Obsessing over your credit score

Checking your score is good, but not when you do it every day

By Sally Herigstad

To Her Credit

Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). Ask a question.

Dear To Her Credit,
Why is my credit score different from one time to the next? I signed up for one of those services that lets you check your score anytime, and I've noticed that my score often changes for no apparent reason. Yesterday my score was 770; today it's 762. It worries me, even though I know nothing major has changed between then and now. What's going on?  -- Emily

Dear Emily,
"There are three things you should not check every day: Your weight, your stock prices, and your credit score," says Cathy Pareto, an MBA and president of Cathy Pareto and Associates, an investment and financial planning firm. "Checking any one of these things too often is not only discouraging, but it can make you lose sight of the big picture. You can do everything right and not see the results you want the next morning."

I doubt anything significant has changed in your credit history. If it had, you'd see more than an eight-point drop in your score. Maybe you had a slightly higher balance on an account when one of your creditors filed a report this time. Don't worry, 762 is still an excellent credit score.

"People have a thing about being graded," says Kim McGrigg, communication specialist for Money Management International. Now that we can check our credit scores as often as we want, it's easy to worry too much. Some people even get competitive. McGrigg tells about a man who recently asked her why, despite the most strenuous efforts, he couldn't get his score above 812! (The average credit score is closer to 700.)

In the old days, credit reporting was an opaque process. Consumers usually didn't know what was on their reports until they applied for a loan. They could be sitting at the car dealership, expecting to drive their new car home, only to be turned down for a loan. That could be a rude shock!

Now the whole process is transparent, which is a huge improvement. Consumers can see their credit reports and every detail on them. Knowing what's on their reports, people can dispute errors and see how they can improve their scores. They can even spot identity theft much sooner.

The downside is that consumers can't control every fluctuation in their scores, so it's easy to start overanalyzing. This isn't necessary, especially for people who already have a good score.

What's a good score? It depends on what you're doing with it. Pareto recommends, "If you're in the 600s, yes, try to get past 720. To be a premium, try to get to 760 or above. After that, what's it going to do? One or two points are not going to add tangible value to your life."

Some people try so hard to control their credit scores that they lose sight of more important financial goals. Pareto tells about a woman who was anxious to build her credit score. She owed $400 on a card with a 13 percent interest rate. She only paid the minimum amount every month because she heard it would help her score to pay something off over time. Possibly, but she's going to pay way too much interest that way. Pareto says, "It's important not to let the tail wag the dog. Take that stimulus check and pay it off!"

According to Pareto, a score of 720 or higher, and certainly anything over 750, is excellent. She advises, "Once you're above a certain level, you're already there. Save the 10 or 15 minutes and go for a walk, play a video game, or play with the kids."

It's a great idea to check your credit report, but keep it in perspective. As McGrigg reminds us, "No one's obituary should ever read, 'Stan was well respected by all three major credit bureaus.' "

Sally Herigstad writes about women and credit every week for CreditCards.com. Herigstad is a writer and finance consultant for MSN Money, a personal finance software product. She is also a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Her Web site is http://helpicantpaymy bills.net. Sally Herigstad lives in Kent, Wash., with her husband Gary. They have two grown children, Valia and Grant.

To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
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Published: May 23, 2008 Comments or questions, Story archive

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