An Imperfect Credit Score is Not the End of the World

I often warn consumers about the little things that can have a big impact on their credit score. Today, I'm in more of a “don't sweat the small stuff” kind of a mood.

It is apparent that some people take this credit reporting stuff very seriously. In fact, one consumer recently took time out of his busy schedule to write to my advice column asking why, despite his many efforts, he couldn't get his score above 812. Apparently, people have a thing about being “graded.”

It is true that your credit score can have a big impact on your financial life; however, it is important to keep these things in perspective. Good people sometimes have bad credit scores. Besides, no one's obituary should ever read: “Stan was well respected by all three major credit bureaus.”

So, when does a credit score matter? Your credit history matters most when you are trying to obtain credit. If your credit report shows that you are not particularly creditworthy, you may be denied credit. Or, if you do obtain credit, it will be costly.

Credit reports might also matter when renting an apartment, obtaining insurance or securing some types of employment. Other than that, they don't count for much. In other words, there must be a permissible purpose for someone to view your report. For your protection, you are entitled by law to know who has received a copy of your report or inquired about it.

If your current credit score is negatively impacting your self-esteem, rest assured that time will help. The Fair Credit Reporting Act states the longest any derogatory information can remain on your credit bureau file is seven years from the beginning of the delinquency that led to the account being placed for collection, or seven years from the date of last activity on the account. Of course, you must start to pay your obligations on-time and as-agreed. It also helps if you don't take on too much debt or open too many accounts.

More about...Credit, Debt

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Moneymonk
Moneymonk
12 years ago

There were only 2 times in which my score was important to me.

Buying a house
Buying a car

other than that, I really did not care. If you are the type that often borrow money. I guess you would be more obsessive.

I don’t borrow often. So I am not FICO crazy

Anon
Anon
12 years ago

Don’t some rental apartments check the FICO score before approving a rental agreement?

CatWhisperer
CatWhisperer
12 years ago

As the post indicated, service providers other than creditors have tried to use credit scores to evaluate the risks of doing business with individuals. For example, insurance providers might perceive a correlation between credit risk and an individual’s insurable risk profile against which they intend to write a policy. How strong a correlation and whether there is also a relationship of cause and effect, or a relationship of common cause, may not be factored in so rigorously, at least not while obtaining the credit score is cheaper than creating and evaluating a risk profile appropriate to the business relationship, but… Read more »

Minimum Wage
Minimum Wage
12 years ago

Seven years? It ain’t necessarily so. I have a 20-year-old tax lien still on my report; the seven-year clock won’t ev en start until it is resolved. Also I have a creditor judgment which can be renewed, so it won’t go away after seven years either.

Dancinghawk
Dancinghawk
12 years ago

I’m one of those people that is a bit too invested in getting my credit score to the highest possible level — and it’s high enough that it doesn’t restrict me now. But it is worth it to be aware of financial obligations that are based on your credit score — I recently got my car insurance dropped by $120 because I had them re-run a credit check on me and adjust my payments, since I knew it had gone up from when I was last evaluated. I had to specifically call the insurance co.’s credit department to accomplish this;… Read more »

LivingReal Steve
LivingReal Steve
12 years ago

Keeping up on your credit report is important for another reason – false information and identity theft. Since the input of data is done by people we must accept the reality that mistakes can happen. Also is the reality of others using your personal information for their own benefit which can lead to a destruction of your own credit report. The sooner this is caught and dealt with the easier it is to fix. Since the law requires each of the three credit reporting bureaus to allow you one free annual report each it would be wise to set up… Read more »

Minimum Wage
Minimum Wage
12 years ago

So since my credit is in the tank (health/hospital/loss of income) and I can’t get it out of the tank on a minimum wage income, I guess I’ll never have credit again, I’ll always have to pay up the wazoo for car insurance (even though I have an excellent driving record), and I’ll just be broke the rest of my life. Got it.

LivingReal Steve
LivingReal Steve
12 years ago

By no means is that true Minimum Wage. Credit scores are as much a part of of good faith as paid off balances. Staying in contact with your creditors is crucial and making promises you can keep (in all areas of Life) is major. Call each of your creditors, arrange a payment that you can make (even if it is $5 a month) and stick to it – each and every month. They will no doubt balk (the minimum wage worker in the credit department, which is their job) but stick to your objective, state your plan to send $xx.xx… Read more »

LivingReal Steve
LivingReal Steve
12 years ago

By no means is that true Minimum Wage. Credit scores are as much a part of good faith as paid off balances. Staying in contact with your creditors is crucial and making promises you can keep (in all areas of Life) is major. Call each of your creditors, arrange a payment that you can make (even if it is $5 a month) and stick to it – each and every month. They will no doubt balk (the minimum wage worker in the credit department, which is their job) but stick to your objective, state your plan to send $xx.xx per… Read more »

NW-Woman
NW-Woman
12 years ago

What’s horrific to me is that one can have perfect payment histories and STILL have a low credit score. I just checked mine on Experian. It says I am a high risk — not the highest, mind you, but second from the bottom rung! It also shows I have a perfect payment history. I have zero liens, bankruptcies, etc. Totally clean. I have three credit cards and two store cards. One credit card has a balance on it that is 900. The limit on that card is 5000. I have paid off my mortgage and car loan long ago. That… Read more »

Dan
Dan
12 years ago

I started trying to get my credit score up when I worked as a loan officer while in college. It was 650 at the time.

I’m now 25 and my credit score when I signed my lease on my new apartment was 826.

All I did was the following:

– Try to keep your balance to available credit at 30%.
– Pay off the balance on all revolving credit every month.
– Keep a few different credit cards, but cut them up when they send new ones, using only one or two.

Roy
Roy
12 years ago

I agree with Moneymonk, with the additional observation, that a credit score still means nothing when one buys a used car with cash. Credit score is really only good for borrowing money, secured or unsecured and that part of my life is over. I don’t miss credit cards, the mortgage, or the car payment. I pay my bills on time, and my house is all mine. I don’t really care if someone thinks that I’m bad for not doing the unsecured credit thing. My overhead is obscenely low compared to anyone else who is borrowing money and I just love… Read more »

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