When Is It Okay to Let Your Credit Score Slide?

We certainly see a lot more commercials and stories on the importance of having a good credit score. It can help you get a lower interest rate, therefore saving you a lot of money on a car loan or mortgage. But when is it ok to let your credit score slide?

Here are a few thoughts as to when it might make sense to let your credit score slide a bit:

1. If you are experiencing a financial hardship and you cannot afford to pay all of your bills.  Perhaps you have been laid off and experienced a reduction in income.  It might be time to make some tough choices in deciding what you can pay and what you cannot pay.  The suggestion is to always cover your priorities first: housing, utilities, food and transportation.   Prioritizing might mean you have to miss a payment on a lower priority expense such as a credit card.   Missing your credit card payment will impact your credit score, but it’s certainly the right decision if you can’t afford to pay all of your expenses.

2. Generally, I would recommend avoiding opening new credit in order to take advantage of a store discount (e.g. save ten percent if you open a credit card with us today).  However, if I am making a major purchase — say replacing appliances —  ten percent could add up to a significant savings and might be worth a tiny ding to your credit score. But certainly don’t make it a habit.  And have a plan in place to pay off the bill in a timely way, avoiding interest rates.

3. Any time you apply for credit, this is known as a hard inquiry and will have a negative effect on your credit score.  According to FICO, if you shop for credit in a narrow period of time (30 days), it will only count as one inquiry on your credit report.  Try to shop for major credit such as a mortgage or an auto loan in that narrow window of time. But if it takes you longer, it is still worth it to shop around to make sure you are getting the best rate possible.

4. It is generally suggested to never close a credit card. I would argue that if you are someone that might be tempted to overuse your credit if it is open, it might make sense to close the account to prevent yourself from overusing.

For more information on credit scores, read one of Kathryn’s past blog post: How to Improve Your Credit Score.