Most people think being debt free is good thing, but in reality it can actually hurt your credit score. Here are a few things I learned the hard way.
It’s no secret credit card companies want your money. They make their money from you spending your money. Like most people, I had credit card debt. I fought a long hard battle to get of debt, eventually paying them all off.
I was happy to have cut the chain of debt I’d been dragging around.
Let me rephrase that sentence. I was happy being out of debt, until I started seeing changes to my credit score a couple of years later…
I kept my credit cards, even though I didn’t use them. I figured I’d keep them in case I needed them for an emergency or something. I didn’t think much about the cards I wasn’t using until I got an e-mail from a card company.
The e-mail told me one of my cards was being cancelled for non-usage.
I didn’t care that much, until I got a notice about a change to my credit rating. My score had dropped nearly 80 points. I was blown away. When I called the company, I was told I’d have to re-apply and that I’d probably have a higher interest rate and lower limit because my score was lower.
I was being penalized for NOT using my credit card…
This triggered a reaction from another of my card companies a few months later. After a “routine review” of my account, my credit limit was dropped nearly 60% because of “adverse credit action” on my consumer report.
Double whammy. I was penalized AGAIN from not using my cards.
Now, I had TWO adverse ratings on my credit report.
In addition, I have a car loan that was paid off, so THAT was also an adverse action. As if that’s not enough, I received a letter from a big box store where I had credit telling me I needed to make a purchase of at least $200.00 within thirty days in order to keep my card in “good standing”.
Apparently you’re supposed to be in debt.
As I researched this, I found it’s quite common. Credit card companies will ding you if you don’t have debt because they want you to be in debt. If you’re not spending money, they’re not making money.
When you don’t play the game by their rules, you’re blacklisted.
I’m nervous about what the future holds because I hope I don’t have a need for new credit. I used to keep a close eye on my score, but now I don’t think I want to see it.
Credit ratings are supposed to be a judge of how worthy you are with regard to paying your debts, not that you’re a bad risk to the credit card issuers because they aren’t going to make money off you…
You score is just a gauge of how good you are at accumulating debt.
The logic behind this is if you’re debt free you don’t need to worry about your credit score. In theory, that’s true (if you’re rich). But in reality, it’s something we DO need to worry about unless you have lots of cash on hand to pay for your big purchases without credit.
Maybe you don’t plan to buy a house or car today, but you probably will at some point. Some jobs even require you to submit to a credit review in order to be hired. If you want to rent an apartment, or something as simple as opening a new bank account, that score will be there to haunt you.
Credit scores are extremely important to the average person.
Take this as a warning. If you want to keep your good credit score, use your cards at least once in a while, even if you don’t want to (just be sure to pay them in full each moth if you can). Otherwise you might fall into the trap I did. I’m sure I’ll recover from it at some point, but in the meantime a little debt would’ve been better than a bad credit score.
That’s something they don’t teach you in financial wellness classes…
Marty is a freelance writer based in Kansas City.