The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
I have never been one to worry too much about my credit score. I pay all my bills on-time and close accounts that I do not use periodically. We have savings. But I do monitor my credit report 3 times a year. Since you can access your free credit report from each of the 3 bureaus (Experian, Trans Union and Equifax) once per year at https://www.annualcreditreport.com/, I simply access one of them every 4 months. This helps me identify any fraudulent activity on my account. It was interesting then, when my Discover card started giving me one of my credit scores on my statement the last few months. I was curious more than anything at my score. Since I do not plan on borrowing anything any time soon, the score is purely for my entertainment.
Not Too Bad
As of my last statement, my score was 811 out of a possible 850. Apparently, that rates me an “Exceptional Borrower”. In short, I pay my bills on time and have never defaulted on any obligation. The on-time part for me is easy. I have automated all of my bill payments. As life has gotten more hectic, I have tried to minimize the chance for mistakes. I still keep track of everything, almost daily, but I want to make sure that I don’t forget a due date. I know some people are hesitant to automate things in case there are errors, but for me, since I check things quite often I can catch the errors ahead of time.
What Went Into the Score?
Along with the score, Discover provided a breakdown of the components that calculate the score. The largest was your payment history, 35%. Basically, are you paying your bills on time? Since, most financial institutions will report your information to the credit bureaus every month, any late or missed payments will impact your score quickly.
The next largest item was the amount you owe, 30%. How much do you owe, relative to your credit limits. The closer you are to your limits, the more likely you are to be in trouble financially.
Next item was the length of your credit history, 15%. Essentially, the more data they have on you the better. It is easier to predict what kind of borrower you are with more information.
The last two items both weight equally, new credit opened and types of credit. The new credit opened is looking at how many accounts you have opened recently. If you have opened a lot of new accounts in a short time frame, that could indicate financial distress. For me, I think I have opened one account in the last year. I took advantage of a store card’s promotional discount when I did some Christmas shopping. They offered something like 25% off my purchase for opening a card. I opened the card and paid the balance off at the end of the month.
The last item is types of credit, meaning what kinds of accounts you have. For me, I have a mortgage, auto loan, and revolving accounts (aka credit cards). I assume this is the mix most people have with the possible addition of student loans.
You are not a number
As I said, the score is really for my amusement only. The number I am more concerned with is my net worth. Is that number growing sufficiently and fast enough? The credit score certainly helped me earlier in life achieve the best possible terms I could when I did have to borrow money. My current interest rates are 3.75% for the mortgage and 1.99% for the auto loan. There is no way that I could have received interest rates like that if my credit score had been low. However, I did not have to do anything out of the ordinary to get that score. I simply had to pay my bills on time.
Do you actively monitor your credit report? Are you concerned about your score?