about business credit and not realizing that they wouldn't show up, beyond the initial inquiries, on my personal credit, but had not received any new credit lines because I thought I had all I needed. I started picking up some more business lines last year, using 0% and low % BT offers. The inquiries were still on my personal report and Discover reports the business line to your personal report (and after using the nice, through 2012, BT offer, my utilization was way high).

Back to the weird conversation.... The underwriter thought my 15 or so years of no new lines of personal credit was weird. She asked if I had a bankruptcy or something in there (though I had 3 lines which showed never late that were open since before that hiatus). I told her I paid cash for cars (changed now) and had since I had all the credit I needed then, saw no reason to get credit lines I wasn't going to use. She sounded like she didn't believe me, but still gave my business a small, but not toy, line of credit.

Important lessons here: Get a new personal line every couple years or so, so there are no "suspicious" gaps in your credit file even if you have to close a line or two. Have more *no or low balance* personal and business lines than you think you need so you have plenty of room to play with. Use those extra cards occassionally to keep them from killing your credit line. Maybe set them up on autopay with your regular bills going to different cards each month.

In other words for you Ferrari fans: Do regular maintenance and go out for some nice drives or you'll find everything has turned to sludge and you can't get very far at those times you really want.

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