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Stop Obsessing over credit scores

Chris Farrell Nov 4, 2011

A couple of weeks ago I was at a credit union and a manager mentioned that customers care deeply about their credit scores. It wasn’t the case even 5 years ago, he said. My experience echoes his observation. People are taking their credit scores seriously.

Maybe too seriously? That’s what our guest blogger Jim Wang of thinks.

Jim Wang: We’ve all the seen the advertisements, where someone doesn’t get a loan because their credit score isn’t high enough. Their dream of owning their own home or buying their first car is shattered. They are embarrassed, they are ashamed, and if you want to avoid that scarlet letter, you need to know your score and take steps to improve it.

In reality, your credit score is important but obsessing over it is dangerous. Paying a service so you can check your FICO score every few weeks is like weighing yourself every fifteen minutes when you’re trying to lose weight. You’re focusing on the wrong thing. The number doesn’t matter. It’s what the number reflects.

Your FICO credit score is, in the best of worlds, intended to be a reflection of you as a credit risk. If you are a person of your word and make regular payments on your debts, chances are your score will be pretty good. All the talk of keeping your credit utilization down, your average age of accounts up, and credit inquiries few are important to your score but not important to you as a person.

Your score is also only critical when you need a loan and most important when that loan is for a big ticket item, such as a mortgage or a car. While it may be used for anything from renting an apartment to buying a cell phone, it’s only truly material when getting a large loan. That said, by the time you make the decision, your score is what it is and there are very few things you can do to improve your credit score quickly.

One thing that we don’t obsess enough over is our credit report. We focus so much on the three digit number that we forget it’s important to regularly review our credit reports for errors. What’s even scarier is that according to the U.S. PIRG in 2004, 25% of reports have serious errors that would result in denial of credit. 79% of those surveyed in that same report discovered a serious error or mistake of some kind.

If you want to do something about your credit score, stop looking at it. Look at your credit report, you can do so for free at the government’s Annual Credit Report website.

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