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The numbers will determine your fate (lemmy.world)
submitted 2 years ago by to c/microblogmemes@lemmy.world
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[–] 1 point 2 years ago (1 child)

It doesn't say that. You're drawing your own conclusion from the score decrease. Also, I didn't downvote you.

The only information we are given is that the OP paid off a debt and the credit score went down.

If that was the OPs only long term debt being serviced, (credit cards don't count), the credit agency now has no proof you can CURRENTLY pay off a new debt. Meaning OP is a slightly higher risk.

Credit agency has no idea where the money came from that paid off the debt. It only knows that OP was regularly finding money somewhere, and that OP was putting that money toward debt as agreed. Did OP lose their job after paying off the debt and doesn't have income anymore? Did OP have someone else helping them pay that that person won't help in the future? The credit agency has no idea. It only knows that in the past they were able to service the debt, and today they have no way to measure if they can. So it is a slight increase in risk, meaning slight decrease in credit score.

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  • [–] 5 points 2 years ago (3 children)

    All of that is technically true, but still kind of a shit policy as it consequently raises the cost of borrowing on someone who paid back the full loan plus interest.

    You can rationalize all these shit policies with any number of talking points. Some of them might even be actuarially sound. But they're still shit.

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  • [–] 1 point 2 years ago (2 children)

    Who would you rather give a loan to? A person who you know is currently able to pay you back or a person you know was able to pay back the loan 10 years ago?

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  • [–] 1 point 2 years ago (1 child)

    The person who just paid me back, because they can obviously pay me back.

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  • [–] 0 points 2 years ago (1 child)

    Exactly, so that answers the question. When you finish paying your loan, you stop paying back money and thus your credit score is slightly lower than when you were actively paying back.

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  • [–] 0 points 2 years ago

    That's the opposite of my point. Let me correct myself here. The person who just *finished paying me back because they can obviously *make every payment until it is paid back again, as they have obviously demonstrated.

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  • [–] 1 point 2 years ago (1 child)

    All of that is technically true, but still kind of a shit policy

    Your complaint is with lenders then, not credit agencies. If someone misuses a tool, its not the fault of the toolmaker, but the person using the tool. Would you blame a hammer manufacturer because it is really crappy at driving in screws? I would hope not. You'd be upset at the person using the hammer to try to hammer in screws.

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  • [–] 1 point 2 years ago

    Your complaint is with lenders then, not credit agencies.

    If the credit agency adjusts your score downward and then reports me out as "less credit worth" then my beef is the business that is effectively slandering me.

    If someone misuses a tool, its not the fault of the toolmaker

    If the tool reports inaccurate information, the toolmaker is at fault.

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  • [–] 0 points 2 years ago* (1 child)

    it consequently raises the cost of borrowing on someone who paid back the full loan plus interest

    This is mostly likely untrue because she was paying off her debt the whole time she had the loan, and her credit score and history were probably improving that whole time. Maybe her score went up 300 points over the years of that loan, and then dropped 35 points.

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  • [–] 3 points 2 years ago (1 child)

    her credit score and history were probably improving that whole time

    Until she paid it off, at which point it dropped.

    Maybe her score went up 300 points over the years of that loan

    Maybe, but I highly doubt it. And 35 points is a big drop when you're already in the 700-range. That can be worth a quarter point on a mortgage loan, which will end up costing you tens of thousands of dollars over the life of the note.

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  • [–] 1 point 2 years ago (1 child)

    And 35 points is a big drop when you’re already in the 700-range.

    Which means the tons of points she likely gained by paying off the debt for years saved her at least a point.

    I'm not arguing that a lower credit score isn't worse, I'm pointing out that cherry picking a single month movement to claim that she got screwed for doing something that actually likely helped her doesn't make any sense.

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  • [–] 1 point 2 years ago (1 child)

    Which means the tons of points she likely gained

    No. Because there's a soft ceiling. If she started in the 700s, she wasn't going to get a 1000 credit score by the end of the loan. Those don't exist. She wasn't going to hit 850 for carrying a single small commercial loan, either.

    cherry picking a single month movement

    This isn't cherry picking, its about incentives.

    If I'm carrying a car note and I don't want to be saddled with debt, I'm forced to take a credit hit because I'm finished paying my loan. This impacts the cost of a future loan when my car needs to be replaced.

    By contrast, if I'm loose with my money, I'm effectively rewarded for refinancing or rotating out my vehicle before my loan expires and remaining in debt indefinitely.

    The credit score becomes a means of penalizing people for failing to carry these burdensome loans uninterrupted.

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  • [–] 1 point 2 years ago

    If she started in the 700s, she wasn’t going to get a 1000 credit score by the end of the loan.

    Of course, assuming she started at 700, and not much lower. But even if she did start at 700 and only went to 800, that's still a net gain of 65 points.

    This isn’t cherry picking, its about incentives.

    lol. It's one number in a vacuum and you're basing your entire argument on it. Not only is it blatantly cherry picking, but you're assuming everything else in the favor of your position in order to make it as bad as possible.

    If I’m carrying a car note and I don’t want to be saddled with debt, I’m forced to take a credit hit because I’m finished paying my loan.

    All of that is technically true, but still kind of a shit policy as it consequently raises the cost of borrowing on someone who paid back the full loan plus interest.

    You're moving the goal posts now. Before your argument was that paying the loan back in full with interest hurt her, which is almost certainly untrue and what I was addressing, and now you are arguing that she would have been better off going for a new loan in the month before she closed out the loan than the month after. The latter argument I can't really challenge as much but is pretty meaningless.

    The credit score becomes a means of penalizing people for failing to carry these burdensome loans uninterrupted.

    I know this is BS from personal experience. I've only ever had a small car loan, which I paid off early, and a mortgage. I carried credit card debt one time about 4 years ago when we moved across country and my wife was in between jobs, and that was only for about 3 or 4 months until her pay checks started coming in. And there was a good bit of time between when I paid off my car and got our mortgage and we got a fantastic rate and my credit has comfortable sat about 800 for close to a decade now.

    Yes, it's annoying that you have to be using credit to prove that you can currently use credit responsibly. But what other way is there? Are they just supposed to assume you are good with credit because you don't use it? That's like thinking it's safe to believe some stranger you just met on the street because they have never lied to you before.

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