I’ve been working hard to pay off my debts-and my credit score dropped? WTF?!
It seems that there is a lot of talk about credit scores lately. In the past, it’s almost been like this was some magic number only known by credit report agencies, and you weren’t allowed to be let in on this secret. But now, there are dozens of websites out there where you can get your credit score. Some require you to submit a credit card and others charge a fee. Don’t ever pay for this information since there are free sites out there. I use Credit Karma because you don’t have to submit any credit card information, it’s free, and it’s simple to use and navigate.
Sample report from Credit Karma
The first time I got my credit score, I was pleasantly surprised to see that it was in the very good rating. Woo hoo! For a recovering compulsive spender, I was happy to see that my out-of-control spending habits had not damaged my credit. In the time that has passed since that first report, I was forced to cancel three credit cards (due to interest rate hikes), had a ding on my credit due to Wells Fargo student loan not applying my payments corrected, and had my credit line decreased due to this error.
So, when I checked my score after all this had happened I was justifiably upset to see that my score had dropped by 61 points! WTF! Here I was living more responsibly, not using my credit cards anymore, trying to get a better control of my debt, and I was being rewarded for my effort with a lower credit score?
Sample report from Credit Karma
What happened? What actions caused the most damage? According to Credit Karma these are the various factors that they look at that caused my score to drop:
Open Card Utilization
By canceling three cards, I had reduced my access to open lines of credit so the credit agencies now see me as a riskier client since it looks like I have used up most of my available credit.
Percent of On-Time Payments
Since Wells Fargo wasn’t applying my student loans payments correctly, they reported my loans as being in default. Since it seemed that I was someone who couldn’t pay their bills, I got a lower credit score
Average Age of Open Credit Lines
The cards I was forced to cancel were all of my more established credit lines. Most of these cards had been open for ten or more years. The average age of my cards is now five years which to credit card companies can indicate that I have a short credit history.
My most recent credit score shows it up 22 points from the low a couple of months ago. Scores seem fluid - going up and down depending on your use of credit. I’m trying not to get myself too worked up over my recent plunge from Very Good to Good since I’m not in any need for a big loan right now - house or car. But, it’s good to know what sort of actions can potentially have an effect for when I do need to apply for that loan since your credit score can not only affect access to credit but also your interest rate.
Have you ever checked your credit score?
What surprised you about your score?
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We have several cards that exist solely because they’re our longest lines of credit. The cards live in a teapot somewhere or other around the house. My wife used to cancel them until we had this exact same realization. It made her nervous having that much credit, but you can always cut up the cards when you get them if you’re too worried you’ll be tempted.
Thanks for the comment, Tim. I had the guys from Smarty Pig cut up my cards, and it’s really made a difference. I’m still tempted, but I have no way to give in.
http://republicofaustin.com/smartypig-live-large-without-a-credit-card/
Thanks for sharing the Credit Karma website! That’s a great website for some quick free credit info. I appreciate it!
Thanks, Liz! I love Credit Karma! I’m glad you do, too.
Hmmm…I’ve always had good luck with It’s accurate and it comes from “The Big Three” (Experian, TransUnion, and Equifax). Oh yeah-and it’s free. You stagger them throughout the year so you can keep tabs on your credit score.
Rachel-be sure you work with Wells Fargo to be sure they correct your credit report for their error. It’s a pain in the ass, but you can get the dispute info you need from one (0r all) of the the above agencies. And yeah, when you open or close lines of credit, it does adjust your score. My hubby and I recently signed a mortgage (in March). So apparently (to those who are less savvy or educated in this matter), we are golden! Fortunately, we try to remain money-smart, and are paying off credit cards, student loans, cars, etc., and eventually make it so we can pay more on our mortgate (the Goose that’s laying the Tempting Golden Egg). So while I agree it’s a mess, and it’s not fair, I can only say continue to educate yourself, keep abreast of your credit score, and stay on the debt-free track. It’ll pay off sooner than you think! Remember, I went from 820 to less than 550 to now a respectable 780, just by paying off my (sizeable [20K+]) credit card debt, and keeping current on things like car payments and student loans. It truly is the little things that count!
Thanks for the comment, Audrey. I admit I’m not regular about checking my credit report, but I did when I got the notice from one of my credit cards that they were reducing my line of credit. That’s when I saw that Wells Fargo had me listed as defaulting on my loan. Also, the three big credit report agencies only show your credit history and details. They typically don’t show your score…at least they didn’t several months ago when I checked. It may have changed now.
Believe, me, I have taken care of the issue with Wells Fargo, and it was NOT pretty. I eventually had to write them a letter documenting all my phone calls and who I spoke with each time. A note to anybody who is dealing with an billing/credit issue: keep detailed notes of the date, time, and person you talked to. I threatened to have a federal student loan ombudsman (they exist and they are free!) take my case if they didn’t meet my demands by a certain deadline (two weeks is generous enough). That got their attention, and they fixed everything and gave me what I wanted. Unfortunately, it made me realize that you can’t trust banks and have to double-check their math. Uh, my dad always says that. I guess he’s right….