18-year-old panics after credit score drops by 100 points

Most young adults think they know a lot more than they really do. I don’t think this is a bad thing; it’s just a fact of life. We’re young, confident and ready to take on a world that we have no idea is about to sucker punch us right in the stomach. One of the biggest places I see this is in personal finance. 

When I opened my college checking account and got my first credit card, I felt like I was on top of everything. I knew that I had to use my card to bump up my credit score, and I needed a high credit score to get loans for school, a house, a car and really anything. As long as I used my card and paid it off on time, my credit score would just keep growing. What a naive way to think of credit. 

To be fair, that’s a mostly true assumption, but it missed out on a lot of nuances that became very apparent when I needed to buy a new cellphone. I had a really old phone. It had been running fine, but I dropped it down the dorm stairs one too many times. I wasn’t too upset; I was planning to buy a new one anyway and had the money to do so. I just had to transfer the money from my savings account to my checking account first. 

“When I opened my account the next week to see my score tanked by 100 points, I freaked out.”

I needed the phone ASAP, so my parents told me to just put the new phone on my credit card and pay it off after the transfer. Of course, new phones are expensive. The phone, plus insurance, a case, a screen protector and a charger totaled almost $1,300. For a college student whose credit card limit is $2,000, it’s pretty obvious to me now that this would be an issue. 

Your score takes a huge hit if you charge a lot compared with your credit limit, even if you know you can pay it back. I didn’t know this, so when I opened my account the next week to see my score tanked by 100 points, I freaked out. I thought I was done. In my experience up to that point, credit was built extremely slowly, and there was no way that my score would be able to recover to a reasonable level before I needed to apply for car, student and even home loans. 

I paid off the debt immediately, and prepared for the long and impossible task of reviving my score from beyond dead. Thankfully, a month later, my score magically jumped 100 points. I was so confused, but my parents explained that your score drops a ton if you run a high balance. As long as you know you can pay it off, you’re fine. 

This issue had no real consequences other than my mental sanity for the entire month of June. However, my naivete and its possible danger were on full display. If I needed to take out a student loan or a car loan during this time, I likely wouldn’t have been able to get the best rate or even a loan at all because of my low score – this is despite me knowing full well that I could pay everything off. 

My confidence mixed with my poor understanding of personal finance could’ve been really costly in the right (I guess wrong) circumstances. This shows an important responsibility that we young adults have. We have to be transparent and truthful about what we don’t know. We’re adults for the first time. We’re not supposed to know what to do, but that means we have to ask questions in situations that are new.

I knew this was a pricey purchase, so I should’ve asked my parents if it was OK to buy on credit. These small conversations can really help avoid potentially dangerous financial situations, and at the very least, they will save you a ton of mental energy from stressing over things that aren’t a big deal. Overall, it’s OK that we don’t know everything. We’re not supposed to. We just have to make sure that we’re open to asking questions and learning because that’s the only way to prevent stressful and potentially costly situations from occurring.