You may already know a few things about your credit as you're preparing to apply for a credit card. Credit score, interest rates, credit-utilization ratio and rewards cards are probably terms you're either aware of or have heard in discussions before. These are common, but there is more to a credit score than meets the eye. The additional information you learn about will assist you in understanding what goes on with a credit score and report, the easier it will be to maintain good credit. Here are a few credit score qualities you may not be aware of:
Bureaus assess your credit history
A number of factors will be looked at to gauge your creditworthiness such as your payment history and the different types of debt you have, but the most important factor is your credit history. Your score is a comprehensive look at what type of borrower you have been during your lifetime, and the higher the score, the more pristine your borrowing history has been.
There is more than one score
A credit score is one of the ways, if not the most common way, that your borrowing history is assessed, but there is no definite score. Each lender and credit bureau has its own method for calculating your score. The metrics that make up your score, such as your credit-utilization ratio and the total amount of debt you have, are available on your credit report and can be accessed through other financial documents, but the actual formula that is used to devise this three-digit assessment is a well-kept secret. FICO is one of the most common credit score models, but there are others such as VantageScore as well.
Not all life factors are assessed in your report
There are a number of items from your credit report that are used to compose your score, but some will not be factored in. For instance, age will have no value on your score. Whether you're starting college at 18 or retiring at 60, you won't have to worry about your age playing any part in this process. A few other things that aren't part of the calculation are your marital status, religion, race, gender, salary and occupation.
The FCRA limits who can see the information on your report
Legally, you are protected from showing your credit report under the Fair Credit Reporting Act. Third parties will need written permission from you to check your report. This can assist you in making sure you don't have any hard inquires on your report, which would result in your score dropping down a few points. But be forewarned, as some entities can access your report with or without permission, including:
- Collection agencies
- Insurance companies
- Credit card issuers
- Child support agencies
- Government organizations
Keep in mind that if you have a good score and your report does not have any bad marks, such as a collection or bankruptcy,showing it to a landlord or possible employer could help your situation.
Your report is free to check, but your score is not
Under the FCRA, you are allowed a free credit report from each of the major credit bureaus – Experian, Equifax and TransUnion – once a year. You will have to pay for your credit score, however.
Closing accounts hurts your score
After paying off one of your accounts, you may think you can close it and you won't have to worry about it anymore. But doing this will actually hurt your score more than help it. Closing down an account can cause your credit-utilization ratio to rise and score to drop.