Your credit score can seem very confusing. In a 2016 survey from the Consumer Federation of America (CFA) and VantageScore Solutions found that more than 80% of consumers know the basics of credit scores, but may not be aware of some very important details. Let’s take a look at what you need to know about your credit score.
Five things to know about your credit score
First, beware of fraud. If someone opens a credit account in your name or incurs a large amount of credit debt. Keep an eye on your score regularly to watch for changes you did not anticipate.
1. A credit report is different from a credit score
A credit score is calculated based on information in a credit report, whereas a credit report is a stand-alone document. Calculated using the information on your credit reports, such as details of your credit accounts, how often you apply for credit, debt collection accounts and some public records, are how credit scores are. Make sure you are comparing the exact same score and that you know the range, if you want to know if your credit is improving. Wherever you obtained the score should provide that information. 750 on another scoring model, for example, is not necessarily equivalent to a 750 FICO score.
2. Free scores and reports
Annually, each of the three major credit reporting agencies: Equifax, Experian and TransUnion, must provide you with a free copy of your credit report. You can also obtain your credit score for free from different places. Many websites offer this service.
3. Checking your own score
The effect of hard inquiries, when a lender looks at your credit when you apply for a loan or credit card, does negatively impact your scores, but the impact is small and temporary.
4. Joint accounts
The account activity will be reflected on both your credit reports, if you open a loan or credit card with another person. Be aware of who is responsible whenever you share credit and who is affected if a payment is missed as joint accounts are different than authorized users.
5. Negative information eventually goes away
Negative information ages off your report and no longer affects your score after 7 years, but different kinds of negative information, like a bankruptcy, will remain on your credit report for different periods of time.
Common credit questions
How do you build credit?
Payment history, credit utilization, length of credit history, new credit and credit mix, are the five fundamentals that determine your credit score. A general rule is to use credit sparingly and make payments on time. It takes years to build good credit, but it’s worthwhile to be patient.
How is your score calculated?
Payment history, credit utilization, average credit age, account mix, and inquiries. Payment history accounts for about 35% of your credit score. Approximately 30% of your credit score is based on the amount of debt you’re currently carrying which means the amount of money you currently owe to your creditors. Roughly 15% of your score, is for the length of your credit history. Then 10% of your credit score considers a healthy mix of credit accounts, different types of accounts, including credit cards issued by a retail store, home equity lines of credit, auto loans, etc. The final section accounts for 10% whenever you apply for credit from a lender, a hard inquiry (explained below) posts to your credit report.
Is it ever too late to build credit?
No! Your credit score can affect you for your entire lifetime, so it’s always worth trying to improve.
How do student loans impact your credit?
Late or missed payments will always affect your score negatively.
How do you get credit when no one wants to give it to you?
Find a secured credit card or one designed for people with bad or no credit. Use it sparingly and make the payments on time.
What is a good credit score?
The commonly used FICO score gives a range of 350 to 800, with 800 being the very best score you can receive and 350 being the lowest. 700 or above is considered a ‘good’ credit score.
What’s the impact of a low credit score?
The lower your credit score, the more likely you are to pay higher interest rates on things like credit card balances and mortgages,.
Credit Scores Aren’t the Only Things That Matter for Lending Decisions
When reviewing applicants, a credit score isn’t the only thing lenders consider. You may be able to secure a loan through an alternative lender, if you have no credit or poor credit. In some situations, making a personal appeal or giving a lender more context to your credit report can help you access their loan programs.
Golden State Mortgage Can Help
At Golden State Mortgage, we are a California-based mortgage company. We want to help you through every step of financing your new home. Fill out the quick contact form or call Golden State Mortgage today at 1-800-536-8171 to speak with one of our California mortgage specialists and get a free good faith estimate.