First, let´s review the categories that make up your credit score.
I took two actions which dramatically impacted my capacity and accumulation of debt categories. Here is the story.
Event #1. I opened an Apple Credit Card to buy a new Iphone. My phone was 5 years old and it was time. I have a prepaid cell phone plan (so much cheaper each month) but that means that I cannot buy a new cell phone through my carrier on a payment plan. So I choose Apple financing because they offer 0% interest via their credit card for any Apple products. I had the cash to buy the phone outright but why not take a 0% loan and let the money sit in my high yield savings account and make me money? So I chose to finance the new phone.
Ding #1: opening a new credit account will always drop your credit score initially. This drop should recover within a few months.
Apple (via Goldman Sachs) approved me for $1,500 and I spent $1,200.
Ding #2: From the beginning I was over my 30% limit.
The impact to my credit score -48 points! Ouch.
I am not trying to buy a new car, find housing or anything else that would require a good credit score within the next 6 months so this drop is not a huge deal but dang, it definitely hurts the money ego a bit!
FYI, I know about this credit score drop because of my Southwest Credit Score alerts via Chase . This was the subject of the last newsletter.
Event #2. I purchased a really expensive education program that took me close to maxing out my credit card. I had the cash to make this purchase. I was not buying something I could not afford. I knew this purchase would put me well over the 30% limit but I wanted the rewards points, which I recently just cashed in for 2 free flights to Los Angeles . When the statement balance came due, I paid the whole thing.
Ding #3: Almost maxing out my credit card and being well over 30% limit.
Between making the purchase and the bill being due, my credit score dropped -63 points! Double whammy.
In 3 months my credit score went from Excellent to the bottom of Good. Although I don´t need my credit score the moment, this drop was too much.
Here are the following steps I took to repair my credit score:
1. I reached out to Goldman Sachs and asked them to increase the limit on my credit card so my account balance would be within the 30% limit. They rejected my request, probably because my credit score had just dropped 63 points and on paper I seemed to be heading for disaster.
2. I paid off a big chunk of the balance on my Apple credit card so I would be within the 30% limit. Making the few extra dollars in my high yield savings account was not worth the pain on my credit score.
3. When the statement balance was due on my Southwest credit card, I paid the entire statement balance (like I do every month) which brought my balance below 30%.
The results? My credit score jumped +80 points and I have now been restored to my 800+ credit score! Whew that was a crazy ride.
So there you have it. I share this story with you to give you more perspective on the inner workings of your FICO score and to hopefully shed some light on what might be impacting your credit score. Hopefully you are not experiencing these wild swings!
Disclaimer: I am an educator, not your personal financial advisor. Information in this newsletter is intended for educational purposes only. Please make sure to do your own research before moving forward with any actions discussed in this newsletter.
Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won’t experience any loss when investing. Past performance does not guarantee future performance. Always remember to make smart decisions and do your own research!
