How Much Do You Know About Your Credit Score?

It’s true, we can get a little obsessed with our credit score. As it turns out we may not know as much about our scores as we should. According to a recent survey, 48 percent of people believe, that age and marital status play a role in their score. Which is incorrect.

Here’s a guide to the truths behind the myths.

You Only Have One Credit Score

• The Big Three. There are three main credit bureaus (Equifax, TransUnion, and Experian) each with credit scores based on the data in their credit reports. FICO uses the data from the bureaus to generate your FICO score.
• VantageScore. You may have another credit score known as a VantageScore. VantageScore was developed by the three bureaus as an alternative to FICO and is used by many lenders and financial institutions as part of their lending process.

Many large credit card issuers have developed their own customized scoring models with a combination of scores and criteria. It’s important to understand that the score you get from a credit card company or a credit monitoring tool may vary slightly.

Tip: The best thing to do is get a free credit score to gain an understanding of how a lender might interpret your creditworthiness.

Score Doesn’t Affect Your Payments

Credit reports and score data help lenders assess risk. The higher the score, the lower the risk or likelihood of delinquent payments. The lower the score, the higher the likelihood of potential delinquency. This is used to set the terms of an account, such as the interest rate.

Score Doesn’t Affect Other Areas of Financial Life

Most people know that mortgage lenders and credit card companies use their scores to assess creditworthiness. But you may not realize that some landlords, utility, and even cellphone companies may use your scores to determine payments, or whether or not to do business with you at all.

Carrying a Balance Helps Your Score

More than 1 in 5 credit card users, or 43 million Americans, carry a balance – or pay just the minimum payment, thinking it’ll help improve their credit scores.

Carrying a balance is not one of the factors that go into creating a credit score. Lenders that check your credit report can see the utilization reported by your credit card issuer — and whether or not you pay your bills on time. But they don’t know whether you carry a balance month-to-month or whether you pay it in full.

Instead of carrying a balance do the following:

• Focus on credit utilization.
• Lower your credit card balances.

Missed or late payments and defaults take a while to recover from, but lowering balances can impact your score relatively quickly.

A Bad Score is a Reason to Panic

It’s not the end of the world if your score is low. With some work, your score can improve over time. And if you need a loan now, you can compensate for having a low score by increasing your down payment on some installment accounts. And many lenders offer different terms to compete for your business, so shop around.

Boosting Your Credit Takes a Long Time

If you’re actively working to improve your score, it won’t take forever. By applying the following good credit principles you should see improvement relatively quickly (6-12 months):

• Pay on time, consistently.
• Lower your credit utilization, below 30% if possible.
• Apply for new credit sparingly.
• Don’t close old paid-off credit accounts.
• Review your credit report regularly for accuracy.
• Dispute credit report inaccuracies immediately.

If you keep it up, over an 18 – 24 month period, you should be even closer to your credit score goals.