I Screwed Up and my Credit Score Tanked
I managed to knock my credit score down over 60 points because of a single oversight,,, impressive, I know! We had a mix-up with our bank’s bill pay system and our house payment didn’t go out for a month. That one little mistake dropped my credit score from “very good” to “good”… and if we had been in the market for a new home or car, this could have been a very costly mistake. Below is my actual credit score history (pretty obvious where the missed payment happened).
Why is a credit score drop a big deal?
The general consensus is that a credit score of 740 or higher is really where you want to be at for most purchases. The reason of course is that your interest rates really start climbing as your credit score gets lower than that. How much does this matter? In the chart below you can see Experian’s credit score ratings, when you dip below 740 you are suddenly viewed as having just, “good” credit; most lenders will up your rate because of this. When buying a home this might just be .25%. But if you’re buying a $300,000 house that’s an extra $750 a year your paying because of a silly mistake. Not to mention the fact that if you started with a rating of good (instead of very good) you might get bumped down to “fair” where your rate will go up even more drastically, or worse yet you may not even be able to get the loan at all.
Another factor in all this is credit card deals. If your credit score drops too much you may no longer be eligible for the credit cards that offer the best rewards. We like to get credit cards that offer tons of points during their promo period. When your credit score starts dropping below 720 or so these offers start disappearing.
How do you keep your credit score in check?
- Monitor it. First of all you should be watching your credit score so you will know if something like this happens. The easiest way to do this is to check and see if your credit card company offers this for free. Most of the credit cards I have show me my credit score, and even update it monthly on my home page. If you don’t have free access to your score you can use our affiliate link to get 20% off your 3 bureau credit reports at myFICO.com. If you just want your credit report without a score, you can get that for free at AnnualCreditReport.com.
- Use Automatic Payments: I always try to automate as many payments as possible so I don’t have to remember them all. This can be bill pay from your bank to send in your car payment, or an auto draft that makes sure the minimum payment at least gets made on your credit card each month. Tip: After you set something up make sure it went through the next month. It’s usually the first payment where something goes wrong.
Featured Image by: Quino Al