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10 Things Everyone Should Know About Credit Scores

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10 Things Everyone Should Know About Credit Scores

The last time I got up in front of a group to talk about my job, no one had questions for me. It was a high school career day a few weeks ago, and the students stared at me blankly as I dropped words like “personal finance,” “credit scores” and “debt.” I could tell they thought my work wasn’t exciting, that the topics I write about are boring. Everyone was happy when the bell rang to end my session.

This week, I spoke to a group of college students and community members, and the atmosphere couldn’t have been more different. I went into the talk with a list of things I thought they’d want to hear about — the event was called “10 Things Everyone Should Know About Credit Scores” — but as people trickled into the auditorium, I thought I’d gauge their interest in certain topics. The idea was to make people feel comfortable talking to me about credit.

I tried to be casual: “Does anyone have anything specific they’d like me to talk about?” I asked with a smile, hoping maybe one person might say something.

The reaction surprised me: People immediately started blurting out questions, and I hadn’t even introduced myself yet.

  • “How do you build credit? I mean, how does it work?”
  • “Is it ever too late to build credit?”
  • “How do student loans impact your credit?”
  • “How do you get credit when no one wants to give it to you?”

I was happy to hear their questions, but I thought back to those high schoolers and got a little sad: My group at the college asked a lot of questions about the basics of personal finance and recovering from bad credit — perhaps if they’d had conversations about these things earlier, things would be different.

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There are way more than just 10 things you should know about credit scores, but here’s what I told that group.

1. Credit Reports Are Different From Credit Scores

Credit scores are calculated using the information on your credit reports, which includes details of your credit accounts, how often you apply for credit, debt collection accounts and some public records, among other things.

2. Your Scores Are Based on 5 Core Factors

Those factors are (in order of importance) payment history, credit utilization, average credit age, account mix and inquiries. You can find a more detailed explanation of each of those factors here.

3. You Can Get Your Scores & Reports for Free

You’re legally entitled to a free copy of your annual credit report from each of the three major credit reporting agencies: Equifax, Experian and TransUnion. You can get your credit scores for free from various places, including two scores from

4. Checking Your Own Score Won’t Hurt It

Only hard inquiries (aka when a lender looks at your credit when you apply for a loan or credit card) have a negative impact on your scores, and the effect is small and temporary.

5. There Are Many Different Scores & There Are Different Credit Score Ranges, Too

When you’re trying to figure out where you stand or if your credit is improving, make sure you are comparing the exact same score and that you know the range — wherever you’re getting the score from should tell you that information. For example, a 750 FICO score is not necessarily equivalent to a 750 in another scoring model.

6. Your Credit Can Help You Spot Fraud

If someone runs up a large credit card bill or takes out credit in your name, it will show up on your credit report and affect your credit score. Watch your score for changes you did not anticipate.

7. Your Credit Score Can Cost You Thousands Over a Lifetime

A low credit score means you’ll probably have to pay higher interest rates on things like credit card balances and mortgages. You can see an estimate of how much your credit will cost you using the Lifetime Cost of Debt Calculator.

8. Joint Accounts Affect Your Credit Scores, But There Aren’t Joint Scores

If you open a loan or credit card with a partner, the account activity will be reflected on both your credit reports. Joint accounts are different than authorized users, but whenever you share credit, make sure you’re aware of who will be responsible and who will be affected if a payment is missed.

9. Negative Information Eventually Ages Off

Different kinds of negative information will remain on your credit report for different periods of time (bankruptcy is an exception to this, for example), but generally, negative information ages off your report and no longer affects your score after 7 years.

10. Credit Scores Aren’t the Only Things That Matter for Lending Decisions

A credit score isn’t the only thing lenders consider when reviewing applicants. If you have no credit or poor credit, you may be able to secure a loan through an alternative lender, and in some situations, making a personal appeal or giving a lender more context to your credit report can help you access financial products.

The Questions I Was Asked

As far as the other things the group wanted to know about, here are some answers.

“How do you build credit? I mean, how does it work?”

Focus on those five fundamentals that determine your credit score; mostly, use credit sparingly and make payments on time. It takes years to build good credit, but it’s worthwhile to be patient.

“Is it ever too late to build credit?”

No. Your credit score can affect you for a lifetime, so it’s always worth trying to improve.

“How do student loans impact your credit?”

Making payments on time is good. Not doing that is very bad.

“How do you get credit when no one wants to give it to you?”

There are a few options: See if you can get a secured card or other credit card designed for people with bad or no credit. Then, spend very little money on it and make the payments on time. You can try piggybacking on someone else’s credit by becoming an authorized user, but that’s a lot to ask of a friend or family member since they’ll be ultimately responsible for any debts you incur. There are also some companies that will help you get loans based on your payment history of rent or utility bills, if that shows a pattern of responsibility.

What questions about credit or credit scores do you have? Share them in the comments and I may write an article to answer them.

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  • Dennis Elliott

    Just curious, i’m thinking of purchasing my first home. If I have good credit as far as my current community is concerned, I.e. my bank, could they take over an foreclosure account from another bank in another state? And would this credit I have now, be as good in another state? I hope you have an answer, before I discuss this with my bank???

