By Billy Liggett | The Rant
So I paid off a loan on an HVAC unit in January, and one of the Big 3 companies that monitors my credit score congratulated me the following week with a cheery message stating “Positive Activity: Loan Paid.”
That same day — mere minutes later — the company dropped my credit score by 3 points.
The following month, we closed on our house, selling it after 13 years of never missing (or being late on) a mortgage payment. The same “congratulations” message followed. This time, my credit score fell a whopping 25 points.
As we enter March, my family is in the market to buy a house. As such, I’ve been checking my credit score like I was following the fourth quarter of a game on my phone while at my kid’s school recital. A lot.
I’ve lived 44-plus years on this Earth and, ashamedly, have paid little attention to my credit rating up until now. Even when I’m sure it hovered in the low 400s back in the days when I could barely make rent, car payments and student loan bills, I didn’t worry about it much. Maybe I should have, but we’re all invincible in our 20s, aren’t we?
Today, I’m stressing. A late credit card payment or the appearance of a medical bill from 2014 (this has also recently happened) can wreak havoc on a credit score.
Apparently, so can actually paying off your debts.
The three main companies that monitor and determine our credit ratings — Experian, TransUnion and Equifax — have far too much power over our lives.
Even a small drop in a credit score can affect your interest rate when buying a house, costing you thousands and thousands of dollars over the course of a 30-year mortgage. Or worse, these scores can altogether keep you from buying a house. Or a car. Or a new HVAC unit. Or even an iPhone.
Bad scores can even prevent you from getting a job. Roughly half of all employers factor in your credit score when doing background checks. And 20 percent of all credit scores in this country contain at least one error, according to several studies.
This is nothing new. Credit rating companies are among the most complained-about companies in the world.
But when suddenly your life depends on a very good or excellent credit rating, you wonder how you haven’t always been stressed about it.
I’m fortunate. I’ve spent the last 20 years — guided by my ever-so-wise wife — repairing any damage my broke ass caused in the late 90s.
That’s what makes these “congratulations … we’re docking your score” messages all the more infuriating. The reason for the latest drop (from what I understand) is that having fewer open installment accounts can have a negative impact on one’s score.
In other words, get more credit.
To “help” me, one of the Big 3 is sending me regular emails telling me that my current score qualifies me for “top tier credit cards.” So the company that can make or break me is waving low-APR lines of credit in my face, encouraging me to go more into debt and potentially harm my score.
There’s no winning this game.
Fortunately, I’ve not read where writing a newspaper column to air my grievances against these companies can negatively affect my score. I’ll continue to watch the ebbs and flows like my own personal stock market, and the day we finally land on a house, I’ll gladly delete the app until it’s time to replace the family van that’s a year or two away from hospice care.
My advice — if you don’t know your credit score, find out now. There are free ways to do it (the companies are required to provide it for free once a month), and having that piece of mind will save you from disaster if your score is low and you need to buy now.
And I’d also say don’t stress too much, but the system is broken, and we’re paying the price. Literally.
I believe that the “Big 3” credit agencies are only required to provide one free credit report per year, not month as stated in the editorial. I agree with everything else that was stated. It is absolutely crazy that paying down debt lowers ones’ credit score! It disavows all common sense that cancelling a no longer used credit card or regularly paying down debt, without adding new debt, actually results in lowering the credit score. There has to be a better way that makes more sense! THANK YOU for your editorial, it is good, important information for people to be aware of.
Creditkarma is free and you can check your score as obsessively as you’d like. Also has a nice explanation of why your credit score decreases after a loan is paid off. It doesn’t hurt to have a credit card that isn’t used. Or better yet, get a rewards card and use it for all your monthly stuff- groceries, gas, whatever- and pay it off each month. Once this stupid pandemic is over, you’ll have a ton of travel points (or a bunch of cash back, your choice) and can enjoy some free fun.
Hi
You have some wrong information. The 3 are required to give you a credit report once a year not every month. So if you space them out you can get one free report every 4 months.
Also Creditkarma is a real FREE place you can go and get a decent idea of you credit score. I have used them for years.
If you make a late payment it will be on your credit for 2 years 24 months.
If you want to raise your score here are some things to do.
1. If you have a $2000 credit limit on a card they say don’t have more than 30% or $600.00 on that card.
2. Pay off your full balance every month on your credit cards. By they way you will save a lot of money in interest on the purchases you buy.
3. pull your credit once every 4 months.
4. If you are good at paying off your bills having several credit cards will help you raise your score.
5. have credit for long time. Longevity is one of the things they look at. So even if you don’t use a credit card you may want to keep it for longevity.
6. use a credit card a least once every 3 months. can be for something like gas or anything. Then pay off the full bill when it comes.
7 Live below your means and pay off all your credit cards every month. That gives you a return on your ,money of 12 to 29%. that is the interest you don’t pay the banks. You just got a very large raise.
For me when I refinanced my house with the same bank I lost 150 points on my credit because it was listed as a new loan and I lost my longevity of my long standing loan.
just some ideas to help on betting the system.
That is all real good advice. For a Bonus, my best friend does a trick that not only boosts his credit but he gets free travel all the time. He has one of those cards that gives you miles for your purchases. What he does is instead of paying his mortgage every month from his bank, he pays his mortgage with his flyer miles credit card. Then pays the credit card from his bank acct. It is brilliant. He boosts his credit score, and get free flyer miles. He and his wife travel around the country to a new location every three or four months. The mortgage company gave him a little resistance at first for using a credit card to pay his monthly mortgage, but they gave in eventually.
I agree i have credit card pay all bills then pay off get cash back on all my purchases .