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Managing credit health

Credit scores represent a snapshot of your financial “health.” Going up means lower interest rates for loans and credit lines. Credit scores that suddenly and significantly trend downward, securing anything resembling an affordable rate is the usual outcome.

In the modern age of technology, credit bureaus live and die by algorithms. Lower and higher risk consumers receive different treatment, not in ways you would expect. For example, late payments, usually a minor blip in the overall score, will impact a high credit score more significantly than a low one.

The question is, why?

Chalk it up to score sensitivity. The consumer with a higher credit score is more sensitive to the minuscule oversights and more severely punished than a consumer with a lower score. Those who continually track their score will likely be surprised, if not baffled, by the drop.

Poor strategies that impact credit scores

However, a missed payment is only one factor that can wreak havoc on overall credit health.

  • The perks of working towards a high credit score mean that you will be flooded with unsolicited offers for credit cards and personal loans. While it may be too tempting to pass up, it will communicate to credit reporting agencies (CRAs) that you are experiencing financial stress.
  • Credit use can represent one-third of your credit score. Percentage matters. Running up a balance will reduce your score, particularly when using credit cards with a lower one. “Maxing” out one or more credit cards is another sign of money-related stress.
  • One of the more unlikely factors damaging a credit score is paying off debt. While credit card utilization usually results in lower scores, closing the account after zeroing out the balance could harm and wipe out a significant part of your credit history’s “age.”

Ups and downs in credit scores can happen to anyone. Being proactive and vigilant can stabilize a healthy FICO score, providing you options and saving you money.