Credit can impact everything from interest rates on mortgages and car loans to the ability to land a potential job.
Do you have questions when it comes to understanding how credit works, credit reports, scores and more? Here's a list of basic credit FAQs to help get you started.
These commonly asked credit questions and answers can help you understand a little bit more about how credit works and how it can impact your life.
What is a credit report?
A credit report is a list of all your credit history. Your report will include every credit card you have both open and closed including balances, available credit and payment history, as well as any loans and late payments. If you've declared bankruptcy, been foreclosed upon, or have had a judgment entered against you, these are also on the report.
What is a credit score?
A credit score is a three-digit number that's determined by your past credit history the information that's on your credit report. The entirety of your credit history is used to calculate your score, which is an easy way for lenders to determine your creditworthiness, for example, if you're more likely to pay your bills on time or default on a loan.
What is a good credit score?
Credit scores range from 300 to 850. The higher your score, the more creditworthy you are to lenders. Having a good credit score, around 680 and above, can help you qualify for loans at better rates with more attractive payment options and with higher loan limits.
What affects my credit score?
The major credit reporting agencies have developed a formula that determines your credit score. It's primarily based on a number of factors, including: payment history, amount owed, overall credit history, new credit and types of credit.
Taking care of your credit score is important. You should focus on behaviors that improve it such as paying bills on time and paying off your credit card debt.
What affects my score the most?
The most important part of the formula that calculates your credit score is your payment history. If you have a record of making payments on time, it shows potential lenders that you tend to be reliable, which is a good thing. Once you know what goes into your score, you can use that as a baseline to keep your score steady or improve it.
What is a credit inquiry?
There are two types of credit inquiries: soft inquiries and hard inquiries.
Generally, a soft inquiry is when an entity checks your credit as part of a background check or when you review your own credit report. You can do that for free once a year from the three main credit bureaus. Soft inquiries don't impact your credit score.
A hard inquiry happens when you apply for a credit card, a mortgage or a loan. The lenders will pull your credit report to judge your creditworthiness, and these inquiries do impact your credit score. To avoid this, consider applying for credit cards and loans only when necessary.
Does my credit score impact my ability to get loans?
Your credit score can impact not only your chances of getting a loan but the interest rates and loan amounts, as well. With a poor credit score, your chances of getting a loan can be low. As your credit improves, your ability to be approved for a credit card or loan, and get better interest rates, can increase.
Remember, your credit can always change over time. So if you have a low credit score right now, you can improve it by diligently working on it.
Can I dispute my credit report?
Consider going over your credit report each year to look for any errors or discrepancies. If you find something that is wrong or worse, fraudulent you can dispute your credit report.
Building good credit early is one step you can take toward your financial future. Learn more about building good credit.