Who Are Credit Monitoring Services Working For?

[MineralMan]

Like many people, we subscribe to a credit monitoring service, not so much to watch our credit scores but for their monitoring for illegal access to our banking and credit vendors. I won't name the service we're subscribed to, but it sends me daily emails. More about that later.

Thanks to an inheritance, we have been able to get rid of credit card debt and pay off what was left of our mortgage and close out our car loan. Thanks, Mom and Dad! We miss you terribly during this season especially. You always helped take care of us for 96 years, and you're still doing that.

What is interesting to me is that paying off the credit card balances moved our credit score up into a range where it has never been before. That's nice, but we aren't planning any borrowing. On the other hand, paying off what was left of the mortgage and car loan had the opposite effect. Our credit score went down after that. Not hugely, but down.

The daily emails continue to arrive, though, which is what prompts me to ask the question that is the title of this post. Now, those emails are always encouragements to borrow money. Apparently, we can borrow lots of it, and the daily emails are crowing about that in large type.

Any AI algorithm would have determined that our recent activity was to shed debt, not to acquire new debt. All of which leads me to the conclusion that the credit monitoring service is being funded in the main by lenders, who seek to find people with high credit scores and loan them more money, until their credit scores go down again. Lenders, apparently, hate people who have excellent credit ratings. They want to lend you money until your score goes down.

That's some weird shit right there, it seems to me.

[Jacson6]

1. If you are writing about the free services...

then they make money by selling advertising and getting a fee for each loan that is made with their advertisements. Banks want every one to have a loan so they can keep the money coming in.

[MineralMan]

2. No, actually we pay for that credit monitoring service.

Not a lot, but we pay for it. That doesn't matter, though. They're still making most of their money from the ads and offers.

[MineralMan]

3. Credit card accounts make huge interest for the banks.

In fact, they benefit even more when your credit score slips and they can raise your interest rates through the roof. So, they don't really mind if you have a low credit score, as long as you are servicing your debt more or less regularly.

Mortgages and car loans are lower interest loans, for the most part, but they are secured - unlike credit care debt.

Lenders like people who have lots of debt but who make regular payments. Once their credit scores drop below a certain level, they can charge usurious interest rates on the unsecured debt and cash in.

[bluesbassman]

4. There are many factors to the algorithm.

Mortgage and auto loans are secured debt and don’t harm your credit score, in fact they help it as you discovered when you paid them off and they were no longer a current factor and thus lowered your score. Credit cards are revolving debt, and the simple explanation is that any debt to limit ratio greater than 25% will drop your score. One of the oddities of the algorithm is that if you cancel a credit card after paying it off, your score will often drop as your overall credit capacity has lessened and all those years of paying the card on time are moot.

As far as getting hit up for new loans, of course they do that as you have demonstrated yourself to be a responsible borrower.

[dumbcat]

5. Mine keeps telling me I need more credit cards

I have no debt and have always paid my bills on time. My FICO score has been between 812 and 832 for years, depending on my credit card balance at the time they check each month (I always pay it off in full at the end of each month.) Each month they tell me I need more credit cards. I have two cards, a primary and a back-up. I use the primary card for almost all my monthly expenses, food, cable, elec, water, etc., and pay it off each month. They keep telling me I should have at least 5 credit card accounts. That would raise my available credit availability and reduce my used credit ratio each month. That would raise my FICO score above 832.

I'm like WTF? Why do I need more credit cards? Why do I need a higher FICO score? I have no plans to ever borrow any money at interest for the rest of my life. As you said, a decent AI routine would be able to surmise that from my history. I'm sure they are just working for the credit card issuers, trying to rope folks in and tempt them to run up large balances that they can charge obscene interest rates upon.

[BlueBlud]

6. I am still only five credit cards away from economic nirvana.

Credit Karma says I need to take out five credit cards. Apparently, not having any outstanding loans, no debtors, no purchases, nada, is destroying my credit.

[FakeNoose]

7. I'm not in your financial position, but if I were

... I'd cut down those daily reports to perhaps weekly or bi-weekly.

All they're doing now is sending you ads for borrowing more money. It probably works for some Americans who don't mind the debt-load. But we retirees have other interests besides taking on more debt.

[MineralMan]

9. Well, we're certainly not rich. We're just out of debt, which

has been my goal for a very long time.

We did buy a different house before selling our previous one. The inheritance made that possible. The value of both houses was just about the same, so that was a wash. We neither made nor lost money on that move. Paying off the credit card debt did cost a bunch, but the load it lifted from our backs was an incredible boost for our situation. We're both older (I'm 76) so that was very important to us. Again, thanks go to my very frugal parents, who left behind an inheritance for their children and grandchildren to share.

