Tag Archives: credit scores

How credit scores work

Matt Haughey has a great post on how credit scores work

Today I learned that my credit score dropped into the high 600s and my risk just went from low to medium. The culprit? The credit card account I opened had "too low of a limit" (it started at $5k) and I had "too high of a balance" on it as I used it on vacation (I paid off the card as soon as I returned, two weeks before the first bill even showed up).

Financially, I’m in the best shape of my life right now. My house will be paid off in about 5 years at the rate I am going, I have a great retirement portfolio that I contribute aggressively towards and it continues to grow, and my business is doing well even as we’ve expanded with a new employee and several contractors.

I had the highest credit score at a time in my life when I was leveraged to the hilt and I lived paycheck to paycheck. Now that I have my own business, a healthy retirement, and can pay for everything I need/want, I have a low score and I’m dubbed a higher risk even though my ability to pay is very high. I used to think a credit score was all about your ability to pay, but it’s clear now it’s more about how profitable you will be to banks.