Home > 2015 > Credit Score

4 Reasons a Great Credit Score Won’t Solve All Your Problems

Advertiser Disclosure Comments 0 Comments

More often than not I see clients who tell me they have good credit, yet are still struggling to pay their bills. Having a good credit score is great, but that alone does not necessarily mean you are good with managing your finances or that you’re not in debt.

Let’s say you have a great credit score but you have to rob Peter to pay Paul (and pay on time), or you can only afford to make the minimum payments. In this case, the reality is that you likely have little to no cash flow for day-to-day needs and may not actually be a good credit risk despite your high digits.

Here are the four ways your great credit score isn’t the be-all and end-all of your financial life.

1. Great Credit Scores Aren’t Forever

Just because your credit is great today doesn’t mean it will be tomorrow. Credit scores are based on a number of factors and if you miss a payment or run up a high balance on your cards, your credit score can drop from excellent to fair in no time. If you want a better understanding of how well you’re handling your finances, track your credit score for a couple of months and take a look at your credit report to see the big picture in terms of the number of open accounts, balances and your ability to pay those debts. The more information you have on hand, the more you’ll know about your financial situation. (You can track your credit scores for free every month on Credit.com, to look for changes.)

2. More Credit, More Problems

Chances are, if you have a good credit score, you’re probably overwhelmed with credit card offers. While you probably toss the majority of these letters in the trash, the temptation of getting an even bigger credit limit can be hard to ignore. However, taking on too many credit cards can complicate your finances and make it incredibly easy to get overwhelmed with debt.

3. Great Credit Doesn’t Equal Great Cash Flow

When your credit score is calculated, your income isn’t included in the equation. So while a good credit score might mean you make your payments on time, it wouldn’t be able to tell you if you can afford the essentials. Make sure you are budgeting and spending responsibly. It is most important to focus on your household expenses and that they are being accounted for.

To keep your credit score up, be aware of what factors contribute to your credit score – the biggest ones include paying on time every time and using a low percentage of your credit limit. That way you can make sure you have all your financial bases covered and have cash in your pocket and the bank, and can pay all of your bills easily with the income you have.

4. A Great Credit Score Means You Still Need a Budget

If you don’t properly manage your expenses, there will come a day where you’ll find yourself unable to pay the bills. Minimum payments might be enough to keep your good credit score afloat for a little while, but if you keep spending on the cards you’ll quickly find yourself deep in debt and with no way out. Always include credit purchases in your budget and make sure you stick to your limits.

It might sound crazy, having good credit is important, but being on solid financial ground is important too – and ideally, your good credit will come from that. Hear me out: From what I’ve seen with my clients, if you are having trouble paying your bills, or even putting food on the table, it’s much better to take a step back and get rid of some debt (whether through negotiation, bankruptcy or debt settlement, for example) rather than worry about your credit score taking a hit. You can rebuild your credit when you’re in a more stable financial position.

More on Credit Reports & Credit Scores:

Image: Wavebreak Media

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team