Why Your Credit Score Should Not Be Your Life Goal
Do you track your credit score? If not, you should be. It's a useful tool for a whole host of reasons. It gives us an idea of loan products we qualify for, it gives an easy to read estimate of our debt to income ratio, and most importantly it gives us an easy way to monitor for identity theft.
Many banks offer free credit score monitoring, and there's services such as Credit Karma (and soon Witsi.co) where you can keep an eye on your score. Your credit score is an incredible tool for your financial life.
But I think that many of us, including myself at times, get caught up in the number itself. It's like a high score! If I'm at 798, I want to figure out what I can do to get over 800 next month. If I'm at 802, I need to make sure I don't do anything to make it drop. We protect our score, and we want it to be as high as possible. But why?
What does a high credit score mean in your everyday life? Almost nothing. It will get you qualified for the best loan terms when making large purchases (houses and cars), but how often are you doing that? Maybe once every few years, max? The time in the middle, your 820 credit score nets you exactly 0 of anything. So why do we care so much?
Your credit score is just a tool, and a tool is only good if you use it. I'm not suggesting that you go out and wreck your credit score: far from it. So long as you follow the 5 rules, your credit will never be in any real danger. What I'm suggesting is that we not worry so much about the temporary ups and downs of our credit scores, and instead use those (already) good scores to net us some real benefits.
Yes, your credit score will temporarily drop when a lender does a "hard pull" on your credit. But if that drop allows you to get, say, a no interest loan on new furniture, or a new rewards card with 3X airline miles, isn't that worth it? Your trading a few points with no intrinsic value for things that will make your life demonstratively better. That's a no-brainer.
And the score will come back up, so long as your diligent. Don't buy things you can't afford, pay your bills on time, and your score will come back up, and then you can use it again for something else!
If you are planning a large purchase soon, obviously take this advice with caution. You shouldn't open a new credit card just before you try to get a house loan, and a temporary dip in credit can have you paying higher interest for your next car. You need to be smart, and figure out how to pay the banks the least amount of money possible. That's how we win.
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