Your Credit Score Matters, but It Can Also Encourage Poor Behaviors

I hit a milestone last month. I finally paid off my student loans. This is a very exciting moment for me! I have been paying on them for years! It’s a huge relief to finally be free of that bill. If you aren’t carefully advised about how to manage them, student loans are a disaster and a train wreck. There are also huge issues with the student loan servicers. Mine for instance kept consolidating my loans, or adjusting repayment schedules. It never seemed to matter how long I was paying on them, somehow, I still had to make payments for 20 more years. Ironically, this is not a blog about student loan debt. Let’s tackle that another day. 

The shocking thing that happened to me, is that when my student loan was paid off in full, my credit score went down. That’s right, I had less debt, and my score went down. I paid off a pretty sizeable chunk too. I wanted to go ahead and just finish them off before the moratorium lapsed, because I was confident they would put me on yet another 20 year payment plan. I needed out! So, what happened? Why didn’t my score go up? 

The credit agencies weighed my score more heavily to an account that was closed, rather than that I owed less money. They don’t take into consideration that this is supposed to happen. It’s a good thing to have your student loan account closed. But for some reason, they don’t weigh it differently than if you had an account closed for non-payment! This is crazy. It is wrong on so many levels. I keep getting notices from my credit monitoring service that I had an account that was closed, and if this was due to an error, I can report it and get it fixed. This is also crazy! Seriously, you don’t have an algorithm that shows that this is an account that should be closed once paid? That I should be praised and have a higher score?! I want this account closed! There’s nothing to fix. I feel like I’m in the Twilight Zone… 

There are other things that can affect your score that you can’t correct. In my time, I have had several card companies close my credit card account because I wasn’t using the card. My score goes down and it frustrates me, because I have no power to keep the account open. Sure, I could carry a balance on the card, but why should I have to go into debt to be allowed access to the credit that I qualified for? 

I have also had information reported that wasn’t accurate. If it has happened to you, you know this is a nightmare. I contacted the credit bureaus to correct it, they then speak to the creditor who tells them that all is well and accurate. I tell the credit bureau that it is not, and they tell me to call the creditor and speak to them about fixing it. So, I have to call the creditor who tells me that they don’t have any control over what the credit bureau reports and I’ll have to call them. You see where this is going… In the end I gave up. Terrible, but I was in a position to be able to do that, and it didn’t hugely affect my scores. I didn’t have to keep fighting with them. I know that’s not always the case for people. I was lucky that it was something that didn’t require further payment, so I let it go. I was wasting too much time trying to get them to fix it. I’m just waiting for it to roll off now. That has to be my strategy. So sad. 

Where does these leave us? We still need to have good credit. There are things that we can’t control, but there are also things that we can. There are rules to follow to make sure that you have good credit. The honest truth is that my credit score change because of paying off my student loans, was a 1 point negative shift. It’s a blip. It doesn’t make me happy, but my credit is still great, and I can still have good financial habits. These are the ones that I would tackle first. 

1. Pay all your bills on time. All of them.

2. Stick to a budget, know where your money goes

3. Don’t carry credit card balances

4. Save money for emergencies, retirement and fun

5. If you must borrow money, only borrow what you can afford to repay

This list does not guarantee that there won’t be odd shifts in your score based on whatever the algorithm is that day. It does create consistent habits that will help to increase your score over time, or keep it in good standing. I can help you get all of these strategies into place. Your money is a tool that can go to work. I can teach you how.