    Thank you!


  • Chris

    What is the name of the law regarding hard credit inquiries only affecting your credit score for 1 year instead of 2 years?

    • Credit Experts

      There is no law about that; it’s how credit bureaus work in practice.

      • Chris

        There was an article about it recently on where it mentioned it was a law. Is that not true? If it’s just a general practice by the credit bureaus, will they remove a hard inquiry after 1 year but less than 2 years?

        • Credit Experts

          Chris —
          The hard inquiries are not removed early; they are just not typically used to calculate scores after a year, even though they remain on the reports for two. You can read more here:
          What Is a Hard Inquiry?

  • dustin

    Will student loans come off your credit report if you do not pay on them for 7 years like other dept? I asked a loan officer at a bank when I got my last loan a couple yrs ago and he did not know the answer to the question. About two years ago when I checked my credit it looks like each of my loans, since I had ones for each yr I attended school through a community college had a month and yr that each would be coming off. Since the month and yr was the middle of last yr I ran my credit report a couple days ago for this yr through to see if they had came off my report. After reviewing my report it does not look like they are showing on there anymore. I should also includes that the loans where from edfinancial, and I have not ever made a payment on them since I graduated in 2007 due to financial reasons. Of course they went into default and I did try to sign up with a company once to make 9 payments to get them out of default, but since my payments was $500 and something after the 2nd payment I quit. Back to my question will student loan come off your credit report, since they are not considered in my depth/income ratio any longer will it make my credit score go up some? Yes I know I have been in the wrong in not paying them, but $50000 in student loans is not something that’s easy to make payments on. Like I said it looks like they are not on my credit anymore at least through experian, I have not got equifax or transunion report back yet. I was wondering if they only time that it would affect me, if they did come off my report is when I tried to get retirement later on in life since they are government loans. Just don’t know what to do and it is scary. Just never knew the answers to some of my questions so I hope you can help clear somethings up for me. I have to come up with a plan to get these off of me somehow but I don’t know where to start. Since my degree is business management, it does not fail into the depth forgiveness programs that have came out the last couple of yrs. Thanks for your time.

    • Credit Experts

      Dustin —
      Federal student loans are not like any other debt because they can’t be discharged in bankruptcy. They can also result in wage garnishment and in seizure of your tax return or a lien on your property (in other words, it can affect you long before retirement). There are numerous repayment plans, including income-based repayment. Here are some resources that may be useful to you:
      What Happens if I Ignore My Student Loans?
      How to Pay Student Loans You Can’t Afford

      • dustin

        I knew they couldn’t be discharged in bankruptcy, I also knew about the tax return situation. I elaborated to much on my question, but again back to my question of weather they come off your credit. Like I said a couple yrs ago I did see a month/yr they would be coming off and since I ran it the other day they are not on there from the one report that I got, so I guess they did. So If I was to go apply for a loan and the company run my credit my students loans would not affect my dept to income ratio anymore. I just wanted to know if they came off like other dept did after so many yrs.

        • Credit Experts

          Dustin —
          They are not supposed to come off. The Higher Education Act does not exempt colleges from reporting the information to credit-reporting agency. The 7-year reporting deadline does not apply, presumably because statutes of limitation do not apply, and the debt remains collectable (and so they should affect your debt-to-income ratio).

  • Cheryl

    What are alternative lenders? Due to serious medical problems my credit is in a bad place. 560 or so. I used to have 740. I need a small personal
    loan but am having problems finding one. (1500-2000).

    • Credit Experts

      Alternative lenders lend to people and small businesses who do not qualify for traditional loans. You might want to investigate peer lending (LendingClub and Prosper are the two biggest peer lenders).

  • susan

    If a judgment is dismissed in court, and taken off your credit report, why isn’t the late payments erased from your credit report also? Especially if the court deemed the lender at fault?

    • Credit Experts

      Susan —
      Have you tried disputing the information with the credit bureaus (and including documentation of the court action)?

  • Amy

    Up until November 2014 I maintained a credit rating around 760 for 20 years.
    In the fall of 2014 l was going through a divorce after 23 years. In October I was 32 days later for an American Express payment of $295.
    Before I was over 30 days late I went through the process of letting them know that i needed to split to make payments because I was going to be 30 days late on my payment on the full amount. I have been a member since 1997.However they still put me in the credit bureau after 35 days late. It was paid in full with in 2 days. I called and wrote them a letter in March to explained my error and they will not take any action
    Unfortunately a few weeks ago kohls department store put me in the credit bureau for being 31 days late on a 55 dollar payment. it’s just really an oversight on my part. I missed Aprils payment and when I went to do my bills this month I realized I had not made the payment. I immediately had my bank send them a check. It did not reach them until 34 days late.

    What do i do here? I have never had any other late payments. I need to refinance the house in my name in the next 6 months because my divorce is final and it now it will be difficult because my credit rating went to 659/685/685.

    • Gerri Detweiler

      Unfortunately, if the information is accurate there may not be a lot you can do. You can try appealing to those issuers to ask them to make a goodwill adjustment, but don’t be surprised if they don’t. Over time those late payments will carry less weight, but I know that’s not terribly helpful in the short term when you are trying to refinance.

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