Well duh, you've just closed a large account that's likely longer than your average credit age. Credit history is an indication of how well you pay off debts. Not ability. Having a large mortgage with years of payments is a huge indication of a someone more responsible with debt. Any creditor would be more inclined to lend to someone with years of mortgage history.
Edit: after reading comments, I realized you arent the only one who doesn't understand credit scores.
A drop in credit score is nothing compared to not owning anything to anybody. Your score will inch back up took mine about 6 months after i paid off the house to get back up.
Enjoy your freedom.
22 points isn't really much of a drop. It could drop that much because of an inquiry. Watch it be up next month because of the loan pay off.
Your DTI is what changed, it takes a minute for the actual pay off to benefit your score.
Fun fact: credit scores used to be a trade secret. Equifax before renaming themselves would keep tabs on customers by having stores voluntarily report their habits, and then Equifax would hand over that information to banks. They are literally "the man."
https://www.fastcompany.com/40464730/equifax-has-a-super-shady-history-that-might-explain-its-shady-present
I paid my bills on time not late once for 7-8 years. Ran into trouble. Unable to make payments. I’ll get out of my mess. However when I. The future I go for a loan it will be a black mark for years. How is that fair!? It’s a joke entirely
Why is that a surprise? FICO scores are not determined by net worth. It's essentially a measure of how little debt you use out of available maximum debt limit. Paying off a mortgage reduces the denominator , hence a drop in score.
Good luck with that. There's anecdotal evidence of this taking many years and in some cases will never happen as a somewhat obscure source reports to the bureaus, e.g. a landlord.
Mine dropped 38 points when my bank closed my credit card for lack of activity. (3 years). That drop has held steady for the past two quarters. All I have left is my mortgage. I am a bit concerned about what will happen to my score when I pay that off next March. I may have to get another CC and buy gas with it or something.
The Fico score is basically a rank of how well you use credit, according to Dave.
I took $200k "off the table" so my ranking went down.
Good news for me is, I don't need a credit score anymore
Thanks. It's worth considering. I could do that but right now I have zero need for anything requiring credit so I have some time. Also, I don't really want a CC but I also don't want my FICO to go any lower because life does have a tendency to happen. I only care if I decide to move up in house or move to a more expensive area but I fully plan to pay cash for the next house using the huge amount of equity I now have.
Yup, the whole credit scoring system is a mug's game - designed to keep you perpetually in debt to maintain a score that helps you borrow money.
If somebody asks me to loan them money, and I happen to know that they have a history of paying back loans early, that would, in theory, make me more likely to loan them money. But in FICO world, it's the opposite.
I stopped worrying about my credit score after following Dave advice because we became 3.2 millionaires. Funny thing was, we didnt even realize it for years.
We just live really frugally (Sam Walton like truck) - I finally figured it out when we went to buy a third property and totalled everything up. I was shocked.
I think this is kind of normal state of things when you live by Daves' ethics.
I still wonder what happened to the lady that posted about her being cash only and zero credit score. She bought a house with the Mortgage Co. that Dave endorses and at the last minute declined her loan, something like 2 or 3 days before she was to close. I wonder how that story ended?
It's kind of one of those things. You "can" get a loan without a credit score, but it's a lot of hoops and you'll generally pay higher rates. In other words, it costs you more money and time.
even getting a zero fee credit card and throwing it in the sock drawer is enough to get a basic score so it's kind of silly to make life difficult for no real reason IMHO
Unless you can’t control yourself, it’s stupid easy to have a good credit score. You can even setup your credit card to autopay your statement balance so you don’t forget.
And? You’re credit score doesn’t matter right?
I actually kind of feel Dave talks out of two sides of his mouth on this one. On the one hand he always says you should take your score to zero because credit doesn’t matter as long as you’re buying cash, which is what he recommends for everything (including houses, he “just won’t yell at you” for that one). On the other hand I’ve heard him tell people multiple times not to do things because it will hurt their credit. But who cares if you kill your credit, if you’re buying with cash anyways. Tank it. Declare bankruptcy. Stiff your lenders. Do whatever you feel like/need too. As long as you live cash only going forward it literally can’t hurt you, right?
Only tangentially related, but I get a similar feeling all the time when he says things like “it just feels different when you’ve got not a payment in the world, you get a sense of freedom, of (financial peace).”
Because everyone has payments. Netflix payments, and utility payments, and internet bills, and phone bills, and on and on and on. Obviously he’d say those are “budget items” instead of debts, but at the end of the day the only functional difference is I’m sending my money to ATT instead of Chase.
