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Beyond Your Credit Score

August 25, 2010

17 comments | Comment on this Article

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Whether you’re high flying with a credit score in the 800s or laying low in the 600s, you aren’t alone. Credit Karma compared the credit profiles of over 200,000 consumers with similar credit scores and found that the average Joe and Jane in the credit score range share more than three digits in common.

The Wrong Conclusion

When it comes to credit scores, many people assume that correlation is causality. For example, the infographic here shows that people with a high credit score generally also carry a large amount of debt. It’s easy to assume that you need excessive debt to have a good credit score. But that isn’t the case at all. The truth behind that conclusion is that only people with good credit - to qualify for credit cards with high limits, loans, and a mortgage - can accumulate large amounts of debt. Poor credit consumers don’t have a lower credit score because they don’t have more debt; they simply don’t have the credit score to even access those kinds of financial opportunities.

The Right Conclusion

The following infographic shows what kind of financial doors and credit habits consumers in each credit score range has, but again, correlation here isn’t causality. Here’s a short guide to why consumers in the 800+ range have a lot more in common that consumers in the 600+ range:

Open Accounts.Having more open credit accounts is good for your credit. You should always consider this credit aspect before closing your old accounts, which can damage your credit score.

Total Debt.It’s credit myth that you need to take out loans or have lots of debt to have good credit. That simply isn’t true. You will notice that people with 800+ credit score actually have less debt that those with 700-799 credit score. There is no exact correlation that more debt equals better credit, but the reality is that only people with good credit can accumulate debt.

On-Time Payments. Paying on time is one of the top drivers of a great credit score. Whether you have a few credit lines or many types of credit, paying all of them on-time is almost a guarantee for a good credit score.

Number of Credit Cards.Credit cards are an easy way to build credit. Contrary to popular belief, carrying a balance or paying interest isn’t what benefits your credit score. Simply using your card once a month and paying on-time is the key to building good credit. There are many people who have never paid a single cent of interest and still have pristine credit by properly using their credit cards.

Total Debt and Utilization.People with good credit actually use a much smaller percentage of their total available credit. Similar to the way they handle debt, good credit consumers know how to manage credit responsibly. For example, people with a credit score in the 800+ range are only using 5% of their credit limits, whereas people with a score in the <500 range are using over 100%.

Lastly, it is important to mention that all of these numbers are averaged and there are still differences across all metrics.

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Great article, until the next to last paragraph: "...whereas people with a score in the <500 range are using over 100%." <br/>
How can you use "over 100% (of your credit limit)", especially with the Card law that requires CC companies to decline an over-the-limit charge?

marknole1 1 year ago

Simple, say you had a $5,000 balance and a $10,000 limit. A lender could easily lower your limit to $3,000. Some lenders will simply shut down your limit completely. So you may owe $5,000 but have absolutely no credit limit. This happens quite often when you have a very low score

CK Moderator

Fees (finance charges, late payment fees, etc.)added to your balance can also make you go over your limit.

zapper202 1 year ago

i work at a credit card company and people can still go over the limit it just depends on how much it is over and their behavior with the account. not to mention if they have a high balance and the account cycles the intrest alone can can being it over. :)

welterm2008 1 year ago

My credit limit was $700 and somehow I got a bill for $800. Wells Fargo credit card.

FemaleCalifornia 10 months ago

well said.

enmanuel22 1 year ago

Decent article...to the person who wrote it, it's not totally accurate, but close - that is, in the REAL world, everyone is treated differently by all creditors, those of them who report to the credit bureaus or otherwise - For instance...as a borrower, you must understand that YOU just may be one of many of "the innumerable groups" of folks in this country of ours, who simply can't get through life without being on any ONE (or more) of your creditor's s**t lists. Despite your exhaustive efforts, nothing seems to help you to "get ahead." Are you one of these Americans? The other of these "groups" are chock full with folks who, by the grace of your personal God (or not), just continually slide down the "banister of life" with little or no difficulty with anyone or anything, certainly notwithstanding your relationship with your credit card companies, your mortgage holders and your bank(s), etcetera. Perhaps you are one of these Americans. The point is, IN THE REAL WORLD, CIRCA 2010, the line is extremely blurred between the have's and the have-nots, and I'm not just talking about your net worth, or your financial management behaviours. YOU ARE, indeed, in one of these groups. If you undoubtedly in the former, should the need ever arise, your SHEER ABILITY to ABSOLUTELY NEGOTIATE, TO YOUR ADVANTAGE, to the BLOODY END with ANY ONE or with ANY COMPANY that you are indebted to (or have a STOLEN IDENTITY ISSUE WITH)...whether your communication skills are best over the telephone or IN WRITING VIA SIGNATURE CERTIFIED MAIL...that line becomes a little or a lot less blurred for you when you are able to manage control of the final outcome! Your good luck, your personality traits and certainly the personality and willingness of the one who holds the cards (in the beginning, of course) are all a part of the equation. Good things happen to bad people, bad things happen to good people...it is, indeed, credit karma for sure.

