Q: I have been trying to build my credit. I’ve never had a late payment on my credit card or auto loan, although I did have some old medical bills from six years ago I recently paid off.
But I just checked my credit score, and it has decreased by 95 points! I am so upset I don’t know what to do. I spent more than $1,200 on these bills thinking this would help. Did this hurt me instead?
A: Your desire to do the right thing probably did the wrong thing for your credit score, the three-digit number lenders use to gauge your creditworthiness.
Because of the way credit scores are figured, paying an old bill often updates the troubled account, making it look more recent to the national credit bureaus. Because the scoring formula weighs recent behavior more heavily than past behavior, an old black mark that wasn’t affecting your score much can suddenly have much more weight when the debt has been paid off.
The plunge in your score means that you’ll be paying much higher interest rates and face much tougher credit terms if you apply for a new loan anytime soon.
The best thing you can do now is to continue making your credit card and auto loan payments promptly and let time try to heal the wound you inadvertently inflicted.