The Long, Arduous Journey to a Perfect Credit Score
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UPDATED: Jan 26, 2012
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Human beings are task oriented creatures. We operate best when we have something to do, and the inner-workings of our brains drive us to fill our lives with tasks. Perhaps the most obvious sampling of today’s society that illustrates this phenomenon is the population who enjoys video games—particularly games of the role playing variety. Progression in many role playing games results from the completion of mundane tasks, in which a player is expected to wander around and, say, slay 30 of a particular type of monster. Once completed, the game instructs them to go kill 30 of a different monster (which is ultimately the same thing, but with a different “skin,” or appearance). When put in terms such as this, the game loses a bit of its magic and mystique, yet people occupy their free time satisfying these trivial tasks hour after hour after hour. Why? Because we are task oriented beings.
And this isn’t exclusive to the video game population. It’s not gender-specific, and it’s not even something bound by age. Be it perfecting an art, completing newspaper crossword puzzles, reading books, or catching every reality show on television, everybody seems to occupy to their time and efforts by attempting to complete various tasks. But there’s a less known task that is beginning to not only gain momentum amongst more and more people, but it’s also starting to dictate their lives—that task is perfecting one’s credit score.
Perhaps it’s the sense of superiority that can be achieved because obtaining a perfect credit score is near impossible to do, or maybe it’s satisfying that inherent craving to fully explore and uncover mystery since nobody knows exactly what goes in to a credit score. Whatever the reason, this task sounds like the exact antithesis of “fun.” But setting entertainment aside, what is it that drives a sane person to pursue such a mundane, and often inconvenient, task?
A Little Bit of Credit Score Background
Credit scores, often referred to as FICO scores since are determined by a company called Fair Isaac Corporation, are used by lenders to determine a buyer’s financial credibility. Those with better FICO scores get better interest rates on financing. Barring certain fast cash personal loans, FICO scores are consulted for nearly every other type of personal loan.
The FICO credit score scale ranges from 300 points to 850 points. Generally speaking, any score above 700 is considered to be a “good” score. Only about 40 percent of consumers have a FICO score of 700 or greater.
But the perfect credit score seekers aren’t content with a “good” score—it’s not even acquiring the lowest personal loan rates that they’re concerned with. They’re seeking to break the fabled 800 ceiling, to join the elite few who have a credit score of 800 to 850—the 100th percentile of credit score holders.
King of the Ring
Ben Woosley, director of marketing and consumer research at CreditCards.com, explains that the best personal loan interest rates are usually reserved for those with a credit score of 750 or higher, according to a Bloomberg article. When one enters the credit realm of that high a score, the risk of default between a 750 and 800 is virtually none. Lenders will lend personal loans at the same rate to two borrowers with those two different scores. So, for all practical reasons, there’s no difference between a mid 700 and 800 score.
“If you’re at 780 plus, it’s all bragging rights from there,” Ken Lin, chief executive officer and founder of San Francisco-based Credit Karma, told Bloomberg.
Like the loud and boisterous television wrestling star that holds up his oversized belt of victory, or the silent chess player who cocks his head to the side, revealing the slightest smile as he moves his piece to secure a checkmate—everybody likes to win.
And that’s exactly what this provokes someone to pursue this credit-oriented task. It’s not about practicality, as they would acquire the best personal loan rates by simply keeping current on debts, and proving to be a credible borrower. When trying to infiltrate the FICO system and solve the credit score formula, it’s all about “bragging rights.” Often times, those bragging rights are only obtained by inconveniencing oneself to the point that leaves onlookers scratching their head in confusion.
The Cost of a Good Credit Score
Take Mayank Maheshwari for example. This 26-year-old business analyst from Jersey City, New Jersey, who was interviewed and reported on by Bloomberg, has an outstanding student loan. He said his FICO score is currently resting at 780, but he wants it higher—despite the fact that he can take out any personal loan at the best rates right at this very moment. Maheshwari can pay his student loan off in cash right now, but refuses to because he believes FICO will raise his score higher if he maintains timely monthly payments.
At a time when the nation is in uproar over paying high interest on student loans, this successful college graduate willingly carries his education’s personal loan, simply to raise a number to an arbitrary level.
But it’s not enough to simply extend lines of credit and willingly pay more interest on whatever types of personal loans borrowers carry. No, in order to ensure the growth of one’s FICO score, a consumer must devote significant time and effort to monitoring the reports different companies give FICO regarding that consumer’s debt management.
Whenever a credit-affecting transaction occurs between a consumer and a business, that business reports it to a credit bureau that analyzes and congregates credit data. That data is then synthesized to produce increases and decreases in a consumer’s credit score. If a payment is late, that consumer can expect his score to drop after the company has reported it to FICO. If a payment is on time, that consumer can expect to receive a slightly higher rate on his or her next personal loan, as their score would rise.
However, as with all things managed by humans, errors can occur. As a result, those on this long, arduous path to perfecting their credit score must make phone calls and submit written letters ensuring all reports about their credit habits have been submitted accurately and properly. Some write this off, thinking inaccurate reporting is a rare occurrence, but according to a study done by the Public Interest Research Group, 70 percent of credit reports have errors. Unless one is proactive, those errors can often fly under the radar until a consumer applies for a personal loan.
And the effect a reporting error can have on one’s credit score can be devastating.
Take for instance the Smart Money story of Brandon and Amanda Mendelson, a newlywed couple who saw their score decimated when a bank incorrectly said they had an outstanding personal loan: one that was purportedly taken out by them when neither of them even had a bank account, nor had every done business with a bank.
Or the story of Catherine Taylor, an Arkansas resident interviewed by the New York Times, who was denied employment because her credit report erroneously stated she was a felon due to the fact that a credit bureau mixed her up with a criminal sharing her name and birthday.
Given the inaccuracies possible, and the pure struggle one must endure in order to ensure their perfect credit score remains intact, it’s a wonder why anybody would willingly take this venture on. But, as repulsive as it may be to some, the pay off for these fiscally-prudent consumers can equate to thousands—if not more. Acquiring the best rates on various types of personal loans can prove to be worth the time and effort it takes to ensure a great FICO score. And, at the end of the day, the bragging rights make for a pretty good benefit too.