The 20 Most Frequently Asked Credit Score Questions
As you probably know, your credit score is one of the most crucial elements to your survival in the world. That one three-digit number can be the deciding point between whether you get a new home or not. It could make a difference in whether a prospective employer hires you, or it can stop you from moving into an area you want to live in.
Most Frequently Asked Credit Score Questions
A lot of people have questions about credit and credit scores. We've gathered 20 of the most common questions and myths about credit, and we've answered them for you. Go through the list and see if you can find the answer to some of the questions you had about credit.
Q1: Is FICO the Only Credit Scoring Scale?
A: FICO is not the only credit scoring scale that exists. However, it is the most widely used credit scoring system. The majority of lenders check the FICO score of prospective borrowers before they approve or deny them. Vantage is an alternative credit scoring system that is gaining traction but is still not as popular as the almighty FICO score. The Vantage system has revamped itself several times over the years and is very different from the FICO score. FICO weighs payment history heaviest out of all five parts of the pie. The latest update to the Vantage score is completely different from its predecessors. This model weighs credit usage and balance the highest and only views payment history as a moderate factor.
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Q2: Can You Get Anything You Want if Your Credit Is Good?
A: No. Having a high credit score can only get you so far. Creditors are still going to review other factors when they consider you for financial products. For example, they will look at your debt-to-income ratio. You will be subject to a decline if it looks like your current debts in relation to your income are causing you to struggle. Mortgage companies are notorious for turning people down for homes because of their DTIs. They like to see their applicants with DTIs of less than 45 percent. Therefore, it's quite possible that you can have an extremely high credit score and still not receive approval for everything you want.
Q3: Will a High Credit Score and Timely Payments Get You a Credit Line Increase?
A: Not necessarily. Many credit card companies promise credit line increases after a certain number of timely payments on the account. They don't tell prospective cardholders that they will evaluate the entire credit profile before they do so, however. They will look at your other lines of credit as well as your inquiries and your score. They'll also review your payments to see if you've made any payments that were above the minimum payment. The lender may decline an increase if it's uncomfortable with any of the information on your credit report.
Q4: Will Paying an Old Debt Erase It?
A: Not in all cases. It seems reasonable and fair for a lender to erase a bad debt from your record if you pay the account's balance. However, the creditor isn't obligated to do so. Many debtors were upset when they discovered this after paying off bad debt. You can avoid the same problem by negotiating with the creditor to remove the account once you settle it. You'll have to get it in writing to make it stick, and you still might have to go through the credit bureau to do so. One good thing about paying old debts is that prospective lenders will see that you made the payment. That could make a huge difference in whether they decide to approve your request or not.
Q5: Do Negative Items Automatically Come off After Seven Years?
A: The general assumption is that bad debts "fall off" of your credit report after seven years. Some items might stay on your credit report for 10 years or longer. The items that are due to drop from your report after seven years don't always drop off. You may have to take action to have them removed. That means you might have to file a dispute with the credit bureau and wait 30 days to find out if they can drop the item.
Q6: Will Closing an Account Help My Score?
A: A lot of people assume that closing a credit card account will boost their credit score. In most cases, that isn't true. When you close an account, you not only remove the available credit from your overall balance, but you also may shorten your overall account age and history. This could result in a score drop instead of a boost. It's acceptable to have up to 20 open accounts on your credit report. Therefore, we don't recommend closing an account unless you truly have no use for the card any longer, and keeping it would cause you a problem.
Q7: Can I Boost My Credit by Being an Authorized User?
A: Yes. Being an authorized user on someone else's credit card account can help you immensely. The bureau will report your timely payments on your credit report as well as the account holder's. You may then obtain approval for your own card because of your positive history as an authorized user.
Q8: Does Checking Your Credit Report Hurt Your Score?
A: Checking your own credit report will not hurt your credit score. You are entitled to one free credit report from all three bureaus once every year. You can check it as many times as you like. You should do so to ensure that your report is free of inaccuracies, and you should dispute anything that does not look correct.
Q9: Does Applying for Credit Hurt Your Score?
A: Yes. Every time you apply for credit, you get something called an inquiry on your report. Inquiries stay on your report for two years. Creditors look at the number of inquiries you have when they consider your application. Too many inquiries will throw up a red flag to prospective lenders that you might be desperate for cash. Furthermore, your credit score could potentially drop three points or more every time you inquire. Therefore, you should only make inquiries if you've passed a preapproval and believe that you have high chances of getting what you need.
Q10: Is All Debt the Same?
A: All debt is money that you owe, yes. However, lenders do not look at all debt the same way. They look at mortgages and real estate loans as a sign of responsible borrowing. They look at credit card debt a different way. You're expected to have at least one or two credit cards on your report to add to the account types mix. However, having too many credit cards may make prospective lenders suspicious. It will also make them leery if you have high balances on all those cards. Be very careful how you handle your credit card debt because it can make or break you.
Q11: Can You Still Get a Car if You Have a Bad Credit Score?
