When It Comes to Your Credit Score, You Can’t Trust
As we’ve written several times, it takes years to build your credit score , and it takes just one payment to screw up (at least for a while). You have multiple ratings and not all accounts are passed to all agencies. A single account can affect your mortgage interest rate in the future. This is a big mess.
But when I asked people about credit recovery methods, I was amazed at several of the answers.
“We can all behave well for short periods of time, but it takes a really decent person to manage our finances well in the vicissitudes of life, including losing a job or diminishing income,” Janet Alvarez, Executive Editor, Wise Magazine . Bread , wrote me an email for this credit plummeting story . “Making the wrong choices in difficult times is an annoying reality for many of us (financial and personal stress can easily lead to mistakes), but we must strive to avoid it if we are to achieve a credit rating that portrays us as truly financially responsible. All the time.”
I understand what experts like Alvarez are saying: you won’t have a good reputation if you are not financially responsible. But to say that someone is worthy of creditworthiness only if they always pay their bills on time and in full, never apply for more than one credit card, and never go beyond the “appropriate” utilization rate set by the credit agencies is simply unrealistic. anyway.
Especially when lending agencies regularly make mistakes (according to the Brookings Institution) more than one in five consumers have a “potentially material mistake” in their credit history – and this becomes the cause of fraud .
And even minor problems can cause problems for years to come, as a What? I’m worried about? wrote:
I once had a ton of credit card debt and turned to a debt consolidation company for help (and they did!). However, when they paid off the balance of one of my cards, they (and I) did not take into account the tiny percentage accrued between the time the payout was received and the time it was actually paid out.
Fast forward a month and I get my application. I think it paid off, so I ignore it. Another month, and so will I. Fast forward a few more months and I get an unpleasant call from a credit card company. It turns out I was about 5 or 6 months late on a $ 2 debt, even though something like $ 10,000 or so had been paid a few months before.
This flaw remained in my credit score for years.
This makes less sense when you consider that even conduct that should be considered responsible – such as paying off debts – can negatively affect your bottom line, as Brownieisdoingagreatjo b says :
This happened to me because my HELOC came to an end and was closed. It was paid in full several years earlier. So my “available credit” plummeted overnight, and my score dropped from 800 to 600. A year later, it still hasn’t fully recovered.
Most importantly, there is no way to abandon the system. (It looks like the only way to do this is to have no active credit accounts for at least ten years — not that that would prevent errors from appearing on your report.) You are just participating in it. And the only fraud protection measures that it offers are credit blocking, freezing and monitoring – all provided by the agencies you never asked to be a part of, all conveniently and at an additional cost.
The oddseth commenter notes this:
At the end of the day, we must all remind ourselves that the goal of the credit rating industry is to keep our credit ratings as low as possible so that they can make as much money as possible from charging us interest. This is why stupid things like the number of credit reports you receive will affect your credit score, whether you have an ideal credit rating or why, if you forgot to make a $ 50 payment for more than 60 days, your ideal credit score the rating will decrease by 100+ points, even if you successfully repaid several cars, houses, etc. in a timely manner.
Miss Alvarez’s advice seems overwhelming and defeatist until you know she’s right. To have a perfect credit report, you can’t go wrong and it helps to have a head start (for example, a parent with a good credit history who opens a card in your name or adds you as an authorized user to their card when you are young). It’s just the way it is. It doesn’t matter what your day-to-day finances are or how responsible you think you are. It depends on a lot of arbitrary rules and luck. And there is nothing we can do about it but play by their rules.