…for a hamburger today.
That was the signature line of Popeye’s pal, J. Wellington Wimpy. Even as a child I quickly surmised that Wimpy’s credit worthiness was not good.
These days, credit score is an important financial issue. I regularly receive e-mails about checking my score or how to improve it but I’ve always ignored them. Since I’ve never been denied credit, I was not at all curious about my credit score.
I was fortunate to begin my credit history with a respected name: American Express. In the second semester of my senior year in college, American Express offered me a “pre-approved” credit card. The letter stated that the company was confident in my future and they wanted to establish an early relationship with me. All I had to do was accept the offer and I’d receive their green card. And so I did…
I sure did enjoy seeing the looks on store clerks’ faces when I presented that card for payment. I’m sure they wondered how someone so young qualified for an American Express card.
After a year, I used my credit history with them to obtain a bank card. I also upgraded to the American Express gold card. After that, I regularly received “you’re already approved” offers for various credit cards.
I did a bit of research into credit scores. The FICO credit score is named after the company that developed it – Fair Isaac Corporation. It first began developing credit evaluation systems in 1958. But the FICO score we know today did not come about until 1989.
The FICO score combines various aspects of your financial history. The most important aspect is payment history, which is 35% of the score.
I know my score for that factor is excellent since I’ve only missed a payment once. I thought I had mailed the payment but had not and when I was charged a late fee I called the creditor. After reviewing my file, they waived the fee since I had never previously missed a payment.
The second most important factor is total debt, which is 30% of the score. My total debt has always been low. Except for house and car loans, I always pay the entire credit card balance, which the companies probably don’t like since they aren’t going to earn any interest from me. Now that the house and car are paid for, I have no debt and so my score there is not an issue.
Other factors in the score include the age of your credit history (longer is better) and the diversity of your credit history. From all these factors, a credit score between 300 and 850 is developed. Unsurprisingly, older folks tend to have a better credit score than younger folks since their credit history is longer.
For enquiring minds, I researched the distribution of credit scores. About 18% of folks have a a score above 800. About 19% have a score between 750 and 799. And about 15.5% have a score between 700 and 749. Math wizards have already calculated that those three groups account for a bit over half the population with credit scores.
Now what do those scores mean? A score between 660 and 724 is “good” and is near the average of most folks. A score between 725 and 759 is “above average” and means you are a very “dependable” borrower. A score above 759 places you in the “exceptional” category and will get you the best interest rates when seeking a large loan.
Recently, one of my credit cards (Discover) began including, for free, my credit score in each monthly statement. This year was the first time I learned my credit score and I was pretty surprised that it is 822 out of 850. No wonder I keep getting all these “pre approved” offers.
I was even more surprised to see my wife’s credit score. Hers is 827, or five points higher than mine. Wow!
Of course, now that I’m retired I don’t need much credit. House and car are paid for and those are two big purchases usually needing good credit. I’m also closing some of my lesser used credit card accounts, which I understand can lower your credit score. (Maybe that’s why my credit score is lower than my wife’s.)
But it’s good to know my credit worthiness is “exceptional.” I’m sure no one will turn me down if I promise to pay them on Tuesday for a hamburger today.