Your credit score is an essential three-digit number that impacts your life in many ways. While many people have a general understanding of what their credit score means, few understand all of the details surrounding their credit score.
For example, you may not know which factors influence your credit score most.
In this post, we will answer all of the important questions surrounding credit scores so that you can be fully prepared.
Which of the Following Statements is TRUE About Credit Scores?
There are many statements, including misinformation, floating around about credit scores. For example, can you guess which of the following statements about credit scores is true:
- Credit scores range from low 300’s to mid 800’s
- Only the credit bureaus know the exact process for calculating credit scores.
- Your credit score reflects how likely you are to repay your debts
- Every person has three credit scores
All of the above!
That’s right, all of the above statements about credit scores are actually true. Each person has three credit scores, and your credit score can be anywhere from the low 300’s to mid 800’s. It is a number that reflects your likeliness to repay your debts. While only the credit bureaus know exactly how the credit score is calculated, we will explain some of the important considerations below.
Factors that Influences Your Credit Score
First and foremost, you must understand the factors that do and do not influence your credit score. There are many factors that go into determining your credit score and some misconceptions about what does and does not impact it.
The factor that influences your credit score the most
While there are several considerations for calculating your credit score, the factor that influences it the most is payment history. Payment history is the record of if you have paid your bills on time, and it accounts for over 1/3rd of your credit score. A one-time late payment will not damage your credit score much, but multiple late payments will. To ensure your credit score stays high, make sure to pay off your credit card balance on time each month.
Which behaviors might lead someone to have a low credit score?
Some behaviors will harm your credit score, leading to a low credit score. Since payment history has such a large impact on credit score, missing payments is one of the top behaviors that will lower your credit score. Missing multiple car payments, house payments, or credit card payments will lead to a low credit score.
Which action has no impact on your credit score?
There are also actions that negatively influence your credit, but there are misconceptions about what does and does not harm your credit score. Many people falsely believe inquiring about a credit card will hurt your credit score, but this is not actually true. Inquiring about a credit card charge has no impact on your credit score, so it is something you should not hesitate to do if necessary.
In Which of the Following Situations is Having a Good Credit Score Important?
Having a good credit score is very important for many reasons. Since your credit score signals your likelihood of repaying debt, it is a number that is used in many important situations. Which of the following do you need a good credit score for:
- Renting an apartment
- Applying for a bank loan (including a mortgage for a home)
- Buying a car
Having a good credit score is important for all of the situations above. Landlords and banks will check your credit score to assess if you should qualify. For example, landlords look at your credit to determine if you will pay your rent on time.
If Your Credit Reports Show Different Scores, What Should You Do?
Since your credit score is so important for many different purchases, it is something you should check at least once a year. However, different credit reports can sometimes show different scores. So, what should you do if your credit reports show different scores? If you see different credit scores from different reports, then you should contact the credit bureaus and inquire about the information they have on your credit history.
What can a person do to help increase their credit score?
Credit scores are critical for many different purchases, so having a high credit score is vital. The credit score you have now is not the one you are stuck with. There are many things you can do to improve your credit. First, you should review your credit report yearly. This will help you stay on track and assess your progress each year. You should also make sure your credit report is correct, and be sure to dispute any errors you find with your credit agency. Lastly, make sure to pay off your credit card balance each month and make sure to pay all of your bills on time.
Now that you have separated fact from fiction when it comes to credit scores, it is time to start increasing your credit score. To learn more about how we can help, contact us now. We are a leading mortgage company in Rapid City SD, ranked as the top mortgage broker in Billings MT, and the most trusted home loan provider in Sioux Falls SD.
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