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The numbers will determine your fate
(lemmy.world)
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this post was submitted on 15 Feb 2024
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From what I understand it's a pretty shit system that doesn't work that well.
From the example posted here, it'd be extremely trivial to set up a system that doesn't deduct points because you paid off a debt. That makes zero sense.
Some dude may have come up with a basic model 20 years ago but it needs updating - any half decent data scientist at this stage would be able to build a better system.
A lot of the FICO scores (there are different scores for different things) don't ding you for it, but most of the monitoring apps use Vantage.
I find the difference between my FICO 8 and Vantage 3 to be as much as 100 points. Most people seem to have higher Vantage scores, but my FICO tends to be higher. They're different companies that use different systems.
It only negatively impacts your credit score if you are a bad credit customer.
A good credit customer with low credit would be one that has a few credit cards. They likely have a low limit because they have poor credit…say $750 each on three cards. A good credit customer would not let the balance exceed 1/3 to 1/2 of the limit, and pay the statement balance in full.
Now, suppose this person has these cards for one year, and another person with no credit cards or history, buy a 36 month car loan valued at $5000. To make the math simple I’ll say 0 interest, it doesn’t really matter for this level of explanation.
Customer A understands the game. They do exactly what they are supposed to, and are rewarded with a better reputation with the creditors, as well as a higher limit on their cards…lets say $2000 (though being a good credit consumer, they still do not charge more than they can afford to pay each month, and keep their balances under 1/3).
At the 35th month of this car loan, Customer A has:
Meanwhile customer B has:
Right off the bat, Customer A is looking like a far safer customer to lend money to.
At the 36th month, Customer A has:
Customer B has:
At the 40th month, customer A has:
Customer B has not changed.
It’s not that Customer B did anything wrong by laying their bill on time, it’s more like a divide-by-zero error. The sole source of information on their credit reputation has stopped reporting information and reported that they have ended their business relationship on good terms.
Had customer B been more like customer A (and honestly, those rules aren’t that hard to stick to…don’t charge too much and pay it off every month. That’s a very low bar to set for responsibility), it would be a little blip on their report that would even out over a few months. But because they didn’t, there is no new information coming in about their behavior as a credit customer. For the lenders, they aren’t following “no news is good news”. They need data to show that you are still willing to play by a very simple set of rules.