topic Re: Why does buying something bring down your credit score in Community Chat

Why does buying something bring down your credit score

151949 — Sat, 05 Nov 2016 17:11:41 GMT

We recently bought a new Buick Enclave. We only financed $18,000 of the $45,000 value of the car but despite that it lowered our credit score 6 points. Now, yes, I recognize that 6 points is nothing overall, but I just don't understand. We have excellant credit score and very little debt we can easily afford to pay. Every bill is paid on the day it's received as DH is a fanatic about that. So why don't they want you to use your credit? I don't think people should use credit to buy everyday items but it is , IMO, appropriate to use credit to buy things like a car, boat, house, camper etc. large purchase items.Everyone tries to tell you that the more you use your credit the better it will be but that was not what happened - we used our credit and our score went down.

Re: Why does buying something bring down your credit score

151949 — Sat, 05 Nov 2016 17:16:19 GMT

3 years ago we made a large enough profit on our investments to afford to buy a new camper. When DH called our finance guy to ask for the money to pay for it he advised us to get a home equity loan because he was certain he could make more from our investments than the interest rate would be on the loan. We did as he advised and he has been true to his word - we make more keeping our money invested than we pay out in loan interest. BTW - I don't recall that loan lowering our credit score.

Re: Why does buying something bring down your credit score

libbyannE — Sat, 05 Nov 2016 17:39:37 GMT

Credit score involves a calculation of, in part, how much you owe versus how much credit is available to you, based on income. If you owe more, your score usually goes down. In our case, we both had credit scores in 820s for years, but it went down a few points after we took early retirement. Even though we have assets and high net worth and only have credit card debt which we pay off monthly, our drastically reduced income must be the reason.

Re: Why does buying something bring down your credit score

ALRATIBA — Sat, 05 Nov 2016 17:27:16 GMT

I never checked my credit score ... but I put almost everything I buy on my credit cards and pay them off at the end of the month. (I haven't paid interest on a credit card for many years.)

I just googled to find what impacts your credit score. Interesting ....

1. Payment History (35%)

2. Amount Owed (30%)

3. Length of Credit History (15%)

4. Inquiries and New Credit (10%)

5. Credit Mix in Use (10%)

Re: Why does buying something bring down your credit score

libbyannE — Sat, 05 Nov 2016 17:38:46 GMT

@ALRATIBA

We have not owed anyone anything since our 40s. I carry only a credit card and use it fior everything, and we pay it off totally every month, too. In spite of that, our nearly perfect credit went down just a few points after we took early retirement, so that must be because our earned actual income is so much lower.

Re: Why does buying something bring down your credit score

151949 — Sat, 05 Nov 2016 17:42:47 GMT

@ALRATIBA wrote:
I never checked my credit score ... but I put almost everything I buy on my credit cards and pay them off at the end of the month. (I haven't paid interest on a credit card for many years.)

I just googled to find what impacts your credit score. Interesting ....

1. Payment History (35%)
2. Amount Owed (30%)
3. Length of Credit History (15%)
4. Inquiries and New Credit (10%)
5. Credit Mix in Use (10%)

I guess the inquires and new credit is what did it, but I still don't understand why they penalize you for using credit responsibly. Aren't we supposed to buy things to help the economy? We too buy everything using our rewards card and pay it when the bill comes because that is how we build up our rewards - which is the point of a rewards card.

Re: Why does buying something bring down your credit score

patbz — Sat, 05 Nov 2016 17:43:31 GMT

The factor that gets me is credit history; I got my first card and my first car loan at 24 (now approaching 73). We are around 820 per Credit Karma, which includes things you can do to improve credit. Five years ago (due to a second home and major medical) we were 75 points less and the thing that helped the most was consolidating our credit card debt with a personal loan. We also now pay every card in full at end of month.

Re: Why does buying something bring down your credit score

scatcat — Sat, 05 Nov 2016 17:47:23 GMT

We have a Discover card that shows our credit score every month. It is never the same month to month. We pay all our bills in full every month. My DH was in banking and used 3 credit bureaus for loan decisions. Very rarely (like never) were the 3 scores for the same person the same. I wouldn't get caught up in a 6 point dip.

Re: Why does buying something bring down your credit score

itiswhatitis — Sat, 05 Nov 2016 17:52:28 GMT

It is your debt to income ratio. Just like buying a home. Credit scores are dependent upon how much you earn vs. how much revolving credit you have.

If your yearly income is $50,000 and you're in debt for a total of $100,000 this will affect your credit score in terms of a downward spiral. So, the more credit you use and have at your disposal, and the more you use without a change in income your credit rating will be affected.

No, no one said credit cards are supposed to help the economy. Credit cards, help the credit card companies more than they help you.

Re: Why does buying something bring down your credit score

3suwm5 — Sat, 05 Nov 2016 17:56:09 GMT

@ALRATIBA wrote:
I never checked my credit score ... but I put almost everything I buy on my credit cards and pay them off at the end of the month. (I haven't paid interest on a credit card for many years.)

I just googled to find what impacts your credit score. Interesting ....

