Before I had dogs, I could have never imagined a pet impacting the car-buying process. (To be fair, I didn’t always think about the logistics of children when shopping for a new vehicle either… but becoming a parent quickly changed that.) Now that I have two “fur babies,” I find myself thinking about how my…
Your credit report and your credit score are not the same
While your credit score is calculated by the information on your credit report, these two things are different. Your credit report is made up of all inquiries, account history, debt accounts, public records, and much more information. The score may determine the interest rate you are offered on an offer of credit, but many times, the credit history on your report will decide if you are approved or declined for credit.
Credit reports help you stop fraud
Viewing your free credit reports once a year, as suggested by the federal government, can help to spot and stop fraud. If someone has stolen your identity, there will likely be credit inquiries and/or accounts that you are not aware of. You should contact the credit bureaus immediately and start the process of regaining your identity.
Your credit score is based on 5 areas
There are 5 core areas that make up a credit score. They are credit inquiries, credit utilization, average credit age, payment history, and account mix.
Credit inquiries refers to companies reviewing your credit report after you have submitted an application. These inquiries stay on your credit report for two years; however, only the previous 12 months will have an effect on your credit score.
Credit utilization accounts for a large percentage of your credit score because it is based on the amount you currently owe your creditors. Installment loans such as, mortgage, car notes, etc. are included in this number; however, revolving credit, such as credit cards, has the biggest impact on this score.
Credit age measures how long you have had a credit history and how long your accounts have been open. The longer you have had credit, the better this score will be. This is why it’s important to not close old accounts if not needed.
Payment history has the largest impact on your score because it is what tells a creditor that you will make the necessary payments to them in a timely fashion. It is very important to pay your accounts on time to prevent losing excessive points for late or derogatory payments.
Account mix is the mixture of different account types on your credit report. Having a mix of accounts including credit cards, auto loans, mortgage loans, etc. will help to improve this section.
Your credit score influences your interest rates
If you are in the market for a new home or car purchase, your credit score will impact the amount you are paying. Interest rates are generally decided based on your credit score; the higher the score, the lower the interest rates. Be sure to shop around for the best rates before buying a new home or car.
Joint accounts affects your credit the same as individual accounts
Contrary to popular belief, if you co-sign a loan with someone, you are held equally liable for repayment of the loan. Therefore, if the loan defaults, your credit score will be impacted.
Tell us something you’ve learned about your credit score!