I moved back the states at the end of May this year. I knew that this would be the place that I would live for a while, so I knew I wanted to purchase a home. I also knew that I wanted to re-evaluate my credit cards and what I was getting from them. I have carried 2 credit cards for a while.
For a long time the two cards I had were:
Card #1 - 10% of each purchase appeared as a point(s). Each point could be used for discounts on items from their selected store. Being that I was younger when I got this, it seemed like a really good idea. However, the realization finally came to me that I was never using any points. I didn't use any points because I never got anything for free, it was always a discount for some number of points that didn't correlate to the discount. And, there was never anything I wanted.
Card #2 - When I bought my last Apple Computer, I noticed they were advertising a credit card on the Apple Store that would net you around 1% of every purchase towards an iTunes gift card, 2% for purchases made from Apple. I have been using this card for some time and almost always have some sort of credit in the iTunes Store.
So, when I got home I decided to cancel card #1 and get a card that would benefit me more. So I opened a new account. The new account had a lower limit, but I am never near that limit anyway, so I don't really care.
A few months later, I finally found a house that I liked and went through the paper work to buy it. When the loan was finally approved they sent me a packet of information. One piece of that packet was a report that had some reasoning of why my credit score is what it is.
These are all paraphrased:
Reason #1 - Too much cash, not much debt
Apparently I pay my bills on time and that is a bad thing, I also live within my means.
Reason #2 - Not using enough credit
I have 2 cards, I pay them both off each month, and I am never close to the credit limit on either. Apparently this "living within your means" thing is really not what they like.
Reason #3 - Short length of accounts held
Well, I am sorry that I went out and found something that benefited me more, next time I will just let the credit card companies take advantage of me.
And that is when I realized that is exactly what is happening. Credit scores aren't just about how credit worthy you are, they are about how much money the bank is going to make off of you while you hold credit with them. Credit scores are a scam. Banks could have increased my interest rate based on this report because I am responsible and don't spend more than I should, and they would do this because they knew from my credit history that I might pay back the loan early which would result in them not making all that interest money.
Why does your credit score suffer when you close a credit card account? Because that is a little less money that they may make off of you.
Why does your credit score suffer when you pay off your entire balance each month? Because that is a little less money they make off of you.
Why would you credit score suffer if you live with in your means? Because they know that you will never net them as much money as someone who makes late payments and carries a balance.
I say we revolt and revamp the credit reporting agencies to more accurately reflect how credit worthy we are.