1. Payment History (35%)
2. Amount Owed (30%)
3. Length of Credit History (15%)
4. Inquiries and New Credit (10%)
5. Credit Mix in Use (10%)

@ALRATIBA Indeed, it's a process they use to determine. It may not make sense to us, but they use what they want and that is that.

Re: Why does buying something bring down your credit score

Allegheny — Sat, 05 Nov 2016 17:58:55 GMT

As long as I'm the the 800s and it only fluctuates a few points I don't try to figure it out or obsess about it. There are so many factors that can affect credit scores anymore it makes my head spin. I don't like the fact that credit scores influence so much, like car insurance rates, etc.

I'd love to see my Uncle's credit score. He has never had any credit cards or loans. So basically he has little to no credit history. At his age he doesn't understand it nor does he care, he has enough money to last him a few lifetimes.

Re: Why does buying something bring down your credit score

151949 — Sat, 05 Nov 2016 18:03:41 GMT

My point is - if your credit score is in the 820's and you go and make a large purchase - and don't even take a loan for the entire value of the purchase - it should not bring down your score. If your crediut score is high and you have a history of paying your bills you should not get penalized for making a purchase. I don't think they calculate these credit scores as they should.They have taken something that is very simple and made it very complicated.

I had an Uncle who passed away a couple years ago, he was a rocket scientist - literally , he worked for NASA - and he would often say even a rocket scientist can't figure out how they do these numbers.

Re: Why does buying something bring down your credit score

BlingQueen022 — Sat, 05 Nov 2016 18:02:01 GMT

I never had my credit score go down at all after making a major purchase. My score is over 800 and I get zero percent financing from Toyota every time I buy a car from them and that's usually every three years. I'm not retired so maybe that makes a difference not sure.

Re: Why does buying something bring down your credit score

itiswhatitis — Sat, 05 Nov 2016 18:05:04 GMT

@151949 wrote:
My point is - if your credit score is in the 820's and you go and make a large purchase - and don't even take a loan for the entire value of the purchase - it should not bring down your score. If your crediut score is high and you have a history of paying your bills you should not get penalized for making a purchase. I don't think they calculate these credit scores as they should.They have taken something that is very simple and made it very complicated.

get over it. They're not considering the part that's not financed. They're considering the amount that you borrowed on top of whatever else you got going on! It shouldn't....it shouldn't? It does, it does! Lobby your congressional officers for a change to the methods of calculating FICO scores.

Re: Why does buying something bring down your credit score

151949 — Sat, 05 Nov 2016 18:06:11 GMT

@BlingQueen022 Actually, they either give those 0% financing deals or they discount it off the sticker price. It is all just where they give the money back.

Re: Why does buying something bring down your credit score

pdlinda — Sat, 05 Nov 2016 18:06:35 GMT

My credit score is 830 and I always keep a small balance on the 2 cards I use as that's what I was advised to do years ago.

Some sector of the economy must be financially benefitting from this "mumbo-jumbo" of the FICO scores. I wonder who that is???

I agree it shouldn't be so confusing and complicated.

Re: Why does buying something bring down your credit score

151949 — Sat, 05 Nov 2016 18:12:07 GMT

@pdlinda wrote:
My credit score is 830 and I always keep a small balance on the 2 cards I use as that's what I was advised to do years ago.

Some sector of the economy must be financially benefitting from this "mumbo-jumbo" of the FICO scores. I wonder who that is???

I agree it shouldn't be so confusing and complicated.

The problem with "keeping a small balance" is they charge the interest on the entire total on the card every month so if you keep $100 balance they are charging you interest on that balance month after month after month. However, I have also been told by my neice who is a bank VP that it does raise your credit rate to keep a balance.

Re: Why does buying something bring down your credit score

KathyPet — Sat, 05 Nov 2016 18:11:39 GMT

Your score may have dropped not because you actually borrowed money for the car but simply because your lender inquired on your credit history. INquiries from potential new credit grantors can affect your score a little bit.

Re: Why does buying something bring down your credit score

itiswhatitis — Sat, 05 Nov 2016 18:13:28 GMT

@pdlinda wrote:
My credit score is 830 and I always keep a small balance on the 2 cards I use as that's what I was advised to do years ago.

Some sector of the economy must be financially benefitting from this "mumbo-jumbo" of the FICO scores. I wonder who that is???

I agree it shouldn't be so confusing and complicated.

@pdlinda Oh, rich people like Suze Orman and the banks that give you loans! Credit (no matter who is espousing the principles = extra income for the bank or finance agency). Believe that. Got a credit card with a 15% APR? Not too bad. How about those store cards with APRs of 23% and more? Grrrr. We sit confused while they make billions to extend to other rich people in the form of credit.

Re: Why does buying something bring down your credit score

151949 — Sat, 05 Nov 2016 18:16:34 GMT

@KathyPet wrote:
Your score may have dropped not because you actually borrowed money for the car but simply because your lender inquired on your credit history. INquiries from potential new credit grantors can affect your score a little bit.

And we had several inquires I bet because DH looked at several different cars all summer long, and spoke to many salesman before deciding what he wanted to buy. It was kinda his summer hobby this year. He couldn't wait for the 2017's to come out and then it ended up we bought a 2016 and got a great discount for buying a left over from 2016.