First Person: I'm Still a Credit Deadbeat

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I used to consider myself a credit card deadbeat because I was a slacker about paying down my debt. Now, some credit card companies secretly call me a credit deadbeat because I pay my balance in full and on time every month. I'm not making them any money in interest or late fees.

Since credit card companies are in the business of making money, I imagine they don't like consumers who go to extremes by either neglecting their debt entirely or never having any debt.

Credit scores operate on the same philosophy as Dr. Phil, who often says "the best predictor of future behavior is past behavior." When it comes to personal finances, it's a little too simplistic to say past behavior predicts future behavior. In many cases, I've made financial decisions based on unusual circumstances. Still, I was interested to learn how the credit bureau data can be used to predict consumer credit behavior. A recent article by Credit.com says credit bureaus observe credit reports from two points in time to predict future behavior based on past patterns.

Making payments on time

Experts found people who filed for bankruptcy in 2012 showed more late payments in the two years leading up to the filing. It makes sense that people who are having financial difficulties will have trouble making payments on time. It hurts the person like me who occasionally forgets to make a bill payment. Most people file bankruptcy because of a major life event such as a job layoff. Just because they had a rough patch during the recession, doesn't mean they will ever neglect their bills in the future.

Keeping credit card balances low

The credit score developers also care about whether my credit card balances are low, especially compared to my credit limit. Since I have a high credit score, they evidently think I'm a consumer who poses a lower future credit risk. However, in my 20s I had a terrible credit score. The credit scoring analysts had no way of knowing I'd end up paying off all my debts. I realized I had to get out of debt while I was young enough to work 50 to 60 hour weeks. I reached my goal of becoming debt free by age 30.

Letting time pass

Experts say people have a better credit score if they have many years of credit experience. After getting out of debt, I still kept two credit cards. I had to let a few years pass before my credit score recovered. I also avoiding opening up too many new accounts since that isn't a positive predictor of future behavior, according to experts. By the time I turned 40, I had a nearly perfect credit score. I don't know if anyone would have expected that based on my credit score in my 20s. Now my credit score is even higher than my husband's.

Having a good mix of credit

Credit bureaus also like to see a good mix of credit. As I grew older, I took on "good debt" such as a mortgage. I paid off my student loans and credit card balances. I took out a new car loan to add to the mix. By setting up automatic bill pay through my bank, I was able to avoid any late or missed payments. Even though the credit bureaus don't know me, I know I can be absentminded.

If experts look at my credit behavior on a short term basis, they could probably accurately guess where I'm headed in terms of handling my finances. But over the long term, a person can change his or her financial habits. I went from being maxed out and overdrawn in my 20s to having an almost perfect credit score by the time I reached age 40. I didn't try to get a perfect credit score. It just happened by being as financially responsible as possible. And, the truth is, credit card companies don't make money off people who are too responsible.

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More from this contributor:

Overcoming my Credit Dependence

How I Repaired My Credit

I'm Glad I Talked to a Bill Collector

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