How Your Credit Score Can Fall Even Without Any Late Payments

I learned a few things about the credit rating system in recent years. First, that you have to be more than just on-time with payments; you need to be proactive to keep a high credit score. Second, that the value of a good credit score is often overstated, and is not as important as I was led to believe. I am living fine with an average score. Here is what happened to me, and what it taught me.

For many years I owned two businesses, kept seven credit cards active, and had a perfect credit rating. Then I sold my businesses and moved to Bangkok to continue writing and doing freelance translations. One of my previous businesses was a language company, and several former clients kept me busy with written translation work done via the internet. My income actually rose about 5% when I began to freelance. I was more successful on my own than saddled with a company. I canceled all but one credit card, because I had plenty of cash. Three years went by and and my income rose another 15% while my financial status was better than ever. However, when I checked my credit report, I found my score had gone down over two hundred points. I was no longer in the top 5%, but now I was in the "questionable" range, almost even in the bad credit level.

How did this happen? I had never once missed a credit card payment in 20 years. Not one delinquency and not one problem. So how could I have slipped? Well, for starters, I wasn't using credit as much. In Asia, everyone uses cash. This is how they avoided the world's financial crisis of 2008/2009 and ongoing. We use cash and debit cards in Asia. I wasn't using my credit cards as much, and I now only owed about $300 on one card for a recent flight. I was nearly debt-free. That means you are "junk" to the credit world. They don't like that.

Utility History

Second, I wasn't paying and US Utility companies. In Asia, utilities are bundled with your rent for an apartment or condo. The building pays one bill to the electric company, and adds each apartment's portion to the rent invoice slipped under your door on the 1 ^st of every month.

No utility payment sent to the credit agencies? This means you're even lower "junk" to them. The credit bureaus don't like a lack of recent utility history.

Suddenly, I was a bad risk. Even though I had still never been late for any bill, I was not actively using credit. If you're not a user, then you're a loser (to them).

Fortunately, the consequences are more positive than negative. I still keep one credit card active, for emergencies. Otherwise, I found I don't need credit - or a credit rating. I was even approved to buy property recently (wisely I declined that money pit), but it showed me that we can survive without jumping through the hoops of the Three Credit Bureaus. I also found that I was saving more, spending more wisely, and investing better. All this, because I was off the credit wagon. My financial picture is better than it's ever been. I have something better than credit: I have loads of cash in the bank. I'm not paying high interest to the banks, but instead I am saving and earning.

Cash beats credit

When I returned the U.S., the same banks who recently scorned me were now begging for my business. Sorry guys, I'm wise to you. Money trumps credit any day!

Lessons well learned. Save, don't borrow. Don't lose any sleep over credit ratings. If you've got cash, then you're the boss.

See also:

The Perils of New Credit Cards for Bad Credit / No Credit Checks