The Best Time to Start a Financial Plan is Now
by Tricia Bush, CPA, CFP® Owner, AAA Advisory LLC
Don’t Let your credit score haunt you
October is the month of ghosts, goblins, and things that go bump in the night. But there’s another kind of scary surprise that can show up when you least expect it: a credit score that has suddenly taken a nosedive.
The good news is that your credit score doesn’t have to be a permanent haunting. Understanding what affects it can help you avoid some of the most common credit-score scares and, if your score has taken a hit, work your way back.
The Credit Score Monsters
Your credit score is calculated using several factors, but some have a much bigger impact than others.
Payment history is the biggest one. Late payments can be particularly frightening because they can have a significant impact on your score. A payment that is 30 or more days late may be reported to the credit bureaus. The longer an account goes unpaid, the more serious the potential impact.
And here’s where a seemingly harmless $25.00 bill can become a very expensive ghost story.
Imagine you sign up for a streaming service, store credit card, or other accounts and select paperless statements. Months later, you’ve forgotten about the account or stopped checking the email associated with it. A $25.00 charge goes unpaid. The balance grows, the account becomes delinquent, and eventually, the late payment is reported to the credit bureaus.
That $25.00 missed payment could potentially cost you hundreds of credit-score points.
The best way to avoid this particular monster is simple: pay your bills on time, every time. Automatic payments can help make sure an occasional busy week or forgotten bill doesn’t turn into a credit-score problem.
Then there’s credit utilization, which is simply how much of your available credit you’re using. For example, a $3,000 balance on a card with a $10,000 limit means you’re using 30% of your available credit.
A high balance can give your credit score a fright, even if you pay the card in full every month. Credit card companies typically report your balance at a certain point in the billing cycle, which may be before you make your payment.
Lower is generally better. A good rule of thumb is to keep utilization below 30%, and below 10% is even better if you’re trying to maximize your score. There’s no magic percentage, though, so don’t panic if your utilization occasionally creeps higher.
Another creature lurking in the shadows is applying for too much new credit at once. When you apply for credit, the lender may make a hard inquiry on your credit report. One inquiry generally isn’t something to lose sleep over, but several applications in a short period can make you look like you’re suddenly desperate for credit.
That doesn’t mean you should never apply for a new card or loan. Just avoid opening multiple accounts simply because you’re tempted by every rewards offer that comes your way.
The Sneakiest Scare: Closing a Credit Card
Here’s one that surprises people. You might have an old credit card you rarely use and think, “Why am I keeping this thing open?” So you close it.
The problem? Closing a credit card reduces the amount of credit available to you, which makes your credit card balances a larger percentage of your available credit. It can also affect the length of your credit history.
That doesn’t mean you should keep every credit card forever. There can be good reasons to close an account, especially if it has an annual fee or encourages spending you don’t need. But before closing an old account, consider how it could affect your overall credit picture.
What About the Other Scary Stuff?
Bankruptcy, foreclosure, collections, and other major negative events can have a significant impact on your credit. But not every financial mistake is a permanent curse.
Your credit report contains your history, and negative information generally doesn’t stay there forever. The exact reporting period depends on the type of information, so it’s worth checking your credit reports and making sure the information being reported is accurate.
And that brings us to one of the easiest things you can do: check your credit reports.
You have access to free credit reports from the three major credit bureaus. Review them periodically for accounts you don’t recognize, incorrect balances, inaccurate late payments, or other errors. You don’t have to wait until you’re applying for a mortgage to find out there’s a problem.
How to Banish the Credit Score Ghosts
If your credit score has already taken a hit, don’t panic. Improving credit is usually a marathon, not a magic spell. Start with the basics:
Pay every bill on time.
Pay down credit card balances, especially if they are high relative to your limits.
Avoid applying for unnecessary new credit.
Keep older accounts open when appropriate, particularly if closing them would significantly increase your utilization.
Check your credit reports for errors and dispute inaccurate information.
Give it time. Positive payment history and responsible credit use can gradually outweigh past mistakes.
And remember, a credit score is a tool, not a measure of your financial worth. A person can have a high credit score and still be struggling financially, while someone with a lower score may be making significant progress toward financial stability.
The goal isn’t to obsess over getting the highest possible number. The goal is to build and maintain a credit history that helps you when you actually need it.
So, this Halloween, don’t let your credit score become the thing that goes bump in the night. Check your reports, know what’s affecting your score, and focus on the financial habits you can control.
Disclosure: This article is for educational purposes only and is not intended as financial or tax advice. Every financial situation is unique, and you should consult with a qualified professional before making decisions regarding your specific circumstances.
