10 Credit Reporting Facts You Should Keep Trusting


Considering the use of credit cards, there is a lot of misinformation in the world about credit score. A credit score is simply a numerical formula that lenders use to determine a borrower’s ability to repay the loan. It is derived from a number of specialized criteria that evaluate a borrower’s overall creditworthiness, from the amount of debt they already have to their payment history. and other things.

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Although credit reporting companies such as FICO and VantageScore publish the information that goes into a credit score, there is still a lot of information about it. right to move the needle when the person’s goal score is reached. Here are some common credit score stories, along with details on what can increase or decrease your credit score.

1. Will Checking My Credit Score Online Affect My Score?

No, checking your score online will not affect your score. This is because this type of credit check is considered a “soft check,” as opposed to a “hard check” that occurs when a lender pulls your credit report. It’s true that if you apply for a new loan your lender will run a credit check that may take a few points off your score. However, if you check your score yourself, there will be no impact.

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Smiling woman with credit cards in her home

2. Will carrying large balances help my score?

Of course you need to use credit to get a high credit score. However, the idea that you have to carry large balances every month to improve your score is completely wrong. In fact, the opposite is true, as a large credit balance will seriously affect your credit score. According to VantageScore, the percentage of your available credit that you are using is the “most influential” factor that goes into determining your score. Carrying a high balance on your cards, therefore, has a negative effect on your score. Ideally, according to Experian, you want to use at least 30% of your total available balance and limit on any one card; above that level, points decrease rapidly.

Cropped view of handsome young man using smartphone and credit card to shop online while sitting on his chair at home.

3. Will My Credit Score Increase If My Income Increases?

No. It may come as a surprise to learn that income plays no role in determining a credit score. According to VantageScore, the six components of the credit score are payment history, percentage of credit limit used, credit balance, credit year and mix, recent credit behavior and total available credit. Income is not one of those categories. The correlation between income and credit score appears to be because those with higher incomes have more money available to pay off their debt, thereby increasing their score. .

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4. Does Marriage result in a joint score?

One of the decisions that couples make when they get married is whether they should pool their money. But if you’re worried that your score will merge with your new spouse, fear not. There is no such thing as a collective score, only individuals. Whether you’re married or not, your own story is yours alone. Now, if you open accounts with your spouse or sign on with a co-signer, those accounts will usually appear on your credit report. But even then, your right score will remain with you, and will never be with your spouse.

Young couples choose a new car for sale at the dealership.

5. Will paying off my loan help my credit score?

Now that you know that less debt is better when it comes to credit scores, it might seem logical that paying off your car loan will also increase your score. But the answer is more complicated. In fact, in some cases, paying off a loan can cause a temporary drop in your score. This is because when you pay off your car loan, it becomes a closed account on your credit report. While a closed account will still affect your credit score, a good checking account will have a greater impact. This is because lenders are more interested in how you are managing your debt now than in the past. However, any drop is likely to be temporary in nature and your score will only drop a few points, according to Experian. It is also important to remember that there may be issues when paying off a car loan early may be the right financial option. For example, if you have a car loan with a high interest rate or you are trying to reduce your debt to income, paying off the loan may School.

Portrait of African-American man holding mobile phone in one hand and credit card in other hand, making transactions, using mobile phone during lunch time in cafe.

6. Will Using My Debit Card Help Build My Credit Score?

Good credit card use can be a sign of financial maturity, as you need to manage your account balance to make sure you have enough money to pay all your bills. Unfortunately, a good financial habit like using your credit card won’t hurt your credit score one iota. In fact, using a debit card is the same as using cash. From a bank’s perspective, just because you can manage your cash flow doesn’t mean you can borrow money from a lender and pay it back. In fact, credit card issuers do not report this to the credit bureaus. Therefore, using a debit card will have no effect on your credit score. However, lenders may ask to see your expenses and bank statements, as those may influence their decision on different types of loans, such as car loans or mortgages.

Asian family to buy a new house.

7. Will Taking Out a Mortgage Affect My Credit Score?

This is a tricky question. Yes, it’s true that the first time you apply for a mortgage, your score can drop because of the survey. And it’s also true that your credit score may be affected the first time you take out a mortgage, because you will suddenly have a new account with a large balance and no history. However, over time, your mortgage stands to help your credit score. As the months go by and you continue to pay on time, not only will the maturity of the account increase, so will your account. successful. Therefore, while a new mortgage may drop your score a little in the beginning, over time, it will rise if you don’t miss a payment.

The online customer enters credit card information using a digital tablet.

8. Does My Credit Score Really Matter In The Real World, Or Is It Just An Argument?

It’s true that some people brag about their 800-plus scores as a badge of honor. And yes, getting a top credit score is definitely a sign that you’ve got your credit under control. However, the real-world impact of a top scorer is more important than bragging rights.

The higher you can get your score, the less interest you have to pay on most loans, from mortgages and car loans to personal loans and even credit cards. In some cases, you may not be able to get a loan unless you have a high credit score. The bottom line is that a high credit score is your key to unlocking lower costs and flexibility in your financial life going forward. For a quick example, imagine that you can score a 3.25% mortgage thanks to your high credit score, while your friend with a low credit score can finance at 4.5%. On a $300,000, 30-year loan, you end up paying $170,023 in interest, while your friend pays $247,220, or 45% more in interest.

collection of colorful credit cards on black background.

9. Applying for multiple credit cards at once won’t hurt my score that much, will it?

The idea that many applications in a short period of time will not affect your score much is rooted in a related fact, but it is a complete myth. Every time you apply for a new credit card, that difficult application will drop your score by a few points, possibly more if you apply for more than one time. This myth seems to be perpetuated because many applications for certain types of loans in the short term — particularly, home mortgages and auto loans — are considered by credit bureaus with one review. That’s because it’s common for a new home or car buyer to shop around to find the best interest rate before making a big purchase. However, since credit card applications are only unsecured loan applications, there is no classification of applications.

Young millennials use technology and shop online.

10. Should I close unused credit cards to increase my credit score?

It may seem logical to close your unused credit cards to increase your credit score. Unfortunately, the exact opposite is true. For starters, closing a card lowers the amount of your available credit, which can drop your score by a few points. Things are even worse if you have unpaid debt on other cards, because this reduction in your available credit will increase your credit utilization, another drop in your score. The last concern is the average age of your debt. If you close an account, you no longer benefit from the age of that card on your credit file, or your successful payment history. Even closed accounts remain on your credit report for 10 years, so they won’t have an immediate effect on your score, but ultimately, the age and payment history of that account is it will disappear from your report, and your grade will be affected.

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This article originally appeared on GOBankingRates.com: 10 Credit Reporting Facts You Should Keep Trusting

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect the views of Nasdaq, Inc.

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