Updated publish date: 9/5/23
Original publish date: 2/3/23
Table of Contents
I was in my classroom after school finishing up for the day. My phone buzzed just before I was ready to pack up and leave. And then it buzzed again, then again. Alerts started going off on my phone, notifying me of a drastic change in my credit score. I panicked. My FICO 8 credit score was a perfect 850.
The alerts notified me that I was 30 days past due on a car payment.
The alerts had to be a mistake. We had plenty of money in our checking account to make the payment. The payment is made automatically every month.
I contacted each service, alerting me of the late payment and asking them to explain. They all claimed the same thing – I was 30 days past due on a car payment.
I wasn't just upset because of the terrifying thought of losing my perfect credit score, but I disdain car payments. We were not at the point in my life where we could purchase the kind of vehicle with cash that met our needs and preferences.
I went to annualcreditreport.com to pull my credit report. You get one free credit report from Experian, Equifax, and TransUnion each year. I had pulled reports from Experian and Equifax in the previous 12 months but not TransUnion, so I pulled that report. The missed car payment was absent.
I was relieved, but confused and still anxious. I sent Rod Griffin a text message explaining what had occurred. I'm fortunate Rod is a friend and is who I turn to for my credit advice. Rod is a Senior Director of Public Education and Advocacy for Experian, leading their national consumer education programs.
Rod reminded me that not all credit reporting bureaus report updated information simultaneously. Perhaps only one of the bureaus had reported the mistake.
Let's start from the beginning before I share what happened next.
I taught personal finance and economics for 15 years. My favorite topic to teach was building and managing credit.
For the most part, it was a skill my students could learn and apply themselves regardless of their parent's financial situation. There were exceptions to this; more about that in a later post.
I became obsessed with learning every possible credit-building trick to share with my students.
I applied what I learned to my credit score and my wife's. It wasn't long before I realized that a perfect FICO credit score was within reach.
Before I dive into the credit building hacks I applied, a bit about the basics of credit scoring.
Your financial life in a spreadsheet, automatically updated daily. Build your budget, now.
What is a credit score?
A credit score predicts your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports. There are many different credit scoring companies and models. Take, for instance, the credit scoring company FICO. They have many different scoring models.
You can dive deeper into credit education by listening to Rod Griffin, a Senior Director of Public Education and Advocacy for Experian, on the Modern Husbands Podcast.
How is your credit score calculated?
There are many variations and considerations that go into proprietary credit scoring models. The graphic below is a widely accepted illustration of the components of a credit score. I learned very quickly that its easiest to remember to simply:
Pay your bills on time
Do not over borrow
The 5 key credit building hacks I used
1. Never miss a payment
Late payments will destroy your credit. I already had great credit because I had never missed a payment.
2. Request a higher credit limit
I requested a higher credit limit on any cards that did not run a credit history. A hard inquiry here and there is relatively harmless, but I couldn't afford to lose any points if I wanted a perfect credit score.
I did not increase my credit card transactions, but I had higher credit limits, which helped because it lowered my utilization rate. For example, if I ran a $100 transaction for groceries and only had a $1,000 credit limit, then that single transaction would increase my credit utilization rate by 10%. If my credit limit were $10,000, it would push it up by 1%.
An important note is that credit cards are a form of revolving credit, which seems to be a greater factor in credit scoring than installment loans (e.g. car payment), as long as you don't over borrow.
3. Do not close old accounts
I did not close any credit card accounts because closing accounts can hurt your credit score by reducing your overall length of credit history and overall utilization rate. I also made sure each credit card was active. I strategically used each account at least once every few months.
4. Do not open new accounts (in your name)
We opened accounts under my wife's name if new credit was necessary, which did not impact my credit score because we did not apply for credit jointly. Her credit score was also strong, but mine was stronger. She also had no interest in my obsession with a perfect credit score.
5. Maintain a low credit utilization rate
I maintained a credit utilization rate close to 0% by paying my credit card balances daily in full. Yes, you read that correctly. I would pay in full every credit card balance every morning using the credit card apps on my phone while drinking my morning coffee. When I did this for at least a year, my FICO 8 credit score broke through the 840 barrier.
You'll see advice to keep your utilization rates below 30%, and that's not good advice. It's like telling someone they will be healthy if they only eat two donuts for breakfast instead of five.
Predict how financial choices will impact your credit score
Play the credit score game: Available to those who subscribe to the Wall Street Journal.
Related reading: How NOT to Use Credit Cards: Couples Edition
How I lost my perfect credit score
Back to the day I lost my perfect FICO 8 credit score.
If you recall, my TransUnion credit report did not indicate I had missed a payment, but not all late payments are reported to the bureaus simultaneously. I pulled my Experian credit report, and there it was. I was 30 days late on our car payment.
I was beside myself. We had more than enough money in our checking account, and we have always scheduled auto payments. And then it occurred to me we had switched banks about six weeks prior.
Hope and I were overwhelmed with work and parenting responsibilities at that time. When we switched banks, we coordinated what needed to change using email and a checklist. One of us forgot to switch over the auto pay on our vehicle loan, and the emails received alerting us looked like spam. We simply missed it.
I would not have lost my perfect credit score if we had made the time to sit down weekly, even for just 20 minutes, to discuss our finances.
Our story is a perfect example of why married couples must invest time to manage money together. I was obsessed with building a perfect credit score. I read everything I could get my hands on and nagged Rod with advice. I knew and applied every credit-building trick that I thought mattered. But what matters most isn't a trick; it's time married couples need to spend working together to manage their finances.
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