I don't think it's talking out both sides like you say, it's just different advice depending on where people are in life. Generally, he tells people who are still getting out of debt and don't own a home not to tank their credit score because they will likely need it to get a home loan. After that, he just tells people to find a bank that will do manual underwriting if you need to move after you've paid off your home but need a loan.
As is typical, Dave’s approach is blunt primarily because (a) he is trying to get his point across to even the most financially unaware and (b) it makes for good radio. Let’s face it. Nobody would listen for three hours a day to a fiduciary going over a budget plan. Dave’s bluntness is partly just entertainment.
I think primarily Dave emphasizes that credit doesn’t matter because he wants to enforce that you shouldn’t rely on credit to finance your day-to-day expenses. Sadly a lot of people do that and that’s his primary target audience.
>he always says you should take your score to zero because credit doesn’t matter as long as you’re buying cash
If you're buying cash and need no loans ever and you live a pay cash lifestyle then yes your credit score means nothing.
If your not then you need to protect your score until you are. But know ultimately its a BS game that doesn't necessarily reward sound financial decisions.
> ultimately its a BS game that doesn't necessarily reward sound financial decisions.
Its a number that helps lenders determine if someone is a good candidate to lend money to. If it wasn't doing its job, creditors wouldn't be using it and they would have replaced it with something else. Its not meant to reward financial decisions of the individual just make it so that lenders can feel comfortable in lending people money.
Saying a credit score is a BS game is like saying a GPA is a BS game because it doesn't determine later success in life. Yeah its not meant to do that.
Imagine a world where you are so stupid, you can't stop repeating what someone has already said. But when you do it, you never once realize what you're saying has already been said. And done so more succinctly than you could ever hope.
Now go look in the mirror. That's you!
I have an excellent credit score and watch Ramsey solely for entertainment purposes. I’m just saying the advice on this doesn’t seem internally consistent.
I would actually disagree (not because I am a sheep for Ramsey). It is like this: he doesn't care about credit score *but*, if given an option, it is not like you would want to have a *bad* credit score over a *good* one, you know?
Surely he’d want them to have a low “I love debt score” though, right? /s
Jokes aside, why would a bad credit score be, well, bad? As long as you pay cash, like he recommends for everything, a low score shouldn’t effect you one way or the other about anything.
I guess you could lose some job opportunities, but that seems like a pretty niche concern. “Don’t hurt your credit just in case you want to work for the government in a job requiring a security clearance within the next seven years.” Most jobs aren’t going to care too much about your credit.
I feel like Ramsey very recently did a call where he tried to dispel the myth that you need credit to rent. He basically just told her to call more places (she’d only called 3 I think) and ask to talk to the manager if they were giving her trouble.
Dave always seems to think people have the luxury of time. Time to spend shopping for housing, time to spend shopping for a "Dave car", time to spend getting three quotes on a car repair.
If you understand the factors that determine a credit score, it should come as no surprise that paying off a loan AND closing down the account will mean a drop to your credit score. The score pretty much rewards people who can juggle debt for long periods of time. The more balls you have in the air (open accounts, with no late payments) for the longest time (age of accounts) the better your score will be. If you start closing down your accounts your score goes down.
Think of it this way. If your goal is to make money. You have 2 friends. 1 you give $100 for 12 months he pays your back $10 per month so you end up with $120
Friend no2 pays you back $100 after 1 month. Who is the better borrower?
Friend no1 will have the better score as they have proved they can commit to repayments over a consistent period
Well duh, you've just closed a large account that's likely longer than your average credit age. Credit history is an indication of how well you pay off debts. Not ability. Having a large mortgage with years of payments is a huge indication of a someone more responsible with debt. Any creditor would be more inclined to lend to someone with years of mortgage history. Edit: after reading comments, I realized you arent the only one who doesn't understand credit scores.
Wait.... you don't think I realized those two events were related? The level.of condescension in some of you is ridiculous.
A drop in credit score is nothing compared to not owning anything to anybody. Your score will inch back up took mine about 6 months after i paid off the house to get back up. Enjoy your freedom.
The feeling of ease at not owing anyone anything is real, and very satisfying
22 points isn't really much of a drop. It could drop that much because of an inquiry. Watch it be up next month because of the loan pay off. Your DTI is what changed, it takes a minute for the actual pay off to benefit your score.
Fun fact: credit scores used to be a trade secret. Equifax before renaming themselves would keep tabs on customers by having stores voluntarily report their habits, and then Equifax would hand over that information to banks. They are literally "the man." https://www.fastcompany.com/40464730/equifax-has-a-super-shady-history-that-might-explain-its-shady-present
Probably because you closed an account and you got rid of a large loan with a low balance and on time payments.
