I’m supposed to be the “Finance Guy”, but I’ll share a dirty little secret: My wife’s credit score is higher than mine!
OK, hers is quite high: 783 averaged over the three credit bureaus: Experian, Equifax, and TransUninon. According to her score reporter her score of 783 is higher than 93.77% of U.S. consumers. 783 is “Excellent” credit.
I find this all very strange since I recently cancelled a credit card that I had for 10+ years which had a $48,000 credit limit because they started charging an annual fee. This, I think, hurt my score. The other thing that hurt my score big time is a missed payment of about $95 dollars. This happened because my credit union was merged and the auto-pay for the annual fee didn’t go through. Ouch! And that was about 30 months ago.
It appears that the gold standard (true FICO) score average is 770. Moreover the best practical score is 785+. Notice that is very close to my wife’s average score. I’ll call 785 the platinum standard. Any improvement above 785 is essentially meaningless, except as a “game.” A 770 score will qualify you for just about the best rate on anything, a 785+ score will practically guarantee it. (NOTE: Lenders use more than your credit score for making lending decisions, such as your years in profession, years at current employer, current salary, and several debt ratios based on your salary, etc).
Since my current average FICO (2/3 FICO, 1/3 “other”) score of 747 is 23 points below the “gold” standard of 770, I wish to increase it by at least 23 points.
Here’s my plan:
- Pay everything on time with autopay. Double-check that there are no hiccups. If there are, promptly call the credit card company and ask how it can be fixed.
- Get 2 new credit cards. This will initially hurt my score, but I believe it will ultimately help. Whether it does or doesn’t is part of my credit-score experiment.
- Request credit-limit increases on all my cards… so long as they don’t require a “hard pull” of my credit score.
- Keep paying all but one of my cards balances in full every month. This means no “finance charges” (aka interest charges).
- Pay just over the minimum payment on my new 0% transfer-fee, 0% interest for 15-months “Slate” card. [Ironically the balance comes from my wife's card!]
So far some things have happened…
- I received two new cards. I requested a limit increase on one and they doubled my limit.
- I requested a limit increase on a card I have had for 7 years, and they doubled my limit.
- I asked about increasing the limit on a card I have had for 3 years, but learned that it would require a “hard pull” of my credit data. Thus I said, nevermind, keep the old limit.
- I requested a limit increase online for a 4th card. It was not clear if it would require a “hard pull”, but I will eventually find out if a) If and how much of a limit increase I receive, and b) if a “hard pull” was done.
Based on the credit score simulators at myFICO.com, and creditkarma.com, I anticipate that initially my score will drop between 3 and 10 points. That’s, OK. My goal is to improve my average FICO score over the next 6-12 months.
Depending on how #4 above turns out, I will easily have more than doubled my total credit limit from about $26,000 to at least $63,000. Since I am holding a balance on the zero-interest intro-rate card of $12,500, my credit utilization will be about 19.8%. This is higher that optimal (about 2-7%), but still far better than the 48% level I would have had, had I done nothing! It looks like the minimum payment will be $125/month at first, so I will pay about $135/month. Unfortunately auto-pay does not have a setting of pay the minimum balance plus X dollars. So I will simply set auto-pay to pay the minimum balance, and I will augment with monthly extra payments.
The thing to remember is that I won’t be paying a single penny in credit-card interest. In order to ensure this, I don’t dare charge anything on the “balance transfer” card, as the credit card company is likely to apply any payments in a way that is least favorable to me (e.g. most favorable to them).
Currently this experiment is just a game to me. My wife and I have a 3.00%, 15-year, fixed home loan that we got with a 50% down payment. I don’t see any reason to pay extra on that. Further my only other debt is the 0% on the teaser-rate balance transfer card. I have heard that paying even a single dollar over the minimum payment on such a card is a favorable sign for the mysterious credit score. I’m willing to throw a few extra bucks every now and then on the off chance that this is true. (However, just before the intro rate of 0% expires, I will certainly pay the full balance!!)
I will keep score on my little credit-score game using two free sources that are staggered by 2 weeks, and which both pull from TransUnion. I will also monitor my credit history on a revolving basis every 4 months, by pulling from each agency in a staggered basis (from www.annualcreditreport.com) for any evidence of unusual activity. The two-week (bi-monthly) staggered scores will be my benchmark for now. When I feel that my scores appear sufficiently awesome, I will probably pay a one-time fee to myFICO.com to get the “real deal” scores again.
So, here are my goals/plans for the next 6-12 months:
- Get a 770+ score based on TransUnion data (using free scores)
- Get a 785+ score based on TransUnion data (using free scores)
- Pass my wife’s score, if possible [again based solely on the two TransUnion-based scores]
- When I feel the TU-based scores are high enough, pull one-time myFICO.com scores to see if I really satisfied goals 1,2, and 3 on scores that actually count.
Since I don’t use credit for anything but a mortgage, my score doesn’t really mater too much. However, because credit scores can affect insurance rates for cars and home(s), I do care a little bit. However, mostly I care about testing my theories about credit-score improvement. And I care about good-natured competition with my wife, too
Please don’t take offence if I sound like I have a cavalier attitude about credit scores. I know that they can be incredibly important to people at various stages of life (such as when buying a first home). I have learned that mental “game play” can be a powerful “idea formulation” tool for ultimately making smart financial decisions. Temporarily framing the problem in terms of a “game” can help in separating emotion from cool-headed rationality. I take investing very, very seriously — however I have also learned a lot by playing games on the side with relatively-small “fun money” financial accounts. Credit and finance are serious and important topics. Perhaps ironically, introducing a little levity in the process every now and then can be a useful method of making serious progress and (sometime) serious money. At the end of the day I am serious…. however, before I take irrevocable actions, I often engage in fun as part of the decision-making process. When I commit to final decisions, I strive to be extremely focused and grounded.
I hope to keep updating this blog about my “credit experiment.” Hopefully my findings and observations may be of some use to you. Until then, all the best to you and yours!