7 Little-Known Secrets About Credit Score Categories You Need to Know
Your credit score is more than just a three-digit number. It affects your ability to get a loan, mortgage, or even rent an apartment. While many are familiar with the basics, there are lesser-known secrets about credit score categories that everyone should know. Here’s a deep dive into these seven secrets:
1. Payment History Holds the Most Weight
While it’s common knowledge that paying your bills on time is crucial, what many don’t know is that your payment history comprises up to 35% of your credit score. Any late payments, defaults, or bankruptcies will significantly impact your score.
Secret: Even a single late payment can drop your score by 100 points if you previously had a perfect credit record.
2. Not All Credit Cards Are Created Equal
There’s a myth that using certain credit card types is better for your score. While all cards help in building credit, not all are treated the same by credit scoring models.
Secret: Cards with high spending limits contribute more to your credit report, as long as you keep your balance low. This is because they show that you can handle large potential credit responsibly.
3. The Age of Your Credit Accounts Matters
Your credit history’s length makes up about 15% of your credit score. While younger borrowers may feel discouraged, there are ways to boost this aspect.
Secret: You can link yourself to a parent’s or spouse’s old credit account as an authorized user. Just ensure the primary account holder has a good payment history.
4. Credit Mix Is More Influential Than You Think
Your credit mix – that is, the variety of credit accounts you have, such as loans, mortgages, and credit cards – plays a role in your credit score.
Secret: Responsible management of both revolving credit (like credit cards) and installment loans (like car loans) looks great to credit scoring models.
5. Hard Inquiries Can Stay on Your Report for Two Years
When you apply for a new credit account, a hard inquiry is made into your credit report. Despite lasting two years, they only impact your score for one year.
Secret: If you’re shopping for rates (mortgage, car loan, etc.), do it within a two-week span. Credit scoring models generally treat multiple inquiries within a short period as a single event.
6. Paying Off Debts Is Great, but Timing Matters
It might seem straightforward that paying off your debts is beneficial to your credit score, and it is. However, the circumstances and timing can play a significant role.
Secret: Paying off a collection account won’t automatically erase it from your credit report (it can remain for up to seven years). Some creditors will report the account as “paid in collections,” which is still negative.
7. You Have Multiple Credit Scores
Most people may assume they have “a credit score,” but in truth, they have multiple scores from different credit bureaus and models.
Secret: The most commonly used are FICO and VantageScore, but there can be significant differences in scores from different sources. For example, a score may be 720 with one model but 700 with another.
In conclusion, understanding these little-known secrets about credit score categories can help you make more informed financial decisions and potentially boost your credit score. However, remember that maintaining good financial habits is key to keeping your credit score in good standing.