A reader asks HerMoney CEO Jean Chatzky why her credit score has gone down, even though nothing has changed for her financially.
Twice a week, our CEO and resident money guru Jean Chatzky tackles your burning questions in the HerMoney newsletter. We’ve pulled some of the best to feature on our website — and this one made the cut! Got a question for Jean? Send it her way right here.
Q: Today’s question comes from Jen. She writes: “I have been working to keep my credit score high, and I monitor it through Experian’s app. I see my score go up and down, and I wonder why it goes down when nothing seems to change on my end. I have never been late paying bills, but I only have “very good” instead of “exceptional” payment history. Help me understand this!”
A: That’s frustrating to say the least, Jen. To answer your question, we tapped Lisa Gill, a credit expert with Consumer Reports. Here’s what she had to say:
First, congratulations on keeping such a great credit history! You don’t mention it, but I wonder if you often simply pay off the entire amount of your credit card bill each month. It seems strange to say, but doing so can sometimes hurt your score. Carrying a small balance from month to month, paying it down, and sometimes paying it off entirely, signals to the algorithms that you know how to manage credit, which is, in part, what the credit score is about.
If you don’t use the card very much or pay it off entirely every month, you can definitely be ‘dinged’ on your score and that excellent rating. My personal hack here is that if you want to increase your score, use the card minimally. Pay it off almost entirely, but leave about 5% to 10% unpaid. (Yes, that means you’re paying a little interest — but if the score is the primary goal right now because you want to apply for a big loan like a mortgage or auto loan, it can be worth it.) Repeat this for a few months, and watch as the score increases. I’ve noticed the algorithm likes it when you use the card, paying it almost off, while still keeping your available credit usage to 30% or less.
Small variations in your score, too, can happen, says the CFPB, if a score is calculated on a day you have a high balance, even if you pay it off in full the next day.
Otherwise, it always pays to review your entire credit report in detail to see if there are any old cards or even loans where there was a missed payment or a payment not properly recorded. Records on such things are kept active for seven years, so missed payments on an old card from 2018 or so could still be counted.
Plus, don’t forget that credit reports can contain errors from banks, lenders, collection agencies, and credit card companies, so it’s helpful to read yours over every few months and file a dispute (in writing if possible) if you find a mistake. Follow the steps the CFPB suggests here.
MORE ON HERMONEY:
- Ask Jean: “Should I Buy Used Luxury Items?”
- Ask Jean: “What’s A CD Ladder?”
- Ask Jean: “What’s The Avalanche Method For Paying Off Debt?”
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