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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Wyätt Gwyön who wrote (69031)8/29/2006 2:58:23 PM
From: Elroy Jetson  Read Replies (1) of 110194
 
The credit score is based on the sensible idea that if you have a good income and sufficient assets, then you will also have a goodly amount of credit available to you.

Yes there are people who refuse to have a credit card, yet are still earning $150k per year and living in a million dollar home they paid cash for. But these people will have a relatively low credit rating.

People in this situation more typically have a credit card, and the lender has likely given them a credit limit of $50k or more. But these people are unlikely to have more than one month's worth of purchases on their card - say only $5k of this $50k limit.

This is why having a lot of available credit and using very little of it will give you the highest credit rating.

Being patriotic and spending yourself deep into debt will give you a much lower credit rating, even though all of your payments are on time.

Who would you rather lend $5k to?

A.) The person with $100k in available credit and only $2k actually used, or;

B.) The person with $10k in available credit who has $8k used.

C.) The person who has no available credit but claims they have a lot of money and a good job.

I would choose person A. If they get into trouble, they can pay me back my $5k out of their remaining $98k credit line. Who knows what resources persons B and C do or don't have. They may have a lot of money in the bank, or they may have been lying.
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