A big part of responsible personal finance is staying on top of your credit. This includes regularly checking your credit reports. It also means keeping an eye on your credit scores. But there’s a fine line between monitoring your credit scores and obsessing over them.
Yes, even with your credit, there can be too much of a good thing. If you’re someone who logs into a credit score app every other day, it may be time to rethink your approach.
Your credit scores are a tool — not a job
It’s important that your credit reports are in good shape. Lenders will check your credit each time you apply for a loan or a credit card. You may even undergo a hard credit check when you apply for utilities or a new cell phone account.
All this is why it’s important to regularly check your credit reports. You want them to be an accurate representation of your credit history. They should be up to date and free from errors. In most cases, however, you can only check your credit reports for free once a year. By law, you’re entitled to one free copy of your credit report from each of the three major credit bureaus.
While you can sign up with various services to monitor your reports more often, they typically cost money or have limited access. That’s where your credit scores come in.
Your credit scores are a direct reflection of what’s going on with your credit reports. This makes them an excellent tool for tracking any changes to your credit reports. If you see a sudden jump in your credit scores, you know something changed in your reports.
Credit scores regularly move up and down
As great a tool as your credit scores can be, they can also be a source of anxiety. If you’re obsessively checking your scores, every little change can cause alarm — even if it shouldn’t.
Your credit scores are a bit like tides; they regularly ebb and flow. Small changes of a few points are very common and perfectly normal.
Most small changes in your credit scores are a result of your changing credit card balances. Credit card issuers generally report your balance information at the close of your statement period. This is typically 20 to 25 days before your due date.
If you have a high balance reported to the bureaus, then your credit score could dip by a few points. The higher the balance, the larger the dip. For example, if you splurge on a vacation in the summer, you may wind up with a higher-than-usual credit card balance. This will get reported to the bureaus, and your credit scores may drop by 5 points.
This is due to your credit utilization. One of the five main factors in determining your credit score, your credit utilization is how much of your available credit you’re using. If you have a credit card with a $1,000 credit limit and a $200 balance, you have a credit utilization of 20% ($200 ÷ $1,000 = 0.2). Ideally, you should aim to keep your utilization below 30%.
However, credit score dips from high utilization aren’t necessarily causes for alarm. Because balances are reported well before your bill is actually due, it isn’t permanent. As long as you pay off your card, your credit score will rebound the next month when the lower balance is reported.
Small changes in your credit scores are normal. Big changes are less so. If you see a major dip in your credit scores — say, in the 20-point range or higher — that’s when you should be concerned.
A brand new account, a maxed out credit card, or a late payment are all reasons your credit scores could take a serious hit. These all reflect a major change to your credit reports and could require a follow-up, especially if you haven’t done anything different lately.
Check your credit scores once a month, not once a day
All in all, you can easily stay on top of your credit scores by tracking them just once a month. As we noted above, issuers tend to report your balances monthly. Even if you have multiple credit accounts reporting to the bureaus, you can see all of the updated balances by checking your scores once a month.
If you’re really concerned about your credit, consider setting up credit alerts. Most credit monitoring apps — and even many credit card issuers — will let you set email or text alerts that notify you of any major credit score or credit report changes. That way, you can go about your daily life without obsessing about every little change to your credit scores.
