8 Important Credit Facts You Need to Know
Looking to understand more about your credit? Want to maintain or improve your credit score? There’s so much outdated information floating around, along with many myths you’ve likely heard. If you’re feeling lost or confused, read on to get some helpful facts about your credit, how it’s impacted, and tips for keeping it healthy.
Helpful and Important Credit Facts for You
Get familiar with some of the most important credit facts you need to understand. Learn to manage your credit better today by checking out this quick list!
1. Your credit score depends on five factors.
Those five factors are payment history (35%), credit utilization (30%), length of credit history (15%), inquiries and new credit (10%), and diversification of credit (10%). So, this means making consistent and on-time payments counts in a major way. How much available credit you’re using does, too. Keeping credit accounts current and your utilization low will certainly help your credit.
2. You actually have many different credit scores.
That’s right. It depends on which credit bureau is reporting. They all collect slightly different information when it comes to your credit history. Further, different types of lenders review specific risk factors pertinent to their industries. It’s true that your auto lender will receive a different score than your mortgage lender.
3. Checking your own credit doesn’t hurt your score.
If you order your credit report or check your own score, this is considered a “soft inquiry.” It does not impact your credit score. When lenders pull credit information, that counts as a “hard inquiry” and does, indeed, negatively impact your score. In the grand credit scheme, the consequences are small, though.
4. FICO scores are used by the majority of lenders.
About 90 percent of lenders look to your FICO score as they make lending decisions. FICO analyzes your scores from the three major credit bureaus: TransUnions, Equifax, and Experian.
5. You can still get a loan if you have bad credit.
But your score can cost you. It’s likely that you’ll pay high interest rates if your score is low. Those rates can add up quickly, and you’ll pay significantly more long term. Lenders see low scores as high risk. In some cases, you may need to offer up a valuable asset your lender can seize if you don’t pay back your loan.
6. Canceling your old credit cards can lower your score.
Hold up before you cut up your old card and cancel that line of credit. As you now know, length of credit history impacts your score. What’s more, an open credit card with no balance actually lowers your utilization. Credit is available, but you’re not using it. That’s a good thing. It reflects you’re disciplined and responsible. If you cancel, all that goes away. So, think twice!
7. Negative items eventually come off your credit report.
But it takes a long time. You’ve heard of “seven years bad luck,” right? Many negative items are with you for a max of seven years. Some even longer. Bankruptcy can stay with you ten or more.
8. It’s common for credit reports to contain inaccurate information.
You should frequently check your report and dispute inaccuracies. According to the Federal Trade Commission, one in five people have at least one error on their report. And depending on the error, this could have a massive impact on your credit score.
Know the Truth About Credit
When it comes to credit, the truth can set you free. Free from mismanagement and debt. Free from a limited life. Your buying power is important. Getting the facts is the first step in keeping that power. And certainly in getting it back if it’s gone.