The Truth About Credit Scores – 10 Myths Debunked | USAA

Let ‘s dive into the cryptic populace of credit scores. Read on for the accuracy about what makes up your credit score. sometimes, life ‘s biggest steps depend on one numeral. That can be particularly true if you ‘re buying a car, starting a business or buying a sign of the zodiac .
Let ‘s honkytonk into the cryptic worldly concern of credit scores. What do they mean ? How many are there ? Why do they differ ? Read on for the truth about credit scores, what makes up your credit grade, and how you can raise it .

Myth 1: My credit score depends on one thing.

fact : According to FICO® accredit score models, your score is based on information from five categories. Each class is weighted differently, and its importance varies from person to person. here ‘s what makes up your citation score :

They look at your payment history on everything from your credit cards and retail accounts to installment loans, finance company accounts and mortgage loans. Public records and collection items like bankruptcies, lawsuits and wage attachments are a bigger deal than, say, one late credit card payment. They consider how late the payment is, how much is owed, how many accounts there are and how recently it happened.

  • Payment history (35%): Lenders want to know if you can make payments on time. After all, if you’re late on one payment, there could be a greater chance you’ll be late on another.
  • Amounts owed (30%): Lenders want to be sure you aren’t overextending yourself, so they’re interested in how much you owe. How much is too much depends on your specific credit profile.
  • They consider several factors, including :

    • The total amount you owe across all your accounts.
    • The amount you owe on different types of accounts.
    • The amount you owe versus the amount of credit available on revolving credit accounts. This is also known as utilization.
    • The number of accounts with balances.
    • How much you still owe on an installment loan compared to the original loan amount.
  • Length of credit history (15%): The longer you’ve had credit, the better your credit score should be — if everything else is in order, of course. If you’re newer to credit, take heart: You can still have a good credit score if you take care of business in the other four categories.
  • Mix of credit (10%): In your wallet or filing cabinet, you probably have several types of credit — think credit cards, retail accounts, installment loans, mortgage loans and finance company accounts. FICO® says people without credit cards are often viewed as a higher risk than those who have credit cards and use them responsibly.
  • so, how do you responsibly use a credit card ?

    • Always make payments on time.
    • If possible, pay off your entire balance every billing cycle.
    • Don’t charge more than you can afford to repay.
  • New credit (10%): When you open too many new accounts in a short time, lenders see you as a higher risk. This category considers how many new credit accounts you have.
  • That data is classified by several factors, including :

    • The type of account.
    • How many inquiries you have.
    • The length of time since those inquiries were made.
    • How long it’s been since the last time you opened new credit.
    • Whether you have good recent credit history.

Myth 2: Getting credit counseling will hurt my credit score.

fact : credit rating guidance does n’t negatively affect your score. This is crucial to understand because some people who could benefit from citation guidance are afraid to seek avail. They worry it could send lenders the wrong message .

Myth 3: When I check my credit score, it should match the score the lender gave me.

fact : You do n’t have a credit grade — you have credit scores. Accessing one universally agreed-upon citation seduce would make biography easier, but that ‘s equitable not the case — not flush close .
FICO®, the most common family name for credit scores, is a datum analytics ship’s company that ‘s developed credit score models based on information in your accredit reports. And yes, there are more than one of those as well. You have an Experian FICO® citation grudge based on information in your Experian credit reputation, an Equifax FICO® credit score based on that information and a Transunion FICO® credit score based on that report .
If lone it stopped there .
FICO® has many models. For model, there ‘s FICO® Score 9 and FICO® Score 8, and a version of each based on information from each credit report. And then there are scores particular to car, citation cards and mortgages based on data from each of the three credit report agencies. And just think, we have n’t even touched on the other citation scores beyond FICO®, like VantageScore®, which besides has multiple versions .
Lenders can choose product-specific score models ( such as FICO® Auto Score for an car loanword ) because there ‘s different risk involved in lending money for different products. They might besides pull your credit information from a unlike credit report chest of drawers from the one you checked .
so, is there one particular credit score that matters ? No. here ‘s what does : The story your credit report tells. The score is just a number observation of what ‘s in your report. If you ‘re declined for a loanword ( or receive an interest rate less favorable than expected ) because of your credit, focus on the data in your report .

Myth 4: Checking my own credit will hurt my credit score.

fact : Checking your own credit creates an inquiry on your credit report, but not all inquiries impact your recognition grudge .
There are two types of inquiries : “ hard ” inquiries related to a credit application and “ piano ” inquiries from looking at your own credit report. hard inquiries influence your score, but soft inquiries do n’t. Learn more about hard and piano inquiries.

At least once per year, review all three of your credit reports : Experian, Equifax and Transunion. You can visit the Annual Credit Report site to get these reports for free .
When you review your credit rating report, look for :

  • Incorrect information, which is more common than you might think and should be disputed immediately.
  • Late payments and collections, which can really hurt your score.
  • Utilization, which is the amount you owe versus the amount of available credit. The higher your utilization, the lower your score.

Past mistakes do n’t have to haunt you constantly. If you focus on what you can control and improve going forward, your sexual conquest will follow over fourth dimension .

Myth 5: A higher credit score means you have more debt.

fact : Credit score models consider the unlike types of credit rating you have, from citation cards and car loans to your mortgage. however, these models do n’t reward owing more money. In fact, the second largest divisor in the FICO® credit score model is the total you owe. The less you owe, the better .

Myth 6: Married couples have a joint credit score.

fact : There ‘s no such thing as a joint credit rating reputation or grade — you ‘ll continue to maintain discriminate credit information. however, if you open any joint accredit accounts, they ‘ll appear on both of your credit reports. This is where your spouse ‘s credit history can impact you .
Let ‘s say you and your spouse decide to apply for a home loan together. If one of you has bad credit, it could impact your qualification and concern rate, as the lender might not just look to the highest credit score between spouses when making the determination .

Myth 7: Closing a credit account will improve my credit score.

fact : Closing an report does n’t immediately remove it from your credit report card and could have the inverse impression. negative history can remain astir to seven years, and cocksure history remains for 10 years from the last date of action .
Because “ utilization ” — the sum of credit you have available versus the sum of debt you owe — is one of the biggest factors that impacts your recognition, if you close a accredit score, you lose the available credit limit on that report. That increases your use and thus could lower your credit score .
If you plan to apply for new credit in the adjacent three to six months, you might want to wait before closing an report .

Myth 8: Credit scores consider income and demographics.

fact : While lenders may consider your income in relation back to the measure of debt you owe, income is n’t included in your credit report and has no impact on your citation seduce. Neither does demographic information such as raceway, origin, religion, profession, disabilities, intimate orientation and military condition .

Myth 9: Employers can check your credit score before offering you a job.

fact : Some employers can check your credit history as part of the hire process. however, they do n’t have access to your credit score .
much, employers in the fiscal services industry or the military check electric potential employees ‘ credit history. Why ? According to them, it ‘s helpful to know how responsible and financially stable you are.

Myth 10: I can improve my credit score by carrying a balance on my credit card.

fact : While you do need to demonstrate that you can properly use credit cards — which means actually using them — you do n’t need to carry a libra from calendar month to calendar month, all the while paying unnecessary interest to the menu issuer .
When your charge cycle ends for the calendar month, any outstanding balance is reported to the credit agency, which shows use. Paying off that balance in full and on time before the poster is due will not only save you money, but it will besides be reflected in the two biggest factors of your credit composition – payment history and the sum you owe .
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