Well, it didn’t quite go like that. Let me wind back the clock and remember the time when I did have a perfect credit score.
That time when I had a perfect credit score
Being incredibly focused on personal finance I take an active interest in my credit score. If you do not know what a credit score is, or why you should check yours, you can read the article How to improve your credit score. In the article I run through what it is and why a good credit score is important.
Why I wanted the perfect credit score
Having lived through a lengthy period of financial emergency I wanted the perfect credit score to prove to myself that I was doing better that the situation I had come from. It might seem silly to anyone else, but to me, a perfect credit score would be a well-deserved pat on the back, a high five and a well done all at the same time. I longed for that.
For a lengthy time, I had a respectable credit score but I really wanted to experience having the perfect score.
I imagined about how it would feel to be deemed perfect by a credit rating agency.
For me this was a real goal. One that I was progressing towards.
Surely having a perfect credit score would mean that I was doing great with my personal finances? I truly wanted the top mark.
Sensible choices are good for the credit score
I don’t remember when it was that I first learned about, what a credit score is, or even why it was important. I do however remember thinking that there wasn’t much point worrying about it at the time because I was just about managing. Trying my very best to get from month to month.
Time passed and I learned more about financial literacy and the credit score. I found out that I was largely doing the right things. Mostly sensible things when it came to managing credit.
I would pay my bills on time, didn’t default on any debts. Sensible things that make sense and indicate responsible financial behaviour.
Close to the limit
The issue was that my level of credit utilisation (the amount of available credit used) was really high.
Just below the upper credit limit of whichever credit card happened to be in rotation at the time. I would often go month to month and even year to year working out exactly how much I had available and spending up to that exact amount.
The situation was tight and I needed the credit to live.
I was certainly not perfect and there were a few times when I did go over the credit limit. On at least one occasion I missed a payment and was charged a penalty and a fee for the late payment.
When I missed that payment, I was devastated. I had always thought I was good at managing my finances. Sure, I did not have any money, but when it came to debt, I was tracking it and calculating and being as careful as possible. Just not careful enough.
Being so close to the limit and busy with life, I forgot about a payment that had not cleared, then I ended up in debt past my credit limit. The payment I made did not clear in time and resulted in the card being past the limit and with a late payment fee.
I was past my credit card limit and had a late payment fee. Double blow.
Whilst I was upset about the situation, it was entirely of my own making. It was my fault because I had failed to manage my finances appropriately.
I promised myself that would never happen again and to this day I have not broken that promise.
Checking the reports
Firstly, I had no idea what my credit score was but I knew it was important. The plan for the future was to buy a house and a mortgage was going to be needed to pay for that house. To get a mortgage you have to show that you are a responsible person when it comes to managing your money. So if I could find out what my credit score was and then take the required steps to improve that score over the next few years. I was sure that things would work out.
I obtained my statutory credit reports from the three main UK credit reference agencies. These have been available for free to all residents in the UK since 2010 following an agreement between the then government and the credit industry.
Currently the three main credit reference agencies in the UK are Equifax, Experian and TransUnion.
Once I received the free statutory credit reports I went through them very carefully. From the reports I saw that any missed payments would show on the report as well the level of credit utilisation.
How I improved my credit score
It was important that I always paid my debts on time and for most of them I set up direct debits from my bank account to pay the bills automatically so that I wouldn’t miss another payment.
By holding onto and keeping old credit cards open it showed that I wasn’t needing to use the credit. (I was using another card but kept the old cards open to that my credit utilisation was not at maximum.)
I used balance transfer offers with credit cards and cycled through those to keep my credit card debt at the lowest possible rate of interest.
The easiest step taken was to ensure I was on the electoral register. It is surprising how many people neglect to register to vote. Especially if you have moved a few times. Even if you choose not to vote, being on the electoral roll can provide a boost to your credit score.
I followed the eight ways to improve your credit score detailed in the article How to improve your credit score and I checked all three statutory credit reports about once a year.
The perfect score
Time had passed and I now had a mortgage. I continued to have other credit facilities such as a loan and at least one credit card along with other sources of debt.
Throughout this time I always paid the bills on time. I often paid more than the required minimum and was very careful not to make unnecessary requests for additional credit.
Maintaining a goal to pay off debt at the same time as being deemed the perfect borrower.
I was going through the motions of checking the finances. Reviewing the credit reports and planning the family budget and cashflow for the next month when I saw the score.
I was over the moon.
For someone who worked towards bettering their financial position for years, having the perfect score was a remarkable achievement.
So being the overly pleased and extremely happy bean counter (accountant) that I am, I couldn’t wait to share the news that I finally had a perfect credit score.
Take it from me, when I announced to my co-workers in conversation that I finally had a perfect credit score, I did not get the reaction I was expecting. I mean these were my finance buddies. People who presumably had the same level of interest in these things.
Nope.
I was wrong. I severely overestimated the level of enthusiasm of my co-workers. Other than the blank faces and the looks of “so what” I was a bit embarrassed and didn’t understand why no one cared. Still I was pleased with myself and glad that I had achieved that marker, even if others didn’t care.
I was still elated that I had it. Even if the high fives and the slap on the back would remain in my imagination.
Highs and lows of the credit score
Years have passed since I first had a perfect credit score. Getting a perfect score had no real impact on my life. I have had a perfect credit score on at least two other occasions. During the intervening years and I have also had much lower average scores.
Obtaining a perfect score with one institution does not mean that you will have a high score with another credit reference agency.
There are times when my credit score plummets. Regularly these dips in credit score coincide with the month after I renew my car insurance. Being a result of the numerous hard searches on my credit file from potential insurers.
The credit score also dips as soon as I have applied for new credit, and if my credit utilisation is higher than previous months.
What I did notice is that even with a perfect credit score with one credit reference agency you may still be refused for credit.
There was one credit card that kept denying me even with a high credit score. Each lender conducts its own credit eligibility checks and if you don’t meet the parameters, you will not be accepted. No matter how perfect a score you have.
Moving on past perfection
These days I still check my statutory credit reports once a year. It’s part on my annual money admin tasks. Given that those reports can influence credit decisions that I may in the future rely on, I consider this a necessity.
I check my credit score with one of the credit reference agencies about once a month. A brief snapshot purely out of interest.
Planning ahead is the real super power. With the hope of one day no longer relying on credit I plan out my finances and those of my family on a monthly and annual basis.
We have pre-planned needs when it comes to saving and spending. Through planning and adhering to your plan you can ensure that you will be in the best possible situation should you require credit in the future.