Credit Facts You Should Know Pt. 1
Posted on May 2, 2022 at 8:47 AM by Noa Finken
Credit reports can be a bit confusing, which is why we’ve compiled a list of must-know facts that can provide you with a better understanding of what a credit report entails and how individual circumstances might impact a credit score. This is part 1 of 2 in our Credit Facts You Should Know blog series. Be sure to read part 2, for even more credit facts.
1. Credit reports and credit scores are different
Although your credit score is tied to your credit report, they’re actually two different things.
Your credit report is an in-depth record of your credit history and includes things such as the accounts you have, when you make payments, and how often you apply for credit. Each of the three main bureaus publishes a credit report about you.
Your credit score is a numerical summary of your credit history. This number represents your creditworthiness.
2. There are different types of credit scores with various ranges
The three credit bureaus, as well as VantageScore, each have their own scoring methods. It’s important to note that not all score ranges are the same.
3. Your FICO score is based on 5 major factors
Although you have numerous credit scores, the majority of lenders use FICO credit scores to make lending decisions. Listed in order of importance, the five factors that make up your FICO credit score are:
Payment History (35%) – Consistently making payments on-time will have a positive effect on your credit, while paying late and missing payments altogether will damage your credit score.
Amounts Owed (30%) – Using the majority of your available credit may indicate to banks that you are overextended.
Length of Credit History (15%) – The longer your credit history, the better, as long as you are using it responsibly.
New Credit (10%) – When you apply for new credit, a hard inquiry is conducted. This can negatively affect your score. It’s best to wait a little while in between sending out new credit applications, and it’s also recommended that you only apply for credit when you absolutely need it.
Credit Mix (10%) – Your score can also be influenced by having a variety of different types of credit. You can demonstrate your capability of successfully managing various types of credit by keeping your portfolio diverse.
4. Checking your own credit won’t harm your credit score
One popular myth is that checking your credit will lower your score, however, that isn’t actually the case. Looking up your credit report or checking your score won’t affect your credit score because these actions are classified as soft inquiries.
5. You can check your credit for free
Keeping track of your credit is important for numerous reasons. Luckily, it doesn’t cost you a dime. Find out how to get your free credit report.
Contact our lending team for more information or to schedule a consultation: (515) 232-1654