A: It's still very possible for you to get an auto loan if you have bad credit. The problem with most people who have bad credit is that the lenders charge a lot of interest. The interest rate for a "bad credit auto loan" can be as much as 30 percent or more. At the end of the day, it might seem like you're paying twice the amount of the car's value just because you have a subprime score. Be very cautious when you search for auto loans. It's still possible for you to get a decent interest rate and monthly payment even if your history isn't perfect.
Q12: Will Bad Credit Stop You From Getting a House?
A: Unlike a car loan, it will be difficult for you to get a home loan with a bad credit score. The requirement for an FHA loan is a credit score of at least 580. Your best bet would be to take some actions to make your score higher before you search for a home. You'll also need to ensure that you've paid all of your outstanding debt that's on your credit report, and you've gotten your debt-to-income ratio under the 45 percent threshold.
Q13: Should I Use Prepaid Cards if I Can't Get a Credit Card?
A: You're entitled to put your money on a prepaid card if you can't get a credit card. However, you may want to consider applying for a secured card. Secured cards operate in a similar way to prepaid cards. You send a security deposit to the card company. The card company then issues you a credit card with a limit equal to your deposit. You can then use the secured card just like a regular credit card. The bureaus will report your payments every month, and you can reestablish your credit that way. It's a better option than a prepaid card because it can boost your credit score and get you back in a good place.
Q14: Will Disputing Items Boost My Credit Score?
A: It's possible that a disputed item can increase your score. The bureau will have 30 days to investigate an account or balance your dispute. It will update your credit report if it finds an error. Having an entire account removed can boost your credit score by a good 30 points or more. Updated balances can increase your score, as well. That's why it's important to check your credit report frequently and dispute any information that is not correct.
Q15: Will Making Double Payments Boost My Credit Score?
A: Yes. Making double payments on your accounts will boost your score. You'll build a more positive payment history with each payment you make. You'll also increase the amount of your available credit even faster. We recommend you double up on the payments every chance you get.
Q16: Should I Reject Credit Limit Increase Offers?
A: You might think that credit card companies are trying to entice you to make more purchases when they offer you credit line increases. That is 110 percent true. However, you don't have to charge more money to your account just because it's there. Accepting a credit line increase is actually an excellent idea. It will add more money to your overall available balances. That alone can boost your score, even if the increase isn't that large. Additionally, other creditors will see that the lender that gave you the increase trusts you. They might see that and decide to give you a credit line increase, as well. Yes, you should accept all the credit line increases your credit card companies offer you.
Q17: Should I Carry $0 Balances on All My Cards?
A: You might think that the smartest way to use your credit cards is to keep them all with $0 balances. That is incorrect. Lenders want to see long positive payment history. There won't be much of a history there if you never use your credit cards. There won't be much of a history there if you make one purchase, pay it off, and then fail to use the card again for six months to a year. In fact, the credit card company might think you're not interested in having the card any longer.
The smartest way to use your credit cards is to make small purchases that leave your balance at no more than 30 percent of your available credit. That way, you can make tiny payments each month and establish a long record of making timely payments.
Q18: Does Credit Type Matter?
A: Yes. The types of credit accounts you have do matter in the scheme of things. Creditors like to see a good mix of revolving accounts as well as installment accounts. Installment accounts are mortgages, student loans, auto loans, and so forth. Credit card accounts are revolving accounts, and they have that name because your payments go back into the available balance on them. The mortgage account is one of the most cherished accounts of them all. You should get one as soon as you can. The auto loan is the next best thing in terms of installment accounts. Lenders like to see that you've paid religiously on an installment account for many years. Revolving accounts carry a lot of weight, as well. Ideally, you should have two to three credit cards in the mix. The credit mix accounts for 10 percent of your entire credit score.
Q19: What Is a Good Credit Score?
A: The term "good credit" is subjective. It means different things to different people. Lenders decide what credit score number they deem "good enough" to qualify a consumer for a product they offer. In terms of FICO scores, a "good" credit score is usually a score in the 700 or above range. Fair credit is a score of around 640 to 700. The criteria change now and then. Therefore, you must do your best to keep your score as high as you can get it. Always strive for the 850 score. At that level, you won't see many denials.
Q20: Does a Bad Credit Score Make Me a Bad Person?
A: Absolutely not. Having a low credit score does not make you a bad person. Everyone goes through tough times. Tough times are liable to decrease a credit score. Your credit score doesn't define you as a person. However, it does define the risk potential that you have when a creditor is considering whether to approve your application. A low credit score may indicate that you need to improve your money management skills. It may indicate that you're living beyond your means. Alternatively, it could mean that you have to resolve some financial issues from the past. You could consult with a debt management company or a credit counselor to get some training that can help you to boost your credit score and your confidence as a debtor.
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Hopefully, this list of credit-based FAQs will help you understand more about your credit score and how it works. We're always available if you have any additional questions, however. Our company is in business to help you get the financial products and financial education you need.
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