Common Credit Score Questions ANSWERED!
Credit scores are exceptionally important in being able to get any kind of credit in the future and so many people have NO idea how they work! So many people have asked these super common credit score questions and they still don’t understand how it works.
Credit scores can be confusing and so many people don’t understand why they’re so important, or who can calculate them or the kinds of things that impact them. I’m here to help. Here are 7 of the most common credit score questions, answered! Hopefully, you’ll learn a little something.
7 common credit score questions answered!
What is a credit score and why is it important?
A credit score is a number that takes into account all of your historical credit (both positive and negative). Your credit score shows any possible lenders whether or not you’re going to be a risk to lend money to. Basically, it shows them whether or not you’re going to be a delinquent and not pay them.
Your credit score is super important because any lender you ask for money is going to see it. Your score lets lenders know if you’ll be a high risk to them and if you’re deemed a higher risk then you’ll be given a higher interest rate. A bad credit score costs you money.
For a more in-depth explanation of a credit score, check out our credit scores explained blog post!
Who sees my credit score?
Your credit score is seen by anybody you ask for money. Your credit score is calculated by Equifax and TransUnion separately and they also do some minor monitoring of your score.
You too can see a soft-inquiry version of your credit score by checking a website like CreditKarma.com.
Does my income impact my credit score?
Your income does not affect your credit score; however, your income is used by lenders to determine if you’ll be approved for a loan!
Your credit score is based on your ability to spend and use money intelligently, it has nothing to do with how much money you have.
A person with a yearly income of $100,000 can have the same credit score as someone who only makes $25,000 if they don’t know how to use their money intelligently.
Your income will only impact a small percentage of the score that is based on your debt-to-income ratio. But this is a small portion of the overall score.
Should I close old cards I don’t use?
Any cards that have a bad history are going to be on your report for the next 7 year regardless of whether or not the account is open. So this is a maybe to closing them.
You should always keep open any credit card accounts that have a positive history because they are going to improve your score by increasing your length of credit history.
The more credit you have available to you, chances are the lower your utilization rate will be. The less of your total available credit you use, the better your credit score will be! If you keep your accounts open and minorly active you’ll be able to increase your score a fair amount.
If you’re unfamiliar with the length of credit history or utilization rate, I suggest you read our post that outlines what all of these things mean! Read it here.
Why is my credit score different on different websites?
There are many different websites out there where you can find your credit score without performing a hard inquiry. If you’ve checked a couple different places you may have noticed that it’s usually a little different.
The reason for this variation is that different websites use different credit reporting companies to obtain your score. The different companies (i.e., TransUnion, Equifax, etc.) use different algorithms to calculate your credit score. These algorithms apply different weights to the 5 different sections of a credit score. Also, some scores are calculated within different ranges!
Don’t worry too much about the different scores.
How long will a negative item remain on my credit report?
Negative items are going to stay on your report for 7 years. Just like the amount of time it takes for all of the cells in your body to regenerate! Interesting stuff. So every 7 years you get to be a bit of a different person.
This means something you do when you’re 23 isn’t going to keep messing up your score when you’re 30. Phew, don’t want your young mistakes screwing you up forever!
However, if you file for bankruptcy you’re going to have that on your credit report for the next 10 years.
What category impacts my score the most?
The category of your credit score that impacts it the most is your Payment History. This means if you pay at least the minimum payment on all your accounts every month your score is going to stay pretty consistent. Start missing payments and it will drop… fast.
I really hope this post answered some of your most important questions about credit scores and that you learned something. As always, if you have any questions feel free to leave a comment!
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