There’s an almost religious fascination with credit scores these days, even and especially on personal finance blogs. What’s your score? How much has it gone up (or down)? What’s your credit utilization rate? (I REALLY love THAT one!) How long have your credit lines been open? Do this or that and raise it higher.
There’s an unspoken inference that “you are your credit score”. OK, maybe I’m going a bit over the top, but it’s certainly a short walk to step across that line.
Question: is it possible that we’re taking this interest too far? Like maybe it’s become a fascination, even”¦an obsession?
It’s reminiscent of the times when oil prices spike and all things automotive morph into M.P.G.—miles per gallon—where suddenly the primary inherent value of a vehicle is to be found almost exclusively in its fuel economy.
Legitimate concern or another episode of “mines better than yours”?
You have to wonder—given that credit scores are a number—if credit score mania hasn’t finally taken its place in the “mine’s better than yours” game that seems hardwired into the human psyche. We’ve had plenty of previous experience playing this game with houses, cars, salaries, jewelry, clothing—virtually anything we can put a number on. Numbers mean we can compare ourselves with others as a metric to determine how well we’re doing.
Are you down in the dumps because you have a low credit score? Are you beating your chest telling others what your score is because it’s a good one?
12 time NFL All-Pro defensive end Reggie White counseled younger players saying, “You’re never as bad as the media says you are; you’re never as good as the media says you are.” A parallel can be drawn with credit scores.
Why we need to keep credit scores in perspective
Though credit scores seem to be the Holy Grail of credit in some quarters, it’s important to recognize its limitations, and there are a few.
A credit score is temporary! It measures where you are right now, as in this month, and can take some wild swings as circumstances change. Sometimes they change because of changes in scoring criteria, sometimes because of a shift in your credit profile (closing out a credit line, opening a new auto loan). And it goes without saying that a late payment or two can cause a sharp swing to the downside. But what ever it is right now, it will change. In my years in the mortgage business I saw “A” borrowers become “B/C” borrowers, and “B/C” become “A”.
Credit scores have diminishing returns. Once you get beyond a certain score, say 700, further increases in the score become less significant. There’s no need for a person to seek credit score perfection in the ordinary course of life. Even if you could attain the highest score possible, it’ll change. See the point above.
Your life shouldn’t be reduced to a number. Businesses and even the government may try to turn us into numbers, but as living, breathing human beings, we need to have no part in it. The quality of our credit is central here–not the level of our credit scores–and that’s what we need to focus on most closely.
A very high score can actually turn against you. With a high score you can be line for sweetheart loans and credit lines that you wouldn’t get if your scores were lower. That can have the potential to put you deep in debt more easily than you think. I saw more than a few people carrying unsustainable debt loads with credit scores well in excess of 700. They carried high debt because they could! The lenders even said so.
Tracking your score can pull you away from more productive activities. Trying to juice your score by keeping credit card utilization at Level X strikes me as a activity undertaken by someone with too much time on their hands. Is there anything more productive you could put that time and concern to—earning extra income perhaps? Are there some health matters you need to be tending to? Are there people in your life who may be in need of your help? All of these are more important than optimizing your credit score.
Where our credit focus needs to be
Rather than fixating on credit scores, we should instead concentrate on:
- Debt minimization–getting out and staying out of debt—rather than on credit score optimization
- Paying our bills on time
- Checking our credit reports mostly for erroneous information
- Focusing our time on income generation and expense reductions that will make debt unnecessary
And the interesting thing is, take care of each of these, and your credit scores will take care of themselves—no further concern is necessary.
Do you agree that we might be worrying too much about credit scores? If not, why do you feel that the concern is justified?
This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.
( Photo courtesy of TrinityCreditServices )