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Understanding Credit Reports and Scores: 10 Essential Facts

The world of credit reports and scores can be complex, but understanding them can help you prepare for major life milestones. Here are 10 facts about credit that many people don’t know, which might help you improve your credit score.

1. Checking Your Credit Won’t Hurt Your Score

You can check your credit reports and scores without worrying about hurting your credit scores. When you apply for a new credit account, creditors generally request a copy of your credit reports, resulting in a hard inquiry. Hard inquiries can slightly impact your credit score and stay on your reports for up to two years. However, checking your own credit report results in a soft inquiry, which doesn’t affect your credit scores.

2. Late Payments Only Impact You Once You’re 30 Days Late

A late payment can significantly hurt your credit score, especially if you have a good to excellent score. Late payments stay on your credit reports for up to seven years. However, your payment has to be at least 30 days past the due date before your creditor can report it as late to the credit bureaus.

3. Carrying a Credit Card Balance Won’t Help Your Credit

Using your credit card and having your issuer report your balance and on-time payments can help your credit score. However, you don’t need to carry a balance from month to month or pay interest to see a positive effect. Simply using your credit card regularly and paying the balance in full each month can boost your score.

4. Paying Down Credit Card Balances Early Might Help Your Scores

Frequent use of your credit card can earn rewards, but a high credit utilization ratio can hurt your scores. Paying down your balance early can help you avoid a high utilization ratio, which could negatively impact your credit score.

5. Your Credit Can Impact More Than Credit Cards and Loans

Credit reports and scores are used by credit card issuers and lenders, but they can also be important for other reasons. Landlords, employers, and insurance companies might check your credit before making decisions or determining premiums.

6. You May Have Dozens (or Hundreds) of Credit Scores

FICO® Score and VantageScore® are the main companies that develop consumer credit score models. Each scoring model scores one of your credit reports from Experian, TransUnion, or Equifax. Differences in your credit reports can result in different scores for each report.

7. Some People Aren’t Scoreable

Credit scoring models require a minimum amount of data to score someone. People who don’t have enough information in their report to generate a score are sometimes called credit invisible or unscoreable. If you’re not scoreable, you can take steps to establish and build your credit.

8. You Can Add Information to Your Credit Reports

Most information in your credit reports comes from creditors and collection agencies. However, you can use tools like Experian Boost® to add eligible rent, utility, and select streaming services payments to your Experian credit report.

9. Creditors Can Choose Which Credit Scores to Use

Creditors can choose to use whichever credit scoring model they prefer. They might use multiple credit scores in combination or develop their own proprietary scoring models to more accurately assess risk.

10. Companies Are Using AI to Build New Credit Scores

Credit scoring companies and creditors are using artificial intelligence and machine learning to create new scoring models. These models need to comply with the Fair Credit Reporting Act and ensure non-discriminatory lending practices.

Monitor Your Credit for Free

Checking your credit won’t hurt your score, and you can check it for free. Experian offers free access to your Experian credit report and a FICO® Score 8 based on your report, updated monthly with immediate notifications for any unusual changes.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate the complexities of credit and achieve your financial goals with confidence.

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