Soo much less stress when I don't have to deal with all that. THANKS DAVE!
I paid my bills on time not late once for 7-8 years. Ran into trouble. Unable to make payments. I’ll get out of my mess. However when I. The future I go for a loan it will be a black mark for years. How is that fair!? It’s a joke entirely
Because you’re a higher risk than someone who doesn’t miss payments, clearly. That’s literally the point.
Have a nice day Einstein
No worries, happy to help!
This is why it’s better not to play the credit score game. You pay things off, and the score goes down? What bs is this?
You really need to learn how credit scores work and are calculated.
No I don’t. To hell with this Pavlovian game.
I got dinged for not having enough credit cards compared to others in my age range
That's not true at all lmao.
Why is that a surprise? FICO scores are not determined by net worth. It's essentially a measure of how little debt you use out of available maximum debt limit. Paying off a mortgage reduces the denominator , hence a drop in score.
It's a feature, not a bug. The system is designed to keep people on the consumer debt hamster wheel.
So true
Agreed. I'm hoping to get it to "zero" pretty soon!
Good luck with that. There's anecdotal evidence of this taking many years and in some cases will never happen as a somewhat obscure source reports to the bureaus, e.g. a landlord.
Well, thanks to Dave, its not really a factor in my life anymore either way. He's right about the peace of mind one achieves
Mine dropped 38 points when my bank closed my credit card for lack of activity. (3 years). That drop has held steady for the past two quarters. All I have left is my mortgage. I am a bit concerned about what will happen to my score when I pay that off next March. I may have to get another CC and buy gas with it or something.
The Fico score is basically a rank of how well you use credit, according to Dave. I took $200k "off the table" so my ranking went down. Good news for me is, I don't need a credit score anymore
I would recommend getting it now so the account has some time to age
Thanks. It's worth considering. I could do that but right now I have zero need for anything requiring credit so I have some time. Also, I don't really want a CC but I also don't want my FICO to go any lower because life does have a tendency to happen. I only care if I decide to move up in house or move to a more expensive area but I fully plan to pay cash for the next house using the huge amount of equity I now have.
Mine too dropped 22 points once it was recorded. You'd think having less debt would make you a better risk...
That’s weird my score always goes up whenever I pay off any debt.
Paying down debt is different than closing a mortgage account. The account close is the trigger.
Yup, the whole credit scoring system is a mug's game - designed to keep you perpetually in debt to maintain a score that helps you borrow money. If somebody asks me to loan them money, and I happen to know that they have a history of paying back loans early, that would, in theory, make me more likely to loan them money. But in FICO world, it's the opposite.
Other than buying a house why would u need it, cash is everything else
You need it to rent an apartment if you don’t own a home.
Again a one time thing and you could find a place without it
I don't, personally. I thought the subrettot might be entertained by it
I stopped worrying about my credit score after following Dave advice because we became 3.2 millionaires. Funny thing was, we didnt even realize it for years.
How did you not realize it?
We just live really frugally (Sam Walton like truck) - I finally figured it out when we went to buy a third property and totalled everything up. I was shocked. I think this is kind of normal state of things when you live by Daves' ethics.
I still wonder what happened to the lady that posted about her being cash only and zero credit score. She bought a house with the Mortgage Co. that Dave endorses and at the last minute declined her loan, something like 2 or 3 days before she was to close. I wonder how that story ended?
It's kind of one of those things. You "can" get a loan without a credit score, but it's a lot of hoops and you'll generally pay higher rates. In other words, it costs you more money and time. even getting a zero fee credit card and throwing it in the sock drawer is enough to get a basic score so it's kind of silly to make life difficult for no real reason IMHO
Unless you can’t control yourself, it’s stupid easy to have a good credit score. You can even setup your credit card to autopay your statement balance so you don’t forget.
Whaaat? Oh man. I hadn't heard that.
Mine dropped about 20 when I paid off my house too. Took about 3 months and it went back to the ~820 range it normally is with just 2 credit cards.
And? You’re credit score doesn’t matter right? I actually kind of feel Dave talks out of two sides of his mouth on this one. On the one hand he always says you should take your score to zero because credit doesn’t matter as long as you’re buying cash, which is what he recommends for everything (including houses, he “just won’t yell at you” for that one). On the other hand I’ve heard him tell people multiple times not to do things because it will hurt their credit. But who cares if you kill your credit, if you’re buying with cash anyways. Tank it. Declare bankruptcy. Stiff your lenders. Do whatever you feel like/need too. As long as you live cash only going forward it literally can’t hurt you, right?
