Think You Know Why Your Credit Score Dipped? Try Again
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Here's your money briefing for Friday, June 21st. I'm J.R. Whelan for The Wall Street Journal. Pop quiz. If you missed one of your monthly payments, how much would it knock down your credit score? The answer is, it's complicated.
There's a lot of myths out there about your credit score. People tend to assume that the credit score algorithm thinks like them. The way that you prioritize your bills may not be the same way that the algorithm prioritizes the payments and the impact that has on your score.
WSJ personal finance reporter Amani Moiz was part of a team that created a quiz to help you better understand your numbers. We'll talk to her about it after the break.
This podcast is brought to you by ReliaQuest. Cyber criminals are constantly attacking. They want your data. They want your identity. They want your innovation. ReliaQuest fortifies your business with agentic defense, AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest, agentic defense for the enterprise. Learn more at ReliaQuest.com. That's R-E-L-I-A-Q-U-E-S-T.com.
The WSJ personal finance team has a new interactive quiz that will show you how financial moves can affect your credit score.
What is this episode about and who is the guest?
Reporter Amani Moise joins me. Amani, why did you and your team create this quiz?
It's something that we really wanted to do because credit scores are only becoming a more important aspect of our everyday lives. But most people really don't understand them that well. Even while we were creating this quiz, there was a number of things that we stumbled upon that we thought we knew and maybe we didn't understand as well as we thought.
What is some of the most important information that people don't understand about their credit score?
There's a lot of myths out there about your credit score, about what you need to raise it. People tend to assume that the credit score algorithm thinks like them. The most important thing to remember is that the way that you prioritize your bills may not be the same way that the algorithm prioritizes the payments and the impact that that has on your score.
Do people sometimes not fully grasp how influential their credit score is in various things in their life?
Absolutely. Your credit score is really important when it comes time to get a car loan or a mortgage. But there's different kinds of institutions that are looking at your scores. For example, if you're trying to rent an apartment, a landlord may ask for your credit score. Or if you are looking for somewhere for an elderly parent to stay, a credit score can determine whether or not they get into an assisted living facility. It could also be used to determine insurance premiums. And I'm sure the list is only going to get longer with time. So how does the quiz work? We collaborated with VantageScore, which is one of the primary credit scoring agencies that produced those three-digit numbers that we're familiar with.
And what they gave us were a few different profiles that have their own characteristics. And for each question, we present the profile, a few facts about it, whether or not they've had a credit card for 20 years or two years. These are very specific situations, imaginary people that have their own credit histories, whether that be with credit cards, personal loans, etc. And then we took those situations and ran simulations to say, what would happen if they missed this type of payment or this type of payment to figure out which payments matter more for the score in different situations.
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