Now, we have to keep ourselves out of any further debt and we'll be OK. We consider ourselves to be very fortunate.

[MontanaMama]

8. I purchase identity theft insurance for myself, my husband and my minor child.

That may be slightly different that a credit monitoring service. This insurance monitor our credit as well. Our SSN’s have been compromised twice at the IRS. It doesn’t cost a lot and I get a monthly report telling me what they’ve found, if anything and what to do about it or a report telling me all is okay for that month. For us, it’s money we’ll spent.

I also have freezes on all three of our credit reports but that’s a whole other thing. Credit reporting companies are a crock of crap in my opinion. Even banks can’t totally explain how credit scores work. That said, I fiercely protect my credit score. It is power in the marketplace should you need it.

[FSogol]

10. The way to get around that is to get a credit card and use it for grocery, gas, etc. Then pay it off

monthly. You are still using credit and your score stays high, but you still don't pay any interest.

I agree that the system sucks. Credit Monitoring Services work for the credit card companies. Their goal is to keep people in debt forever.

[MineralMan]

11. Oh, we still have the credit cards. We just pay them off every month

now. We understand how that all works. It's just that debt tends to build up over time, especially if you are self-employed with an irregular income on a month to month basis.

[Tree Lady]

12. We have pretty high score but lately

Score went down because credit cards lowered limits because we weren't charging enough. The only credit we have is home loan all other credit gets paid off monthly.

They don't like that. It's still a pretty good score but its a fine line between using credit and not.

[MineralMan]

13. Yes. Lenders want you to be in debt. It's their nature.

They're pretty venal about urging you to borrow. That's what they do, and that's all they do. They lend money and collect interest. That's their entire business model. If nobody borrowed, they'd go bankrupt.

[Ocelot II]

14. Don't get me started about credit cards.

Last edited Fri Dec 17, 2021, 02:50 PM - Edit history (1)

I am in a financial situation somewhat similar to yours. As the result of an inheritance, a severance payment for early retirement and the sale of some property I was able to pay off my mortgage and car. I have a couple of credit cards which I seldom use, saving them for expensive emergencies. Because I am absent-minded and careless I arranged to automatically pay either the entire balance or an amount well above the minimum every month. During the heinous summer of 2020 I used one of them (issued by a major bank which I shall not name but shall curse and spit upon its mother's grave) when two of my cats, one after another, became very ill, and the vet bills were huge. Though the amount was not close to my credit limit I should have paid it off right away, as I was able to do so, but in my usual absent-mindedness I didn't, but automatically continued to pay the sum in excess of the minimum every month.

I have not used the card for anything else for more than a year. I have had this credit card for something like 20 years and have never once made a late payment. I assumed they considered me to be a good, faithful, reliable customer - but a few weeks ago I received a letter informing me that after 1/1/2022 they would be raising my interest rate. WTF? I thought. The reasons they cited for this included the fact that I had no other outstanding loans - meaning no mortgage or car loans. This makes no sense to me at all. I finally concluded that they didn't think they were going to make enough money off me in the future because I rarely use the card and once the outstanding balance was paid off that would be it. So they were going to soak me on that balance for as long as they could.

I considered sending them a letter suggesting that the fleas of a thousand camels should infest the groin areas of all of their executives, but it would be a wasted effort so I simply paid the entire balance, as I should have done in the first place, which for them was a far worse fate. Now they can't make any money off me at all, and I'll bet they'll start sending me inducements to use the card again. So I have no doubt that your analysis is correct. They don't want customers who pay off their debts.

[MineralMan]

15. That sounds about right.

If you have a lot of credit card debt, you will get offers for "balance transfer" credit cards. They offer a 0 percentage rate for 6 months if you transfer debt from some other credit card to your new one.

Of course, if you're a day late in paying at least your minimum amount, they jack the rate up to the legal maximum. In fact, they know that you'll make a late payment eventually. Even if you pay on time every month, after that six month period, the rate will jump into the teens, percentage-wise. It's all a scam, designed to shift your indebtedness from one creditor to them, so they can make the money.

It's a racket, really. A usurious racket. Worst of all, we're all sort of stuck in that cycle. All it takes is one sudden expense you can't afford to boost your balance up to a level where they start making money. They know that will happen. They count on it.