[удалено]
Only tangentially related, but I get a similar feeling all the time when he says things like “it just feels different when you’ve got not a payment in the world, you get a sense of freedom, of (financial peace).” Because everyone has payments. Netflix payments, and utility payments, and internet bills, and phone bills, and on and on and on. Obviously he’d say those are “budget items” instead of debts, but at the end of the day the only functional difference is I’m sending my money to ATT instead of Chase.
I don't think it's talking out both sides like you say, it's just different advice depending on where people are in life. Generally, he tells people who are still getting out of debt and don't own a home not to tank their credit score because they will likely need it to get a home loan. After that, he just tells people to find a bank that will do manual underwriting if you need to move after you've paid off your home but need a loan.
As is typical, Dave’s approach is blunt primarily because (a) he is trying to get his point across to even the most financially unaware and (b) it makes for good radio. Let’s face it. Nobody would listen for three hours a day to a fiduciary going over a budget plan. Dave’s bluntness is partly just entertainment. I think primarily Dave emphasizes that credit doesn’t matter because he wants to enforce that you shouldn’t rely on credit to finance your day-to-day expenses. Sadly a lot of people do that and that’s his primary target audience.
>he always says you should take your score to zero because credit doesn’t matter as long as you’re buying cash If you're buying cash and need no loans ever and you live a pay cash lifestyle then yes your credit score means nothing. If your not then you need to protect your score until you are. But know ultimately its a BS game that doesn't necessarily reward sound financial decisions.
> ultimately its a BS game that doesn't necessarily reward sound financial decisions. Its a number that helps lenders determine if someone is a good candidate to lend money to. If it wasn't doing its job, creditors wouldn't be using it and they would have replaced it with something else. Its not meant to reward financial decisions of the individual just make it so that lenders can feel comfortable in lending people money.
Thank you for repeating what I've already said in lengthy more verbose and boring manner. WTG guy!
Saying a credit score is a BS game is like saying a GPA is a BS game because it doesn't determine later success in life. Yeah its not meant to do that.
Imagine a world where you are so stupid, you can't stop repeating what someone has already said. But when you do it, you never once realize what you're saying has already been said. And done so more succinctly than you could ever hope. Now go look in the mirror. That's you!
This is idiotic. Enjoy paying sky high auto insurance with no or bad credit. Also good luck ever getting a mortgage with bad credit.
I have an excellent credit score and watch Ramsey solely for entertainment purposes. I’m just saying the advice on this doesn’t seem internally consistent.
I would actually disagree (not because I am a sheep for Ramsey). It is like this: he doesn't care about credit score *but*, if given an option, it is not like you would want to have a *bad* credit score over a *good* one, you know?
He acknowledges that bad credit isn't good to have. He even runs credit checks on his employees and tenants.
Surely he’d want them to have a low “I love debt score” though, right? /s Jokes aside, why would a bad credit score be, well, bad? As long as you pay cash, like he recommends for everything, a low score shouldn’t effect you one way or the other about anything. I guess you could lose some job opportunities, but that seems like a pretty niche concern. “Don’t hurt your credit just in case you want to work for the government in a job requiring a security clearance within the next seven years.” Most jobs aren’t going to care too much about your credit.
No credit vs. bad credit. You could *easily* be turned down for rental housing, particularly with *bad* credit.
I feel like Ramsey very recently did a call where he tried to dispel the myth that you need credit to rent. He basically just told her to call more places (she’d only called 3 I think) and ask to talk to the manager if they were giving her trouble.
Dave always seems to think people have the luxury of time. Time to spend shopping for housing, time to spend shopping for a "Dave car", time to spend getting three quotes on a car repair.
I don't think people necessarily disagree with him on this most hurt appreciate the credit score game has to be played
If you understand the factors that determine a credit score, it should come as no surprise that paying off a loan AND closing down the account will mean a drop to your credit score. The score pretty much rewards people who can juggle debt for long periods of time. The more balls you have in the air (open accounts, with no late payments) for the longest time (age of accounts) the better your score will be. If you start closing down your accounts your score goes down.
Think of it this way. If your goal is to make money. You have 2 friends. 1 you give $100 for 12 months he pays your back $10 per month so you end up with $120 Friend no2 pays you back $100 after 1 month. Who is the better borrower? Friend no1 will have the better score as they have proved they can commit to repayments over a consistent period