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10 Essential Facts About Credit Scores and Reports
Understanding the complexities of credit scores and reports can significantly impact your financial health. Here are ten crucial facts that can help you navigate the world of credit more effectively.
1. Checking Your Credit Won’t Hurt Your Score
Many people worry that checking their credit reports will negatively impact their scores. However, checking your own credit results in a soft inquiry, which does not affect your credit score. Hard inquiries, which occur when you apply for new credit, can have a minor impact and stay on your report for up to two years.
2. Late Payments Only Impact You Once You’re 30 Days Late
Missing a payment can significantly hurt your credit score, especially if you have a good to excellent score. However, a payment must be at least 30 days past due before it is reported as late to the credit bureaus. Be aware that late fees and loss of benefits can occur as soon as you miss the due date.
3. Carrying a Credit Card Balance Won’t Help Your Credit
Using your credit card regularly and paying off the balance in full each month can boost your credit score. You don’t need to carry a balance from month to month to see a positive effect. Your credit utilization ratio, which is the amount of credit you’re using compared to your credit limit, plays a significant role in your score.
4. Paying Down Credit Card Balances Early Might Help Your Scores
Paying down your credit card balance before the end of your statement period can help maintain a low credit utilization ratio, which is beneficial for your credit score. This strategy allows you to earn rewards without negatively impacting your score.
5. Your Credit Can Impact More Than Credit Cards and Loans
Credit scores are not only used by lenders and credit card issuers. Landlords, employers, and insurance companies may also check your credit to make decisions or determine premiums. In some states, your credit can significantly impact various aspects of your life.
6. You May Have Dozens (or Hundreds) of Credit Scores
There are multiple credit scoring models, including FICO® and VantageScore®, each with different versions. These models score your credit reports from Experian, TransUnion, and Equifax, which can result in different scores. Improving one score generally improves all your scores.
7. Some People Aren’t Scoreable
Credit scoring models require a minimum amount of data to generate a score. If you don’t have enough information in your credit report, you may be considered credit invisible or unscoreable. Establishing and using credit can help you build a score.
8. You Can Add Information to Your Credit Reports
While most information in your credit reports comes from creditors, you can add positive data using tools like Experian Boost®. This tool allows you to add eligible rent, utility, and streaming service payments to your Experian report, which can improve your credit score.
9. Creditors Can Choose Which Credit Scores to Use
Creditors can select the credit scoring model they prefer and may use multiple scores in combination. Some creditors even develop proprietary scoring models to assess risk more accurately. These custom scores can sometimes score consumers who are unscoreable by conventional models.
10. Companies Are Using AI to Build New Credit Scores
Credit scoring companies and creditors are leveraging artificial intelligence and machine learning to create new scoring models. These models must comply with the Fair Credit Reporting Act and ensure non-discriminatory lending practices. AI helps uncover more accurate ways to determine risk while maintaining transparency.
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