They're not even subtle about it. The system directly rewards you for being in enough debt to always be paying someone interest but not enough that you might file for bankruptcy.

I paid a credit card down from $1700 to $1200. My score went from 795 to 763. Fuck 'em and their fake money.

They like their little debt slaves

I'll take a lower score and no debt. They can eat their score.

"...we base our entire lives on"

The vast majority of people barely think about their credit score

Credit rating measures your profitability to the credit industry, if you pay off your loan early, they make in interest, thus less profit.

It is bullshit, but there are ways to game the system. Essentially, a higher credit score means you're a better mark for creditors. It means you pay your bills, but you're never debt free. In order to maximize your gains and keep the capitalist machine running, you always have to be leveraged in some meaningful way. Basically, if you're really poor, you're fucked, but if you can somehow manage your bills every month and put your normal expenses on a credit card of which you never use more than 50% of your limit, your score will go up. Finish paying off a car? Finance a new car! It's ridiculous, but that's what they want us to do to keep the ruling class in power.

It's categorically ridiculous how the credit system in good ol' 'Murica is based on you getting into debt so you can be deemed "trustworthy" by the banks.

Honestly, after 700, it doesn't matter if you're 765 or 800. You're already approved.

There is a lot of misunderstanding about credit scores posted here.

The purpose of credit scores is to answer only one question:

How good are you at pay back a debt if someone were to loan you some money?

Thats it. Everything on how the score is calculated is weights and measures to service that question.

The reason that making payments on an active loan improves your score, is because it is real proof you are getting money from somewhere (the credit score doesn't care where) and you're choosing to spend that money on an agreed payment on the debt. Lets say I'm a lender and I'm considering giving you money, and I see that someone prior to me make a similar agreement, and you're honoring that agreement to pay, then it gives me a good reason to think you'll also pay on debts you have with me. The reason your score goes down when you pay off your last loan, is because I can't see you still have the money to pay on a new loan. It means you're a (slightly) higher risk because I'll have to take it on faith that where ever you got the money to pay off the last one, you'll also be able to get that money to pay off the one to me. There's no guarantee for that, so its a risk to me, a lender.

Another thing I'm seeing missing in the discussion here is:

"Doing X makes your credit score go down"

Technically true, but many of those things that make it go down only do so for a short time. Maybe a month or two (using modern FICO score system).

There can be arguments as to which inputs they use, and how much each of those inputs affects the score. So much so, rating agencies themselves even change their minds over time. They update what they think is important and downgrade what they think matters less. You've likely heard of a FICO score. Over time there have been SIXTEEN DIFFERENT VERSIONS of what makes a FICO score source. Some of the variation you see when you get your score from different places is those places using slightly newer or older versions of the scoring system.

Unfortunately lots of organizations that have nothing to do with lending you money are choosing to use your credit score for their own systems. I've heard of insurance companies using FICO scores as inputs to how they calculate premiums, which they shouldn't do. Some employers are using these now to filter applicants. Those employers are perverting the credit score system (again, a system just for loaning money) as a measure of trustworthiness or fidelity. I wouldn't mind laws that prevent that as that isn't what credit scores are designed for, and doesn't answer that question.

My uhm, social score.. cough, I mean credit score is very good right now. I've been a good little capitalist.

ITT I’m seeing a few common misconceptions repeated by many otherwise correct and knowledgeable commenters without remediation. I’m addressing them here, because understanding financial systems empowers everyone, whether they wish to use them, change them, or burn them to the ground.

