Usually it’s easy to tell if you’ve stumbled upon a good idea at the office; your boss gives you positive feedback in the form of either an “atta boy” or maybe even a raise.
On the other hand, a bad idea for a family dinner earns recognisable negative feedback when the kids grumble and your spouse grimaces upon entering the kitchen.
But financial feedback that signifies your credit score may be in trouble isn’t always as easy to spot.
Your credit score can’t fire you like a boss who’s upset with your performance.
But that doesn’t mean feedback on your performance isn’t available.
In fact, your credit score sends you several signs that you need to straighten up your act before it fires you from being a consumer with a good credit score and sends you straight to the back of the line of those with so-so (or worse) credit.
Here’s a look at feedback that could mean your credit score is in trouble.
Read on before you lose dozens of points.
1. Your mail has changed.
Have those credit card offers that used to pour into your mailbox dried up? Or are you suddenly seeing an influx of offers from cards you’ve never heard of? At first glance, new card offers might appear to be a good thing and probably seem like a sign that credit card issuers are trying to woo you. But not so fast, said John Ulzheimer, president of consumer education at SmartCredit.com.
Ulzheimer said receiving more credit card offers in the mail could be an indication that your credit score has changed.
“If your mailbox begins to fill up with offers from subprime credit card issuers, that’s a sign your credit score has changed for the worse,” he said. On the flip side, lots of offers for attractive cards could mean your score is improving.
That’s why Ulzheimer said the true feedback comes in the quality of the offers rather than the quantity.
“The type of offer isn’t arbitrary or random,” he said. “The volume of offers isn’t as telling as the types of offers.”
Credit card issuers know your score, and evaluate it before they decide what type of offer to send you.
“In fact, they’re a great proxy of your credit scores because the selection criteria used by credit card issuers is extremely sophisticated,” he said. “Card issuers are not going to waste time and money sending an offer with a 0% introductory rate for 12 months to someone with a credit score of 580.”
[InvestingAnswers Feature: Lousy Credit? Here’s A Way To Rebuild It For Striking Results]
2. Your credit limits have been cut.
In addition to being one of the factors that credit card issuers rely on to set the initial limit of a credit card, your credit score is used to determine whether or not the issuer wants to continue to do business with you under the current terms. And before an application for a loan or additional credit is rejected because your credit score has slipped, your credit card issuer might slash your limit.
Ulzheimer said a reduction in your credit limit could be the sign of a decrease in your credit score. It might mean that your score crossed the imaginary line between being an acceptable credit risk and a poor credit risk.
“That line is going to vary issuer by issuer and by card type,” he said.
Author, credit card expert and consumer advocate Beverly Harzog points out that reducing your credit limit is the bank’s way of reducing its own risk.
“If your credit limit goes down, it could mean that your card issuer is worried about your ability to pay off your balance,” she said. “The less you can borrow on your card, the better for them and their bottom line.”
3. Your car insurance premiums are going up.
Your credit score is often a factor in your car insurance premiums. Personal credit history is one of several risk factors that insurance companies use to determine rates, according to Dr. Robert Detlefsen, vice president of public policy at National Association of Mutual Insurance Companies.
Just how heavily your credit score is weighed and how many extra dollars a low score will tack on to your rate varies by insurance company. But Detlefsen said the reason credit scores carry any clout is “a credit score has been shown to accurately predict whether someone will file a claim, as well as the amount of the claim.”
“High scores correlate with lower claim costs while low scores correlate with higher claim costs,” he explained. “So credit scores are thought of as reliable predictors of whether a policyholder will file a claim and of how much the claim will cost the insurance company.”
The InvestingAnswer: Don’t wait for your score to give you feedback; go in search of it. Harzog said you should be proactive and that the best defence is offence.
“Monitor your spending and make sure to review your credit report once every four months,” she said. You can pull one free copy of your credit report from each of the three major credit bureaus once a year.
To get the most current feedback possible, Harzog suggested getting one of those free reports from a different bureau every four months. That way you won’t be blindsided with negative feedback after your credit score is in jeopardy and you’ll also be better equipped to spot an issue that can tick off a few points like any mistakes in your name or address, payments incorrectly reported late, etc., before it becomes a problem.
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