Obsessed with Scores
A Credit Score is not Everything
By Daniel Muniz

I am still amazed by the number of people I meet who are obsessed by their credit scores. Granted, there are over 30 million people in the United States who have scores that fall into the sub prime category of 620 and below. And naturally, such a score makes obtaining the best financing very difficult, hence the fixation on improving a credit score.

Unfortunately, a credit score may not be the sole factor that determines if you are approved for credit. It is the lending policy of a creditor that determines the approval or denial of credit.

The confusion arises from the number of unknown criteria in the credit industry.

A lender does not normally announce to the world its exact credit approval procedure. And for most of the population, the credit approval process is quite an enigma in itself. Some lenders are more open in explaining their process to the public while others keep their entire decision making procedure a complete secret. And more often than not, the only way to know if you can be approved for credit is to actually apply for it.

As a result, a credit score is about the only known variable in an obscured world of unknown quantities and mystery.

And what really confuses a lot of people is that each creditor is different. Some organizations base their lending policy almost entirely on a credit score while other companies place their emphasis on many other factors of a credit score. With certain lenders, the process may be entirely automated with no human intervention especially for credit applications that you can apply over the phone or online. In other places, a real live human being is part of the decision making process.

Some creditors emphasize certain categories such as absolutely no collection activity while others do not care about collections as long as it has been paid off several years ago. Some firms have a logical basis for their approval process while others have asinine and almost nonsensical reasons.

Incidentally, it is possible to have a clean credit record and still have a low score. For instance, even if you have paid all of your bills on time and have absolutely no derogatory information, you can still fall into the sub prime category. You can also have a couple of minor blemishes on your credit report and still end up with a score in the 700 range.

And to make matters worse, a credit score can change on a day to day and even on an hourly basis, which results in the preoccupation on what just caused your score to fluctuate. Instead of concerning yourself with a score, the focus ought to be on exercising responsible credit behavior.

Responsible credit behavior is the long-term solution that will improve your score and improve all the factors that lenders look at.

Paying Your Bills on Time
Although easier said than done, paying your bills on time is perhaps the most difficult task that anyone can do, especially if you are a paycheck to paycheck type of person. Even if you do have the extra money stashed away, it still requires discipline and determination to ensure that each creditor receives their payments in a timely fashion.

Paying Down Your Revolving Account Balances
It is easy to max out a credit card or to have high balances. Over-utilization can kill a credit score especially if you have several accounts near or over their credit limits. Some lenders like to see your revolving balances at 50 percent or lower while others want to see your open-end debt below 30 percent.

However, paying off your long-term installment loans early does not improve your credit score in the long run. Unfortunately, debt management is not the same as credit management. Your credit score is partly based on your credit history. Paying off that installment loan too soon shortens that lengthy credit history that a high credit score needs.

Apply for Credit Sparingly
If you want to trigger red flags then all you have to do is start applying for new credit on a large-scale basis? By nature, creditors are a suspicious group of organizations. Experience has shown that people who all of sudden show symptoms of being credit hungry often times have some ulterior motive; like running off to Tahiti once every new account has been opened and maxed out.

In summary, don't sweat a mediocre credit score if you are already exercising responsible credit behavior. Your score shall rise but it will take a bit of patience and discipline to continue good behavior.

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