1. Lenders only see your credit score. Mixed truth. Lenders can order specific scores to get a quick idea of credit-worthiness, but for most credit decisions a credit report or ordered. (This is often called a hard inquiry, and indicates a credit was applied for. A single inquiry is basically ignored by most scoring models. Many inquiries in a short timespan can be considered risky.) Regardless, the report is the same one you see when you order it directly from a credit bureau.
2. Your credit score is universal. Mostly false. Credit scores are just someone’s guess of your risk to a lender based on data reported by previous lenders. Good guessers can make money guessing, but none are perfect, and some are only good at guessing risk for specific contexts. Who are they? First, there are the bureaus. They have various branded scores that they sell as products to lenders (for credit decisions) and borrowers (for credit building). Next, there are numerous companies who exclusively develop and sell scoring models. Finally, some lenders such as larger banks develop their own internal scoring models. All the above are adjusted regularly and tailored for specific industries and debt classes. I say “mostly false,” because it’s true that many scores use similar scales and the same records, which means they tend to rise and fall together. That’s why lot of people, even financial wellness advocates, often talk about “your score” as if it’s a single agreed-upon value, but the reality is scores are numerous, distinct, and variable.
3. Credit reporting agencies use personal information for scoring. Mixed truth. Many bureaus have affiliated entities that broker financial data for ad revenue, but the information they are allowed to distribute in credit reports is tightly regulated in most countries. (Exceptions: there are alternative scoring model providers who fill a gap of niche debt types sought by applicants with no credit history, such as LexisNexis’ “RiskView” which can use more personal details like address stability and online purchase history to determine risk.)
4. Credit history is permanent. False. Negative records like late payment, non-payment, and bankruptcies have expiration dates by law in most countries. Aside from when accounts were opened and closed, generally nothing in a credit report is permanent, and the scores can be extremely variable in practice.
5. I should worry about my old credit score. False. Credit scores are used and discarded. New score overwrites old. The only thing that persists would be a credit decision, if there is one. Most scores are partially based on transient data and thus can bounce around wildly. For example, VantageScore 2.0 can dip by over 150 points because a large transaction put a card slightly over the limit but then rebound 150 points after the balance is reported within the limit. Similarly, FICO 8 can jump by 100 points just because the applicant was added as an authorized user to a card with a long payment history. Likewise, most scores can rise and fall drastically based on credit utilization (which is usually reported based previous statement balance, meaning even if you pay off cards every month your credit score will fluctuate in proportion to variance in monthly spending).
6. Banks like credit card debt. ~False~ True. (Corrected by @[email protected]) Banks love it when you carry a balance. The interest accounts for the majority of their revenue.

The volatility of scoring is the most important takeaway, I think. The temporary nature of scores can be exploited pretty easily. If you understand how they work, you can often get the score you need at a particular time with a bit of planning. And the rest of the time, when you aren’t using your scores for anything, they’re vanity numbers at best.

Anyway, if I missed something or am wrong, please point it out.

I shat my credit into single digit range threeish decades ago (yeah, I'm a boomer puke). I couldn't even get a bank account until about eight years ago. I finally was able to get an acct, got a secured card, and built my credit up to 729. 'Upgraded' my secured card to unsecured, but left the limit at $300 to keep me in check.

Then I made the mistake for applying for a modest credit line with my bank. Not only did I get denied, but the hard credit hit put me under 700. Then my credit took another major hit because I used that card for more than 31% of its limit. Never once made a late payment, neither.

As I hoped that a line of credit could afford me access to an oral surgeon (which I really need to even consider dentures, as I have mucho malo in my mouth), and as I have no interest in writing a grant to cover it, I'm fucked, as oral surgeons don't seem to take Medicaid in my shit state.

If I survive another yearish, Medicare might be helpful, but the problems in my pie-hole might not wait that long.

I do not want a handout. I want the chance to pay it off and not leave it to Medicare...and not die of the infections spreading to either my brain (such as it is) or my heart.

(Yaay, America!)

Credit history length was shortened, lowering the score. Just give it another 5-7 years it'll build back up!

It’s ok, rich people don’t have to play by this system, so that makes it all better, right?

I have made the "stupid" decision to never get a credit card because I have, in the past, not been great at remembering to pay things off.

Because of that, I have virtually no credit rating.

How dare I choose to not get into credit card debt!

Credit score exists only to sell you more credit score.

Credit history is what lenders are interested in.

I'd say inb4 someone high on copium tries to justify it, but I'm already too late.

There are numerous proprietary score algorithms out there. The newer ones seem to have fixed this bug by factoring history of closed accounts but many online “free credit report” services still use the old ones.

Old algorithms would often penalize account closure due to sudden reductions in average credit age, available credit, or credit mix (any of which might apply to the OP, but especially if that car loan represented a significant portion of their credit history).

Likewise, they would sometimes reward new debt if it significantly increased available credit or added a unique credit type to the mix. For example, a first mortgage could bump a credit score by 30 points or more, even though the individual is no more credit worthy than they were before.

Regardless, I think a good thing to keep in mind is that banks tend to maintain their own internal scoring systems. So not only is there no such thing as “THE score,” but the scores people are referring to when they say that are mostly just one credit bureau’s estimate, based on their proprietary rubric, of how a lender MIGHT see a potential borrower’s likelihood of default.

Can someone explain why the credit score is so important for americans? Are most of them getting loans for things to live?