[ProfessorGAC]

16. That Happens All The Time

For 20+ years on the was on the BoD of a community bank.
We used to see credit scores go down (Equifax and Transunion, mostly) when a longer term loan was paid off, or down, well ahead of schedule.
Over time, it goes back up to beyond where it was.
Seems counterintuitive, but their logic is that sudden paying down of loans is a precursor to another round of borrowing.
In fact, at our bank, we almost NEVER saw that happen. People didn't pay off a mortgage 40 months early and then start borrowing again. It would take around 5 months for the scores to rise up and past where they were. BY then, it's obvious to these credit bureaus that a renewed borrowing wasn't the intent of the payoff or paydown.
Credit cards are different. If you pay off a card, it becomes impossible to get a late fee. Late fees are a huge lever on credit scores. Once the balance is zero, the high interest rates no longer impinge on discretionary income and late and minimum payments go to zero influence.
Paying off a card with another new card doesn't make it go up, because the bureaus still have the information regarding total debt.
Like i said, their reasoning for that happening doesn't square with what we saw on a lending portfolio of over a quarter billion dollars, but they insist it's valid.

[MineralMan]

17. The most common reason a mortgage gets paid off happens

when the property is sold. At the closing, the title company wires the principal balance to the lender, after getting a quote on that balance on that date. It's much rarer for a homeowner to just up and pay off the balance.

Generally, when a mortgage is paid off because the property is sold, the previous owner immediately or soon after purchases a replacement home and finances that with another mortgage. So, the most common thing is a new mortgage that replaces the old one, for either more or less money.

The same thing happens with a refinance, the other common reason a mortgage is closed. In both of those situations, another mortgage is created.

Few people pay off existing mortgages without committing to a new one. Inheritances are one of the few reasons that happens. In our case, we had purchased our new home outright with funds from the proceeds of the estate, in order to downsize and have a new home before even putting the previous home on the market. So, when our previous house sold, the mortgage was paid off from the proceeds of its sale to a new owner.

Since we didn't get a new mortgage, the credit report won't show the purchase of our downsized townhome at all. No loan for that exists. I'm not sure what gets made of that by the credit analysis. All that will show is the payoff of the mortgage, with nothing replacing it. We also paid off a car loan a month later. That hasn't shown up yet in our credit report.

We're still using the credit cards, charging something on each of them each month and then paying off the balance each month. We're doing that both for our convenience as well as to keep an active credit history going. That's intentional.

[ProfessorGAC]

22. A Few Thoughts

People pay off their mortgages 2, 4, 8 years early very commonly. Usually it's by paying extra every month, or some decent amount of months.
I used to throw a grand of my bonus every year against the principal.
A majority of people just pay off their mortgage, so that's more common than lump sum payoff.
When the mortgage is paid, even if not in lump sum, that thing happens with the credit score.
We'd read comment cards or emails at every board meeting and it was quite typical to have a couple where people wondered why their score went down, now that they had no mortgage.
And that was before everybody was regularly following their score. Today, it would probably 4 or 5 a week.
It does not really make sense because it contains what I consider a silly assumption. But, it's been that way forever.
As to your new purchase, the lack of a lien actually works against you. They really have no accurate access to that ownership until the do a review of title transfers. They don't do that daily. More like once a quarter. So, that might be a major cause in the lag between the payoff & the confirmation that a new, wholly owned property is involved.
At that point, they are reasonably sure you didn't pay off the mortgage so you could spec out & build a new, grand estate, planning to borrow 3/4ths of a million or something.
That's why when the score corrects it typically goes well past where it was prior to payoff.
I was not only secretary of the board, but the chairman of the lending committee.
I learned a whole lot about this over 22 or 23 years. Probably more than I ever wanted to know. Including the fact that some of it makes no sense.

[MineralMan]

23. Thanks for the info.

It's all academic, really. We have no borrowing plans anyhow. Odds are that our next move will be to some assisted living thing. Our latest home will just be another asset.

[milestogo]

18. There was a widow in my neighborhood who never drove or handled the finances.

After her husband died she had to learn to do both, at age 70.

The first thing she did was cancel her husband's credit cards, which were all paid up anyway. The cards were in both names, but she never used them.

She received notice that her credit score had dropped rapidly even though she had made no inquiries, taken on no new debt, and not missed any payments, obviously.

Credit cards also represent your potential for going into debt. Somebody likes that.

[MineralMan]

20. Yes. The expectation is that you maintain a level of

available credit and service your credit balance regularly and on time.

It's never a good idea to cancel multiple credit cards, they say.

[milestogo]

21. Yes, she learned it the hard way.

And I learned it by talking to her. I would have thought no credit cards was better than half a dozen, but its not in the eyes of the credit monitors.

[marie999]

19. We have different credit cards for different types of purchases.

Different cards give different cashback for different purchases. All cards are paid off in full every month. We carry very little cash. We found for large purchases we can get a discount by paying with our debit cards.