Why Your Credit Score Isn’t Worth Obsessing Over (2024)

FAQs

Why Your Credit Score Isn’t Worth Obsessing Over? ›

Your Credit Score Doesn't Always Matter

Your credit score is NOT the best measure of your financial success. Ultimately, your net worth is the key money metric you want to focus on. Your net worth is what you own (assets) minus what you owe (debts). Two people could have identical credit scores, but very different net worth numbers.

What's not so good is obsessing over minor (5 to 10 point) fluctuations over which you have no control. Instead, focus on those things you can control to keep your score in good stead, like keeping your credit utilization under 30%, paying your bills on time, and avoiding opening multiple lines of credit at once.

In the same way all too many of us view debt through a prism of morality, deeming debt “bad” even when we have it, we see our credit scores as reflections of our characters. Viewed that way, a good credit score is the ultimate accolade our society can bestow. No wonder we're obsessed.

If you have a bad credit score, you'll generally pay higher interest rates on loans and credit cards—and may have trouble getting them at all. A bad credit score can also raise your insurance premiums and even hamper your ability to rent an apartment or get a job.

You can leverage great scores into great deals — on loans, credit cards, insurance premiums, apartments and cell phone plans. Bad scores can hammer you into missing out or paying more. Having good or excellent credit can provide significant savings over your lifetime.

Good credit can be the make-or-break detail that determines whether you get a mortgage, car loan or student loan. Bad credit, on the other hand, will make it difficult to get a credit card with a low interest rate and more expensive to borrow money for any purpose.

Some people are scared of using credit cards because they fear they'll end up in debt. You can get the credit-building benefits of a card without risking overspending.

What habit lowers your credit score? ›

Making a Late Payment

Every late payment shows up on your credit score and having a history of late payments combined with closed accounts will negatively impact your credit for quite some time. All you have to do to break this habit is make your payments on time.

It's never a great idea to stop caring about your credit score entirely, but you may reach a point where your credit score takes up less mental real estate. If you have a good score and no plans to borrow money or apply for credit again, you may be able to dial back your level of attention.

On the other hand, your credit score doesn't account for certain factors — like your income, investments and more — so it can't be used solely as an indicator of how wealthy you are in terms of money, assets or your personal financial literacy.

1. Payment History: 35% Your payment history carries the most weight in factors that affect your credit score, because it reveals whether you have a history of repaying funds that are loaned to you.

In a FICO Score “High Achievers” study, people with a FICO Score ranging from 800-850 had an average length of credit history of 99-128 months (around 8-11 years). A good credit score, defined as a FICO Credit Score of 670-739, may be achievable in a far shorter time frame.

Generally, credit scores range from 300 to 850, making 300 the lowest possible credit score. But it's important to note that you typically have more than one credit score.

Assuming you're sure you'll never need to borrow money again, your credit score no longer matters as much as it once did. But that doesn't mean it's irrelevant. “People with no debt don't have to worry too much about their credit score,” said Rob Schultz, a certified financial planner in Encino, Calif.

Having no credit is better than having bad credit, though both can hold you back. Bad credit shows potential lenders a negative track record of managing credit. Meanwhile, no credit means lenders can't tell how you'll handle repaying debts because you don't have much experience.