The Moneyist: ‘I take great pride in my FICO score’: Is it any of Experian’s business how much money I charge on my credit cards?

Recently, my credit score fell by 150 points. When I questioned Experian as to why, I was told, “Your credit cards are very high each month.” I pay off my credit cards every month. I have only ever paid a late credit-card charge once, and that was the week my husband died, when I had a lot more on my mind than paying bills. 

Experian also asked me why some months my credit-card bills far outweigh my income. I explained that I pay all college expenses for my two grandchildren, and then got reimbursed by their 529 college-savings plan. Again, all bills are paid in full at the end of the month.

I don’t think it is anyone’s business what my credit-card charges are each month, as long as I pay them off when due. These charges should have no impact on my FICO score. Am I being unreasonable in thinking this is none of Experian’s business? 

A Grandmother and Widow

Dear Grandmother,

Credit scores are calculated to assess risk, and unfortunately for you, they are one-size-fits-all. There are millions of people out there who are overspending on their credit cards — I don’t mean you — so when your score is dinged, there are two things you can do: Try not to take it personally, and raise your credit limit to reduce your credit-utilization ratio.

Your credit-utilization ratio is the ratio between your credit-card balance and your credit limit. It is important to keep that ratio low if you (a) are about to take out a loan and (b) like to have a high credit score. Most experts recommend keeping your credit-utilization ratio below 30%. (You can read my response here to a letter writer who wanted to cancel 10 credit cards.)

People who spend up to or close to their limit often, though not always, are struggling to pay for groceries, rent, school and all the other day-to-day expenses that prevent people from saving for that dream home or building an emergency fund. Inflation is easing, but the prices of some food items are up by as much as 36% year over year, and wage growth has failed to catch up with runaway inflation over the past several months.

Experian calculates your credit score based on a number of factors, which are all weighted differently. A score between 740 and 799 is considered “very good,” while a score between 800 and 850 is “exceptional.” If you have a better credit score, you are more likely to get approved for a loan and receive a favorable interest rate. If you are not taking out a loan anytime soon, the only thing that will be hurt is your pride.

Every credit bureau has similar rules. In addition to your credit-utilization ratio, “the amount of credit you’re using on individual cards is also important,” Experian says. “Your per-card credit utilization rate is calculated in the same basic way as your overall utilization rate, except it compares the balance of an individual credit card to available credit on the same card.”

Your FICO score takes into account these factors: payment history (up to 35%), credit usage (30%), length of credit history (15%), recent credit applications (10%) and credit mix (10%). We play by the rules of the game. As you can see, the amount you owe on credit cards is a pretty hefty share of the overall score, even if you pay them off every month, as you say.

The bottom line: It’s only Experian’s business if you need to take out a loan. Think of credit bureaus as a passerby on the street who doesn’t like the cut of your jib. Who cares? What they think of you is none of your business, unless you are about to meet them for a job interview or they are about to give you a parking ticket. The same is true for Experian. 

Pay off your credit cards with pride every month, and tell your grandchildren hi from me.