My credit score has always lived on the periphery of my financial life. I’ve always had a pretty high score, and I’ve always been cognizant of it, but it’s not something that really impact my day to day life. It’s not like my income, which I track diligently. It’s not like my debt was, where I check it multiple times a day. My credit score is just a fact of my financial life, sitting quietly off in the wings.
UNTIL RECENTLY.
I have spent more time in the last month thinking about my credit score than the rest of my life combined. My credit score dropped a fairly significant amount and I didn’t know why. So I did as any money nerd would do, and dove deeply into my own financial past and the colorful world of credit scores to figure out what the heck was up.
My Credit Score History
I don’t want to brag or anything (seriously. Bragging about a credit scores is pretty lame), but I’ve had a credit score in the mid 700 range for the last five years or so. Even when I was still carrying student loan debt my score was really high. It peaked around 780 last year.
Today my score is 753. Still a high number that will impress the pants off any credit lender or bureau. But how did it drop? Why did it drop? What in the world is even going on with credit scores in general, let alone my credit score in particular?
What IS a Credit Score and Why Should I Care?
Credit scores are one of those financial things you’ve probably heard thrown around in conversation for years. Someone tells you that carrying debt is ‘good for your credit score’ and you’re all ‘ok, yeah, that seems correct because reasons.’
(Spoiler alert: carrying debt is NOT good for your credit score.)
Anyway, but before we can talk about the things that do and don’t help your credit score, let’s talk about what one even is.
What is a credit score?
Your credit score is a three digit number assigned to you once you begin to access and use credit. The higher the score the better. Scores generally range from 300-850. There are three main credit bureaus that determine your credit score, and each one has a slightly different formula.
What does a high score mean?
A high score says to money lenders that you can be trusted. Don’t get it twisted: whenever an institution lends you money, it’s first priority is getting it BACK. A high score says that you have a history of good money behavior, and therefore you’re likely to pay them back on time and in full.
What do I even need a credit score for?
Mostly to uphold our capitalist system. Any time you apply for a new credit card, a student loan, a mortgage, or even do something like apply for a new apartment or possibly a new job, your credit score will be checked. Without one, it’s hard to secure any type of loan.
What if I have a low score?
The cool thing about credit scores is that they fluctuate. If you have a low score now, you can get it up over the course of a few months. Low scores mean that you’re more likely to be turned down for some loans. Or if you do get a line of credit, you’ll probably have to pay higher interest rates.
Let Me At That High Score: What Effects Your Credit Score
While we are all still tied to the chain of capitalism having a high credit score is something that will serve you well. You’ll get better loan offers, better interest rates, and your financial life will just flow smoother.
I created a handy-dandy little PDF for everyone that breaks down credit scores and what goes into them. Snag yours here, and keep it on your phone or computer for an easy to read credit breakdown.
All the details you could ever want are in the PDF, but here’s a general breakdown of what effects your score.
-What types of credit you have. Student loans are factored in differently than credit cards.
-How much of your available credit you use. Using all of your available credit each month is a red flag.
-Delinquencies. If you missed two credit card payments three years ago, that shows up on your credit report and effects your score.
-New credit inquiries. Applying for a new credit card every six months will lower your score.
-Payment history. Got a few years of on time payments? Lenders love you. Miss payments every couple of months? That score is going down.
Back to MY Credit Score
After the initial feeling of ‘hey, what’s going on here?’ I realized that I applied for one business credit card last year, and had my credit checked when I was talking to a mortgage lender. Both those dinged my score and dropped it.
BUT ALSO
I realized that I have a missed payment dragging down my credit score! It’s from 2013, well before my financial awakening. But I also think it’s a mistake, because I closed my credit card before the missed payment date listed. A lesson is why it’s good to check your credit report/credit score!
I haven’t done anything about the missed payment mix up yet, but it’s on the to-do list. In the meantime, please enjoy your credit score downloadable!
It is strange that your score would drop so long after that incident. My biggest drop was 58 points when I bought a bunch of stuff to resell and my utilization was really high.
I know! I think it resurfaced somehow, because last year it wasn’t listed on my credit report. Maybe the company just reported it? I don’t know, but I’m ready to fight it.
Great breakdown on credit! I ignore my score, because it makes me want to put more money on my cards ha! I’m always like “oh cool! My debt utilization is so low! I can buy all the things!”
I’m not responsible with my credit, so it is best to remain ignorant in my case.
I have to disagree with your “what does a high score mean” answer. Not even disagree, necessarily, but I feel like it should be expanded to: “A high score says to money lenders that you can be trusted” to pay interest. A credit score basically gauges a person’s ability (and willingness, frankly) to pay interest. Let’s say I have a friend who paid off one of her smaller student loans early. When she did, her score did the opposite of what she anticipated: it DROPPED. Because she will no longer be paying interest to the servicer. But most people would assume that paying off a debt would cause their score to increase because, “Look how responsible I am! I paid off my loan early!” And that is just not the case. Credit scores are a useful tool to lenders because they make their money from the interest we pay, not just because they can “trust” us to pay back the principal balance. Sorry for the rant, but when I found that out, I definitely got fired up about it, and more people need to take that information into consideration.