Relax About Small Changes In Your Credit Score

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I see you perfectionist reader – always checking your credit score and feeling bad when it has dropped a few points. Judging from the email I get, I would say you have company. People worry about scores that are good but not great, and great but not perfect.

Maybe that’s because we still measure our lives with numbers like cholesterol and miles per gallon. Or maybe it’s all of those credit monitoring commercials that we’re seeing. Yes, you want a good credit score. This three-digit number can make a crucial difference at times, such as when applying for a loan or credit card, or when renting an apartment.

But I am here to tell you that your credit score is a number where good is good enough and perfect is not very significant. It is not a measure of you as a person. Constantly monitoring your score is unnecessary and sometimes harmful. “I meet a surprising number of people who are so obsessed with having a good credit score that they are afraid to take the right financial steps,” says Kelley Long, financial planner in Tucson, Arizona.

So keep your score in perspective.

Know the basics

Your report is a life history of paying bills. Credit reporting agencies – the largest of which are Experian, Equifax, and TransUnion – keep independent records of your credit cards and loan accounts, the debt you carry, and the payments you make. This data is fed into formulas by the credit rating companies – mainly FICO and VantageScore – which gives a number on a scale of 300 to 850. Lenders and other businesses use these scores to determine your creditworthiness. the interest rates they will charge you and the financial risks you pose to them. There are several factors that affect your score, but the most important is payment history: To maintain or improve your score, prioritize all of your debt payments and make them on time.

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