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Relax If You See Small Changes In Your Credit Score

Why the numbers don't always reflect your financial health​

mechanism of two engaged gear wheels  labelled as good credit, bad credit
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I see you, perfectionist reader — always checking your credit score and feeling bad when it has dropped a few points. Judging from the email I get, I’d say you have company. People worry about scores that are good but not great, and great but not perfect.

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​Maybe it’s because we’re always ​measuring our lives with numbers like cholesterol levels and miles per gallon. Or maybe it’s all those credit monitoring ads we see.​ Yes, you want a good credit score. That three-digit number can make a crucial difference at certain times — such as when you’re applying for a loan or a credit card, or when you’re renting an apartment.

​But I’m here to tell you that your credit score is one number where good is good enough and perfect isn’t very meaningful. It is not a measure of you as a person. Constantly monitoring your score is pointless and sometimes harmful. “I encounter a surprising number of people who are so obsessed with a good credit score that they are afraid to take good financial actions,” says Kelley Long, a Tucson, Arizona, financial planner.​

So keep your score in perspective.​

Know the basics

Your report is a history of your bill-paying life. Credit reporting agencies — the big ones are Experian, Equifax and TransUnion — independently keep records of your credit cards and loan accounts, the debt you carry and the payments you make. That data is fed into formulas by credit scoring companies — FICO and VantageScore, chiefly — resulting in a number on a scale from 300 to 850. Lenders and other businesses use those scores to decide your creditworthiness, the interest rates they’ll charge you and the financial risks you pose to them. Several factors affect your score, but the most important one is payment history: To maintain or improve your score, prioritize making all your debt payments and making them on time.​​

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The worst reason to care too much about your credit score is if you’re in trouble — juggling bills you can’t pay off. Working with a reputable credit counseling agency will hurt your score. But take the hit. Killing your debt may launch a solid financial future, and a dip in your credit score will not be a tragedy.​

Linda Stern, former Wall Street editor for Reuters, has been covering personal finance since the 1980s.

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AARP Membership — $12 for your first year when you sign up for Automatic Renewal

Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.