1. Credit Reports Are Different from Credit Scores
While your credit score is definitely tied to your credit report, it’s technically a separate thing. Your credit report is a thorough record of your credit history, including your credit accounts, how often you apply for credit, debt collection accounts and some public records, including judgements, liens and bankruptcies.
Think of your credit score as a numerical summary of all these factors. If you have delinquent accounts on your report, that brings your credit score down. If you have a strong on-time payment history, that brings your credit score up. Most lenders only look at your score, and this is why it’s important to check your credit report regularly and ensure everything is accurate. Both your credit score and credit report are kept by the three credit bureaus.
2. Your Scores Are Based on Five Core Factors
While your credit score is one number, it actually is influenced by five separate factors:
You’re legally entitled to a free copy of your annual credit report from each of the three major credit bureaus—Equifax, Experian and TransUnion. That means you can check your credit report every four months if you cycle through the credit bureaus. This can help you catch any inaccuracies in a timely manner so you can dispute them and ensures you have an accurate overall picture of your financial situation.
You can also get your credit score for free from various places. Many major credit card companies offer access to FICO scores as part of their customer perks, and you can also get a score from Credit.com.
4. Checking Your Own Score Won’t Hurt It
While it’s true that too many hard inquiries have a negative impact on your score, the effect is small and temporary. There’s also an exception made if you’re applying for the same type of loan in a short period of time, so you can shop around for the best deal on a car loan without worry about your credit taking a hit. If you’re checking your own score, however, there’s no penalty, and it doesn’t show up on your credit report as an inquiry at all.
5. There Are Different Scores and Score Ranges
Each of the three major credit bureaus, as well as the newer VantageScore, has their own scoring model with differing ranges. Your score changes depending on which one you’re looking at. It’s important to know what the range is for the score you’re looking at and not to rely too heavily on just one bureau’s score.
If you’re keeping an eye on your credit score and pulling your free credit report every four months, you’ll be much more likely to spot problems that indicate you could be the victim of identity theft. For example, if you get a notification that your credit score has dropped and see that there’s a new account you didn’t open or a credit card you haven’t used in months suddenly has a huge balance, you’ll be able to take action immediately.
7. Your Credit Score Can Cost You Thousands Over a Lifetime
Having a less-than-great credit score means you’re also getting less-than-great terms on credit cards and loans. The biggest factor in this is interest. As a general rule, the lower your credit score, the higher your interest rate, and that can add up to paying thousands more over your lifetime for access to credit than you would with a better score. Even raising your score 100 points or so can save you a lot of money in the long run.
8. There’s No Such Thing as a Joint Credit Score
If you’re married, have joint accounts or are just sharing credit with an authorized user, you may be concerned about how it can affect your credit. Credit scores are individual, so even if the other person has poor credit and you add them to your credit card, your score won’t go down.
However, if the person doesn’t make a payment as agreed or racks up a big balance, it can affect your score because it’s still technically your account. Whenever you share credit, make sure you’re aware of who will be responsible and who will be affected if a payment is missed.
9. Negative Information Eventually Ages Off
We all make mistakes, and if you have some not-so-great moments in your credit history, you may be relieved to hear that they will eventually drop off your credit report. As long as you keep your credit in good standing moving forward, eventually any past mistakes won’t be a factor.
10. Credit Scores Aren’t the Only Things That Matter for Lending Decisions
While your credit score can impact a lot of your ability to access credit, it isn’t the only thing lenders consider. If you have no credit or poor credit, you may be able to secure a loan through an alternative lender. In some situations, making a personal appeal or giving a lender more context to your credit report can help you access financial products. This is usually most effective at smaller institutions such as local banks or credit unions, where you’re more likely to be able to talk to the decision-maker and have someone look at your entire financial picture instead of just your score.