Credit Score

Credit Score Obsessed? Don’t Be.

Comments 3 Comments

It may sound strange coming from the president and CEO of a credit scoring company, but when I meet someone obsessing over his or her credit score, I always tell them the same thing: don’t worry so much about being up 10 points or down 20. Instead, focus on the direction your score is moving in and investigate how individual items in your history are helping or hurting your credit profile. Once you put that knowledge into action, and can do more of the positive behaviors and minimize the negatives ones your good score will come. Here’s how it works.

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Credit score models like VantageScore® are “generic” models, meaning they are made available for use by all consumer loan providers. Generic credit score models calculate a score by running a consumer’s payment and debt management information found in their credit file through a complex mathematical formula to derive a 3-digit number. Most credit score models result in a number − the higher the number, the better the score. And if the consumer properly considers the information in the credit file, and manages debt behavior in a responsible manner, the score should improve.

Most lenders report consumer payment and debt behavior to three separate national credit reporting companies (CRCs), Equifax, Experian and TransUnion, which each maintain a credit file on you. That credit file information is combined into your credit report at each of the CRCs and is used to calculate your credit scores. As credit file information is updated at each CRC, your credit report is similarly updated, and as a result, your credit score may change.

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The most important step is to be sensible about your debt management so that lenders don’t report negative information to your credit file. Even a single 30-day late payment on your report will show up on your credit report and can negatively impact your score.

You also want to thoroughly examine your credit reports on at least an annual basis for accuracy. Check your credit reports at each of the three CRCs once a year for free at annualcreditreport.com. Each report you receive will also provide you with the steps needed to address any issues you find. You can also use tools at Credit.com to monitor your credit throughout the year.

Finally, another reason why I tell people to focus on credit reports over credit scores is because there are simply so many scores out there. Among generic models, there is the VantageScore model, multiple FICO models, and among others, the CRCs also provide their own credit score models to lenders. Each credit score model may differ in terms of the weightings of certain factors or how it is constructed. For example, a model might place a greater emphasis on the balance of your credit card. Simply, “your credit score” is not just one score.

Each lender chooses which credit score model to use as part of their evaluation of credit applications.

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However, all the credit scores come from one place: your credit file. So rather than comparing your various credit scores all the time, it’s more productive to make sure the information in your credit file is up to date and accurately reflects your prudent debt management steps.

Though I started out by saying “don’t obsess over your credit score,” ultimately, credit scores do matter. They are an important part of our financial well-being and having a good credit score can literally save you thousands of dollars over the course of a loan because a lender might view you as a higher risk if you have a lower score, and as a result, might charge you a higher interest rate. Plus, having a “directional” idea of your credit score can be useful, especially if you are going to apply for a loan in the near future. Obtaining your credit score from a credible source can help you know what to expect as a lender reviews your application as one part of its underwriting process.

Having said that, monitoring and considering the information in your credit reports on an ongoing basis, as well as remaining responsible with debt management, are effective ways to retain and/or improve your credit profile. Make your payments on-time, don’t keep a high credit card balance or apply for more credit than you need, and routinely check your credit file to ensure it accurately reflects your credit history, and then your score should take care of itself.

[Related Article: Understanding Your Credit Score]

This story is an Op/Ed contribution to Credit.com and does not represent the views of the company or its affiliates.

Image: joguldi, via Flickr

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  • Tom

    It’s bad enough we live in a world where there are those who are wealthy enough to buy anything they need and than on the other side of the coin there are people who go to bed hungry and struggle to stay alive.

    Now the rich elite have people obsessing over something as ludicrous as a credit score. Really think about the absurdity of it. Most avg. people have to borrow money, myself included, but now the wealthy want us to worry whether our credit score is good enough so that we can borrow more money and worry even more. On top of that they want you to pay for the so called privilege of knowing your score. The person who thought of the idea of getting people to obsess over a credit score and getting people to pay for the privilege of knowing it was a genius. At the risk of sounding like a nut and conspiracy theorist, I will say it’s all about gaining more wealth from the people and maintaining control.

    Don’t fall for this people. The rich like it this way, and it’s there way to keep you under control. Yes, whether you believe it or not, you are a slave to the lender, so in a sense most of us are slaves. Think about that, most of us really are, because the avg person has at least one loan. Most of us owe somebody money. Until you pay that money back, in a sense you are under the control of the lender. There is a book full of much more wisdom than any man has that makes that comparison, and I don’t think I need to name it. Even mentioning this book today causes people to label you as a nut.

    Most people don’t really care about any of this and that’s why the system goes on as it has. As long as they have their house, their cars, etc, most people never really think or care about the idea that they are actually in servitude. Most people don’t think that deeply. As long as they have what they need, this idea never occurs to people. A real thinking person sees it and realizes how absurd it all really is.

    Don’t get me wrong. As I said earlier, almost everyone has to borrow money at some point in their lives and most of us owe someone money all our lives. So I’m not saying it’s wrong to borrow money. I’m not saying it’s wrong to be rich or have nice things. I’m also not saying that all rich people are looking to take advantage of someone. Sadly though, there are a lot of wealthy people that do want to take advantage of others and sadly it’s usually the wealthy that have the power to do so. People have become like puppets, that the rich and powerful can manipulate to do their will.

    Instead of obsessing over these things and giving these people more money, just do the best you can, and try not to borrow as much as you can. Also avoid a materialistic attitude, live a simple life and things will have a way of working out. Also try seeking out our creator to whom all owe their lives and whatever they have.

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  • Pat

    While I agree to a point with you Tom, I went from considering bankruptcy to having a score of 786 in about 5 years. I am now able to purchase a car without a high inerest rate and am in the process of refinancing my home at 3.3% interest. The FICO score will not prevent a person from borrowing money for the most part, but it will dictate how much interest you will pay and who you can borrow from. I, for one am glad that I stuck with it diligently to raise my credit score. I did this in spite of being laid off twice in that 5 years and one of those times for 5 months. Lenders see me as a good risk – confident they will get their money back. They can see by looking at my credit report that I pay my bills on time and early, if I can. I have been down both roads and perfer the one I am on.

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  • Hasna

    Talk to your personal bank borfee you go with some debt consolidation places.. If you are wanting to just create a new TOTAL loan with your personal bank/credit card then that’s fine.. but if your wanting to go with some of those places on TV.. that can sometimes hurt your credit.. so talk to someone at your bank and run over with them what you are doing borfee you do it.

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