When it comes to our finances, knowledge is power. With many credit card issuers now providing credit scores to cardholders every month, it's easier than ever to see how your day-to-day actions impact your creditworthiness. But is it possible to become too obsessed with the fluctuations in your credit score? Some financial experts say "yes."
"It is good to be concerned about your score because that can affect your interest rates," says Karl Hoffmann, spokesman for credit counseling company Apprisen. The higher the score, the better loan terms you will be offered. However, some people become so focused on a better score that they lose sight of the bigger financial picture.
While the perfect credit score is always a noble cause, here are some seven signs that you may want to ease up on yourself.
1. The score is your only concern. If you're focused entirely on your credit score but not your credit report, your attention is in the wrong place, says Terry Clemans, executive director of the National Consumer Reporting Association. "Some score-obsessed consumers think they're doing themselves a favor by getting an updated score every month," says Clemans. "While it might be fun for them, it's not really that helpful."
Your score, itself, won't show you mistakes on your credit report that are being held against you. Nor will it show you exactly what information lenders are using to make their decisions. While there's nothing wrong with keeping an eye on the score, it's more important to get an annual copy of your credit report and focus on the actual data there, Clemans says.
2. You're stressed about small fluctuations. The most widely used score, from FICO, tops out at 850. With a credit score of 827, Candace Klein, chief strategy officer of business lending company Dealstruck, should be sitting pretty. Yet she checks her credit score daily "Whenever it drops, I scour the Internet to figure out a fix," she says. Most recently her score dropped three points to 824, "and I'm really stressed about it," she says.
While it's normal to feel some anxiety about a dropping credit score, it's important to keep it in perspective, says financial therapist Amanda Clayman. If your credit score is already in the 800s, a small fluctuation isn't likely to cause much damage. Plus, given that a score fluctuates on a regular basis depending on when data are reported to the credit bureaus as well as numerous other factors, such as any card spending and repayment behavior, credit scores don't stay static for long.
3. You're checking it too much. When Tre Thomas of Western Massachusetts experienced financial setbacks a few years ago, her credit score took a hit. As she worked to improve her score, "I became obsessed with it and I was checking it every day," she says. Since the score wasn't changing that often, she moved to checking it weekly, but "if I checked it and it changed, it would send me into a little panic attack," she says. Fed up with the anxiety, Thomas forced herself to cut back to once per month. "At first I would catch myself logging in to check it," she says. "But over time I wasn't so obsessed."
4. Your score keeps you stuck in frustration. Sometimes a low credit score can leave someone feeling so discouraged that they give up improving their finances. In that case, it's important to focus less on the score than on the changes you can make to improve it, Hoffmann says. For example, instead of checking it weekly and feeling discouraged, you might wait until you've made six months of on-time payments to check it again.
5. You're keeping up with the Joneses. When you get your credit score, you have a number with which to compare to everybody else. In some people that knowledge can trigger an unhealthy sense of competition. "We are social creatures and so much of the way that we are wired is all about perceiving where we are relative to other people in our group," says Clayman. If your credit score has you feeling less -- or more -- successful than everyone else, it's a sign to shift the focus back to your own life and what's working for you.
6. You're making financial decisions solely based on your score. "Sometimes things can improve your credit score, but aren't necessarily in your best financial interest," says Clayman. For example, Amanda Colby, a marketing manager in Boston, has kept a credit card that has a high interest rate and charges an annual fee because it's her oldest line of credit and a longer credit history can have a positive effect on one's score.
Others open credit accounts solely for the purpose of improving a credit score. For example, Chris Peplinski of Minneapolis has already achieved an 839 credit score and is now helping his 5-year-old son build good credit. He named his son as an authorized user on two credit cards so "by the time he turns 13, he'll have at least eight years of credit history," Peplinski says, which will help his credit score when he's older.
7. You're in avoidance mode. It's easy to see how checking one's credit score daily could indicate obsession, but the opposite behavior is just as noteworthy. Some people are afraid their credit score will be low or they will have to work hard to improve it, so they avoid looking at it entirely. "Checking it obsessively or avoiding it obsessively are two sides of the same coin," Clayman says.
Knowing your credit score is an important way to gauge how lenders view your financial habits, but it shouldn't be all-consuming. "All measurements have strengths and weaknesses, and we can't put too much importance in thinking that this measurement really defines us," Clayman says.
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