So, here's to all of us who owe some thing to some body, unfortunately on THEIR terms, which YOU, the borrower, inevitably agreed upon. Be prepared: should the need arise, always find your way to always come out on top each and every time (or most times, anyhow!). If you can do this, consider yourself lucky by far, and know that you are amongst those of "THE HAVE'S..." See, It's not just about money anymore - it's about, but not exclusively about, THE POWER OF YOUR NEGOTIATION and without any doubt, THE SUCCESSFUL MANAGEMENT of YOUR LIFE!

(And) finally, here's to all of you who are debt-free, dependent on no one but yourself, and perhaps have discovered the key to your happiness and spiritual (or not) fulfillment! If this describes you, please, let the rest of us in on how you have become the "master of the banister." I'm not a pessimist, but chances are, you don't exist in our world here, particularly on this page - CREDIT KARMA folks, like us, may indeed be spotted here and there with "THE HAVE'S," but you...you with your mind, your balance sheet and your body in complete harmony with everything in life that is good, you're just not reading these comments (anymore, if ever). Ahh, yes, the benefit of doubt lies with the modern-day composer: maybe, at one time you did...perhaps twice even, or times-a-plenty. Today however, you've just not volunteered, nor have you been called upon for duty (by a higher power) to serve others here (or yourself...and justifiably so), here, in this camp of indebtedness, which was created to help folks like us, get to where folks like you are...

Perhaps we will see you there one day...hopefully, much sooner than much later.

mauscoman 1 year ago

I took the Dave Ramsey's Financial Peace University course through my local church with lots of support and group discussions of general things. No specifics were talked about in class. My husband and I spent 13 weeks writing down every penny we spent and analyzing it all. We started following the recommendations in week 1. Most of this is common sense. For instance, I developed a chart of all the food we had on hand, along with frequent recipes. One week out of each month we now live off whatever is in the house. We stopped eating out everyday 1 or 2 meals and went to 2 meals out per week. Cut our grocery budget by 88%.I've developed a whole notebook of ways to save money from our experiences. What I don't understand is that even though after 4 years we have no debt, have savings, and have never been late on a payment, our score is in the 700s.

zjowmaki 1 year ago

We have been living a cash lifestyle for the last three years and are quite content. The only reason that I am here is because, after we disapeared our credit cards and everything else except my student loan, our credit took a nosedive. We are now in a place where we would like to purchase a larger house because we need another bathroom and more space as our daughter gets older, but our credit needs improvement to pick up a mortgage with a favorable rate. At the moment, we gained one credit card and are on the road to improving our credit.

That said, we use the credit card and those we will get subsequently to pay for things that we ordinarily pay for anyway and pay them off each month just as if we were paying cash. Yes, content cash lifestyle people are lurking here.

OurFreshStart 1 year ago

Did you by chance close any of your credit cards after you paid them off? If you did, this could have a significant effect on your score. I have found that it is better to keep the credit accounts open that you have had the longest, use them once or twice a month and pay them off on time. This way you are still living on "cash" but also showing that you CAN utilize credit responsibly. If you do not have a "long" credit history, you wont be eligible for the same rates, credit lines, etc as people who do and are in good standing.

teal2020 1 year ago

Will a higher number of credit cards usually bring up the score? I have two accounts on my report, and CK gave me a grade F in this field. As I viewed the report card, I saw people with high scores tend to have more credit cards even to a number of 21+. While I was always confident in keeping a very low ultitilization of my available limit, I had been avoiding getting new cards because I was not sure how doing so would affect my score. If I will be able to handle a higher number of credit cards, should I go ahead and get more credit cards?

JackieCH 1 year ago

JackieCH

It is not just credit cards that are counted. All accounts that you have had in credit history. I have 57 accounts in that area, and trust me I have never had 57 credit cards in my 25 years of credit history. Right now I have 6 open credit cards, I use 2 to 4 depending on where I shop.

BriteBulb 1 year ago

You the man..I have 62 open use 2 the one I use all the time is a Sams discover..Every bill that can be paid by a credit card goes on that one..They pay You cashback once a yea rin Feb.This year it will be $1300 back..Thats how to get even with Credit card Co.

M333666 1 year ago

To a point, yes, but don't apply for more credit than you need. Maybe add one card a year or two years if you want a few more cards. That being said, in the short term your score might drop a bit due to the inquiry and shortening the average age of your accounts. Cheers

pstyr 9 months ago

Lots of people on FlyerTalk make it a sport to apply for credit cards that give cashback or a great number of points. From what I've seen we are talking $250 cash or 50k in points (good for at least two round-trip flights). I think you can apply for one card every 3 months. As long as you take precautions to handle any identity theft issues, I don't think its a big deal to have cards open that you don't utilize often. You can throw these cards into a safe or cut them up but record the info in a secure file. Its just doing the change of address can be a pain with so many cards though.

sunk818 8 months ago

exchelent my score ?

valucha 1 year ago

thinking that no matter what i do. I will never have a good credit score...my goal for the next three years is to not have any credit inquires, and just save save save I have to wait at lest that long for everyhting to fall off...

happycat2010 8 months ago