4 credit score horror stories that could happen to anyone
- A person's credit score determines the likelihood they'll repay debt.
- Simple mistakes or oversights can sink a credit score.
- Getting caught up in life events such as the purchase of a new home or going on vacation can make it easy to overlook seemingly minor financial mistakes.
- Thankfully, all of the people in these credit score horror stories recovered from their lowered scores, and many of them are financial professionals today.
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Credit scores determine so much about a person's financial life. It's set to determine how likely an individual is to repay debt, but it might as well act as the report card of adulthood. Many people run into major predicaments with credit score problems, including smart, successful, and financially savvy people (like the ones mentioned here).
As these credit score horror stories show, it's easy to make those crucial digits drop with an honest mistake or simple oversight.Here's how simple blunders from a moving day or honeymoon can linger on your financial record for months later.
Paying off debt early made my credit score drop 40 to 50 points
When it comes to credit scores, it helps to read the fine print.
"About nine years ago, I was getting close to buying a house, and taking out a mortgage," said Matt Schmidt, CEO of Diabetes Life Solutions. He decided to pay off the balance of his student loan debt ahead of schedule, which seemed like a smart idea at the time.
This seemingly responsible behavior backfired.
"My student loan was my only type of 'installment' debt. Even though I paid off my debt, FICO penalized me for not having installment debt," said Schmidt.
This penalty resulted in a rather serious credit score impact."My credit score dropped 40-50 points, and took about four months to get it back up to where it previously was," said Schmidt. It delayed the purchase of his home by four to five months.
"Obviously, I never thought that being responsible and paying off debt would negatively impact my credit score."
An oversight on my honeymoon cost me dearly in credit score points
"After I got married, my wife and I took our honeymoon in Argentina," said James Garvey, CEO of Self Lender. "As part of my checklist I set up all my bills on auto-pay - or so I thought." But the newlyweds were in for quite a shock when they returned home.
One of the credit cards that Garvey assumed was on auto-pay turned out to go unpaid for two months.
"As a result, my credit score was damaged for years. After this experience, I founded a company to help people responsibly build credit and save money, Self Lender."
Garvey is another person who turned a rough experience with credit scores into an opportunity to educate others.
My credit dropped to the low 500s after one missed payment"How I got into learning about finance and learning how to build my credit is when my credit dropped to the low 500s after one missed payment on a student loan," said Lisa Fox, financial expert for SproutCents. The full impact of this single missed payment gets more complicated, however.
"Because my student loan provider listed each loan as 19 individual ones, it reported on my credit as 19 missed payments," said Fox. The financial repercussions were serious and long-lasting.
"My score plummeted and it took a few years before it disappeared from my credit report and things balanced out," said Fox. "I learned the hard way to consolidate your loans and pay on time." Now Fox works to help others reach financial stability as well.
A misplaced box on moving day cost me several credit score points
It's so easy for important things to get lost in the shuffle during a move, and sometimes it can even cause a ding to your financial credit.
"A library book got boxed up and put into storage, and the late notices (along with a bunch of other mail, including a 401(k) rollover check) wound up going to the wrong address," said Weston.
Of course, moving is stressful and all-consuming, so this oversight went unnoticed for a bit.
"By the time I figured all this out, I had a collection on my TransUnion credit report and my FICO score there dropped more than 50 points."Like everyone else on the list, Weston did get out of the credit predicament.
"Paying the collection didn't help, but time (eventually) did," said Weston.