Last year, I checked my credit score and was pleasantly surprised to see it was 778. At the time, I had about $18,000 of debt, including more than $5,000 of credit card debt. With a debt repayment plan in place, I was confident my credit score would go up every year, moving forward. So, you can imagine how shocked I was when I checked my credit score last week and found that my score went down 37 points, from 778 to 741.
Sure, 741 is a “fair” number… and it’s higher than 49% of the Canadian population… but why did it go down? I worked my butt off this year! I paid off more than $11,000 of debt in 2012, including all of my credit card debt and some of my loans. And look! Look at all these good months! Months of no missed payments and always, always, always paying at least the minimum, if not way more. So where did I go wrong!?
In a state of panic, I tweeted Gail Vaz-Oxlade with my concerns. What I love about reaching out to Gail is that she always replies. But what she had to say was incredibly disconcerting, especially as someone who is working hard to become debt-free. She said that paying more than the minimum and/or paying off debts altogether would actually hurt my credit score. Say what!?
I always knew that Gail hated the credit score system, but I never really understood why. Until now. After going through a number of posts on her site, I quickly learned that everything we do to become debt-free counters what the credit score system wants us to be doing. And in a post titled “Why I Hate the Credit Score,” Gail offers her insight, by listing some of the things we should all be doing to get better scores:
“The way to have a great credit score is to have access to lots of different forms of credit leaving yourself over-exposed to identity theft and fraud. You should also have nice high credit limits so you don’t ever get above the 50% mark with your spending, providing tons of opportunity to dig a huge debt hole. And you should make only your minimum payment on your credit, so you pay interest.“
Knowing this, I’m terrified to see what my score will be next year. My goal for next year is to become debt-free and then start saving for a down payment and closing costs for my first home. To help make this happen, I plan on having a $0 balance on my credit card at the end of each month. This sounds like a fantasy life come true, for me. But is it going to leave my credit score at 741? Or worse, lower it even more?
When was the last time you checked your credit score? Have you ever been surprised by what you found?