Why does buying something bring down your credit score

151949 · ‎03-09-2010

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.

151949 · ‎03-09-2010

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.

libbyannE · ‎10-27-2010

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.

ALRATIBA · ‎07-15-2016

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%)

libbyannE · ‎10-27-2010

@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.

151949 · ‎03-09-2010

@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.

patbz · ‎03-10-2010

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.

scatcat · ‎03-15-2010

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.

itiswhatitis · ‎05-27-2016

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.

*Call Tyrone*

3suwm5 · ‎06-15-2016

@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.