Ask Stacy: Why Won’t My Credit Score Go Up?

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Sometimes getting ahead feels more like a herd of turtles than a rabbit. That’s especially true when it comes to credit scores. Check out this recent question that came in via Facebook and see if you can relate…

Hi! I have a question for you. I’ve been working on improving my credit score for about 3 years now, but I cannot seem to raise it above 640. I have a few credit cards, with decent limits, not as high as I would like and low utilization, a car loan, and nothing in collections for a few years. My credit reports say that low credit limits and time limits are hurting me, as well as the collection from a few years back (settled). What can I do?
– CZ

Here’s your answer, CZ!

There are all kinds of things that can impact a credit score. Here’s a video I did a couple of years ago regarding hits to your credit score from certain specific issues. Check it out, then read on for more…

To recap those potential score-busters…

  • 30-day late: 60-110 points
  • Debt settlement: 45-125 points
  • Foreclosure: 85-160 points
  • Bankruptcy: 130-240 points
  • Maxed-out card: 10-45 points

The higher end of the ranges above would generally apply to those with the highest scores (780-plus) and the lower end to those with lower scores (below 680). Keep in mind that a perfect score is 850, and to get the best possible deals, depending on the lender, you’ll need 730-760.

What does it matter?

CZ is right to be concerned about her credit score. Bad scores mean less access to credit and higher interest rates when an application is approved. Less access to credit can lead to lost opportunity, and higher rates can cost a ton of extra money.

Consider the mother of all debt: a mortgage. Say you’re borrowing $200,000 on a 30-year fixed mortgage. Show up at the lender’s office with a 620-639 credit score, and at today’s rates, you’ll pay 4.827 percent. If you make minimum payments, your total interest bill over 30 years will be $178,935.

But if you waltz in with a 760 or higher score, you’ll only pay 3.238 percent and your total interest bill declines to $112,875.

That means over the life of that loan, the lousy score will cost you $66,060 – enough to finance your own business, put a kid through college, or maybe retire a year earlier.

(By the way, the information above came from a calculator from Fair Isaac – the creator of the commonly used credit score. Check it out for yourself.)

The opportunity cost of bad credit

Another even more dramatic way of looking at the same thing is to consider opportunity cost – the term describing how money you spend today can cost you in terms of the opportunity to have more money tomorrow.

Because of the higher rate, a low score on our $200,000 loan means a monthly payment of about $1,053 a month versus about $869 a month for the higher score. So the person with the higher score has the opportunity to save about an extra $200 month. If they use that opportunity wisely and invest their $200 monthly for 30 years and earn 8 percent on it – possible in the stock market – they’ll end up with an extra $298,000.

In short, bad credit is expensive. If more people realized that, maybe we’d have fewer lousy credit scores floating around out there. According to Fair Isaac’s numbers, about 40 percent of Americans have a credit score below 700.

What should CZ do?

Now let’s (finally) get back to CZ’s question: “My credit reports say that low credit limits and time limits are hurting me, as well as the collection from a few years back (settled). What can I do?”

I doubt that low credit limits are dramatically hurting CZ. But if by “time limits” she means not enough time has gone by, I’m onboard. I suspect that this was a seriously low credit score at one point. Otherwise, three years of on-time bill payments should have lifted her score over 640 by now.

She’s done what she can: gotten new credit, gotten various types of credit (revolving: credit cards, and installment: car loan) and is keeping her utilization ratio low (not using all her available credit). She’s also hopefully paying her bills consistently and promptly.

What’s left? Time. Like many mistakes in life, it takes days to screw up your credit and years to fix it. Also like other mistakes, however, as time marches on, they have less influence. So if CZ is telling the truth about doing everything right for three years, it shouldn’t be much longer before she sees significant improvement in her score.

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