Eight Things You Need To Know About Your Credit Score (Part 2)

Maybe it’s time to purchase that home. Maybe you want to buy a new car. Maybe you just want to live debt free. Whatever the reason, understanding the impact these activities will have on your credit score is important.

It is important to know how paying off debt or increasing your debt will imapct your credit score. Most people think that paying off debt will automatically increase their credit score, but the truth is, it may actually lower it.

Here are the 4 remaining things to consider about your credit score that you may not know:

(5) Closing accounts can impact your credit: If you close an account that was “paid as agreed,” it will remain on your credit report for up to 10 years. If an account is closed due to default, it will remain on your credit report for 7 years.

(6) Who may see your credit report? According to the Fair and Accurate Credit Reporting Act (FACRA) businesses must have “permissible purpose” in order to pull/run your credit report. For example, if your mortgage is with XYZ Mortgage Company, they are permitted to periodically run your credit. Otherwise, third party vendors such as new accounts, landlords, etc., must have written permission from you to take such action.

Here is a short list of entities that may pull/run your credit report:

  • Creditors with whom you have made application for credit;
  • Insurance companies-for underwriting use;
  • Employers;
  • Collection agencies for the purposes of collecting a debt.

(7) Checking your own credit report will NOT hurt your score:

“Soft Inquiries”: Checking your own report is considered a “soft inquiry.” Soft inquiries include a credit card company that offers you a preapproved credit card for which you did not apply.

“Hard Inquiries”: A hard inquiry happens when you apply for credit such as an auto loan and that creditor requests a credit report. Generally speaking, these types of inquiries will remain on your credit report for 2 years. Hard inquiries can have a negative impact on your credit score.

(8) You can obtain a FREE credit report every year: You may obtain a free credit report through www.annualcreditreport.com. However, you must pay if you want to know your credit score. Moreover, you are entitled to a free credit report from each of the 3 national credit reporting agencies, Experian, Trans Union, and Equifax.

Disclaimer: The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions.

Eight Things You Need To Know About Your Credit Score (Part 1)

Maybe it’s time to purchase that home. Maybe you want to buy a new car. Maybe you just want to live debt free. Whatever the reason, understanding the impact these activities will have on your credit score is important.

It is important to know how paying off debt or increasing your debt will imapct your credit score. Most people think that paying off debt will automatically increase their credit score, but the truth is, it may actually lower it.

Here are eight things to consider about your credit score that you may not know:

(1) There are many different types of credit scores: There are numerous credit scoring models that lenders use to establish your credit risk or worthiness. Each lender can pick which best fits their wants and needs. Some use blended scoring models such as a combined average from Trans Union, Experian, and Equifax, while others use weighted averages according to their industry.

For example, an auto lender may calculate a credit score differently than a mortgage lender. However, generally speaking, if you have a good credit score it will be reflected as such regardless of the model used.

(2) Understand the credit reporting agency doesn’t determine risk, they simply report your credit activities that results in a credit score: Remember, the credit reporting agencies DON’t determine whether you qualify for an auto loan, or what interest rate you get, the lender does.

The credit reporting agencies collect your credit ativity, good, bad, or none, to those that request it. Based upon that data, the lender determines whether they borrower you money and at what interest rates.

Your “credit activities” are reported to credit reporting agencies by other lenders you have done business with. For example, each of your creditors will report to Experian, Trans Union, and Equifax your borrowing activites and payment history from credit cards, mortgage companies, utilities, prior landlords, auto loans, student loans, etc. Your report will also indicate any accounts that have gone to collections and which accounts have been paid in full, or open accounts. Information from public records may also be included.

Payment history is also essential to a good credit score. Credit reports will show your history of on-time payments, late payments, and defaults. All are negative towards your credit score.

(3) Its common for credit scores to vary between the three national reporting agencies: There are typically differences in your credit score depending on which credit reporting agency is used.

The reason? Not all creditors report their data to all three agencies. Some only report to one agency, while others may report to all three. For example, an auto lender may only report your payment history to Experian, while your mortgage lender may report to all three agencies. Therefore, your credit report/score may be slightly different.

Don’t forget, each credit reporting agency may use different scoring models even if each agency has the same information. The model used can change your score.

Make sure there is no incorrect data. If there is an error on your report, it will adversely impact your credit score. It is important that you file a Uniform Dispute Resolution with the credit reporting agency to correct the discrepancy. In correct information may also indicate potential identity theft.

(4) Certain information may NOT be used in calculating your score: Your age, marital status, race, gender and religion may not be used in calculating your credit score or credit risk.

Disclaimer: The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions.