by Adam Dawson
Do you agree with Dave Ramsey that people shouldn’t really worry about their credit scores? (He says it’s just a measure of how good you are at being in debt). I go back and forth on this one.
At any rate, for the past few years, I’ve been using creditkarma.com to monitor my score. This site creates a number called the “VantageScore” that is supposed to be comparable to the score you might receive from one of the 3 credit reporting agencies. I think my actual score is usually slightly higher than the number this site spits out, but it has been a useful gauge.
The number really took a hit 3 years ago when I made some late payments (see rental house #1 post) but has been slowly (very slowly) recovering since then as our payment history has been perfect.
Imagine my surprise when I logged in this week for my monthly update, and my score had dropped 11 points, along with the “on-time payment percentage.” With the new mortgages and recent student loan transfers, I wondered if I had missed a payment somewhere. So I logged in to each account I have and I couldn’t find any overdue payments. CreditKarma won’t tell you which payment is late, so I decided to check my credit report.
Beks used to get 1 of her 3 free annual reports every 4 months, and would post reminders on this blog for readers to do the same. So if you want to do this, go get your free Experian report from annualcreditreport.com. I got my Equifax one earlier this spring while we were house shopping, and I’ve never been able to access my Transunion report online.
I perused the report and I can’t find any late payments. Maybe their calculation is a little wonky with the recent account changes. I’ll wait it out for the next couple of months to see if my CreditKarma profile starts improving again or if it keeps dinging me. At least for now, I don’t plan on getting any new credit any time soon, so I’m not too worried about this synthetic score. But I do plan to keep an eye on it.
I use creditkarma as well usually as a free way to monitor my credit history – see if new accounts are added, etc. I have had some of my scores go down for no apparent reason – usually 5-10 points but then it bounces back a few months later. I was curious about why some of my points went down, the only thing I could find that would cause my points to go down was a credit card my parents shared with me when I was really young had closed due to no account activity in several years. I have also noticed on a different occasion that the Auto Insurance score dropped and then returned itself to normal a few months later, but I have no idea why.
I am like you, half with Dave Ramsey and half not. I use a credit card with my husband but it’s paid in full every month and I check my credit regularly because I want to catch any errors or fraud asap. I am not as obsessed with my score number as I am with making sure no accounts are added without my knowledge.
I don’t agree with Dave Ramsey on this one at all. Credit scores are used by insurance companies, if you’re in a situation where you need to rent a property (even if it’s just temporary) and most importantly– many employers. We pay $10 a month for a 3-in-1 credit monitoring service so we get notifications when anything at all changes to our accounts, new accounts added, accounts closed, etc. It’s worth every cent and we consider it like another insurance policy. I pull free credit reports with this service (we get unlimited) at least once every 6 months. I don’t pay attention too much to the actual score. I wouldn’t be surprised if ours has taken a hit since we only have about 4 open lines of credit now, 2 being mortgages, one a credit card we pay off monthly and a secondary credit card that’s only used for business travel on rare occasion. It’s easy for someone like Dave Ramsey with hundreds of millions in the bank to talk about not needing to be concerned with a credit score. The rest of us would be foolish to live that way.
I totally disagree with Dave on this one. I work in the financial services industry and you can’t even get an interview for certain positions without a credit and background check. And I’ll echo what the previous commenter said about insurance rates as well……
If you close your oldest credit card account, your score will drop. You are graded on the age of your oldest account you still have open.
Also, if some good credit karma event, like successfully paying off a term loan, just faded out of your history from back in the day, that will also change the score a bit.
I think like your bathroom scale, best not to get too worked up over small movements in the dial.
I really find it ‘sick’ that people have to get a credit score (thus getting in debt) to be able to get insurance or a job. Ideally any family should strive to be debt free and NEVER touch credit it possible. Fortunately for us we don’t have such things in my country, so we enjoy our debt free situation and really not bother with credit scores. If I did live in the US, I’d probably get the smallest credit possible and just make sure I keep up with the payments.
It’s used by employers and insurance companies as a good way to see if someone is responsible and trustworthy. How a person handles their finances (or fails to) is a pretty good barometer of how they conduct themselves in general. People may not like it, but it’s true. You don’t have to carry large amounts of debt to have a good credit score. You just have to use credit wisely to show a consistent pattern of having your act together.
I would consider someone to be more responsible by not having ANY debt and being able to save than carrying debt, even if paying it for it in time. Anyway, if it’s needed, just as you said: keep it small and pay it in a timely manner.
I think your credit score is important because it’s used for setting your insurance rates and for getting hired. But, I wouldn’t obsess over it.
11 points is just a blip, could be pretty much anything. Wouldn’t sweat it. 40-50 points is a problem.
I use CreditKarma. I have seen mine drop a few points recently with no late payments. But I opened a couple of accounts and closed a couple(to get free cash!). The hit came because the average account life of my accounts went down due to this. Still its like 10-15 points, no big deal. This would not cause me to lose employment or not qualify for something.
I disagree with Dave R on this too. Not everyone can buy real estate with cash etc so credit scores are important. Also he says never to use credit cards, but I get quite a few rewards and never pay interest or fees- so I don’t see any reason not to use them. If you carry a balance forward, its best to use debit.