Do Credit Scores Really Matter?

High-achieving kids work hard to do well in school. Perfectionists, on the other hand, go above and beyond to outperform their peers.

They may cry over an A- grade, and guzzle coffee to pull an all-nighter before a big exam.

Meanwhile, some of their adult counterparts are fixated on credit — the credit equivalent of a “perfect” score, or a score of 850. But how much do credit scores really matter?

Should I Be Working Toward a Perfect Credit Score?

Most credit scores abide by a 300 to 850 range, with 850 being the top score consumers can earn.

And while there’s no denying that higher scores are desirable, a “perfect” score will not benefit consumers in any significant way. There’s little difference between the interest rates or credit terms offered to consumers with a credit score of 800 and those offered to consumers with a score of 850.

In fact, consumers who are unfamiliar with the scoring process risk hurting their credit scores in striving for an 850.

FICO and other agencies do not rely on completely transparent scoring methods, and certain things that consumers think will give their scores a boost — having zero debt, for example, or neglecting to use credit cards — can actually have the opposite effect.

As long as you have a score of at least 600, you shouldn’t have too much trouble getting approved for a loan. (There are even loan options available for people with poor or no credit, although I highly recommend that you research your options before making a commitment.)

How Can I Boost My Credit Score?

If you’re intent on increasing your credit score, consider making immediate payments to your credit card company.

You see, credit card issuers transmit your balance to credit reporting agencies each month. But they don’t necessarily report it on the day your bill is due.

So, if you make large purchases, you can throw off your credit utilization ratio — your credit card balance divided by your credit limit, which affects your credit score — by making timely payments.

Another, arguably simpler option? Rather than closing accounts, which can actually hurt your credit score, consider setting some of your regular bills to autopay. This could be your gym membership, or your Netflix account.

This will make you look responsible, and can help to boost your credit score.

Is My Credit Score Protected?

Here in the United States, the Fair Credit Reporting Act offers consumer protection.

It requires organizations to have not only a permissible reason, but also your permission to pull your credit score. Therefore, if a company denies your application for a loan based on your credit report, they will inform you of the reason for their decision and offer to review your report.

Until 2003, the Fair Credit Reporting Act exempted credit scores from disclosure.

Amendments were made through the passage of the Fair and Accurate Credit Transactions Act (FACTA). This allows consumers to request a free credit report once a year from the three consumer credit reporting companies in the U.S. (Experian, Equifax, and TransUnion).

The reason for this? Credit scores are fluid. In addition, federal law requires that credit reports list verifiable, accurate, and complete information.

Any inaccurate or incomplete information must be removed within 30 days. So, yes — your credit score is absolutely protected.

Moreover, while credit scores do play a substantial role in securing a loan, they are far from the be-all and end-all for getting approved. Since your credit score is composed of a variety of factors, no one negative report can ruin it.

Do Credit Scores Matter? Here’s the bottom line

Ultimately, the elusive 850 credit score is not only unrealistic for most people, but completely unnecessary.

While good credit is undeniably important, consumers need not worry if their number dips from time to time. It’s designed to fluctuate.

When applying for a loan, positive payment history, consistent employment, and existing relationships may very well outweigh the gravity of a lower credit score. As long as you strive to achieve a decent, you are on the right track.


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Like this post? You might also like The Ultimate Guide to Credit Scores.

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Shawn Smith
Founder of TeachLegal

 

ABOUT THE AUTHOR
Shawn Smith is the founder of TeachLegal, where he helps readers educate themselves on personal finance, credit repair, debt solutions, and consumer law.

Shawn is an attorney representing clients in the Iowa District and Appellate Courts, Iowa Northern and Southern District Federal Courts, and the Northern and Southern District Bankruptcy Courts for the State of Iowa.

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