Credit scores are an important part of our financial lives, and while many people know the basics about what goes into calculating them, there are some surprising facts that people may not be aware of. Here are six facts about credit scores that may surprise you:
1. Your credit score can vary depending on the scoring model used. Different credit bureaus may use different scoring models to calculate your credit score, which can result in variations in the score that you receive.
2. Your credit score can impact more than just your ability to get a loan. In addition to affecting loan approvals, credit scores can also impact insurance premiums, rental applications, and even job offers in some cases.
3. Your credit score can be negatively impacted by a variety of factors beyond just missed payments, including the age of your credit accounts, the types of credit you have, and how much of your available credit you are using.
4. Checking your own credit score does not hurt your credit. In fact, it is encouraged to check your credit score regularly to monitor for any changes or errors that may need to be corrected.
There are multiple credit bureaus in America and different scoring models.
5. The three major credit bureaus in America are Experian, TransUnion, and Equifax. They mainly use two main Scoring models: FICO and VantageScore. This means that you may have both VantageScore and FICO scores from each bureau, and lenders can choose which model they’d like to use when evaluating your creditworthiness. It is also possible to have multiple credit scores at the same time from different bureaus. Credit bureaus may have different information on your credit history, resulting in variations in the scores they calculate.A lender may possibly report updates to your credit accounts to different bureaus at different times. So, Equifax and Experian may have different credit information on your respective reports, which could lead to your Experian score differing from your Equifax score.
6. You should be aware of your Auto Score and your Insurance Score. These scores are separate from your traditional credit score and are specifically designed to evaluate your risk as a borrower or policyholder in the context of an auto loan or insurance policy. The Auto Industry Optional Score is a specialized score that is used by the Auto Industry, to look more closely at issues, on your credit report, that is related to your risk of possibly defaulting on your new auto loan. Meanwhile, your Insurance Score is a credit-based score that assesses the likelihood of you filing an insurance claim. Some state laws may not permit insurance companies to use credit-based scores to evaluate you.
7. Your credit score is not a permanent number and can change over time based on your financial behaviors, such as paying off debts, opening new credit accounts, or missing payments. It’s important to remember that while credit scores are an important factor in our financial lives, they are not the only factor, and there are steps you can take to improve your score over time. Some of these steps include paying bills on time, keeping credit card balances low, and limiting the number of new credit applications you make.
Make sure you understand a Credit Card’s Terms and Conditions for usage so you don’t get into a debt trap.
Overall, understanding these surprising facts about credit scores can help you better manage your finances and improve your overall financial health. It’s important to remember that credit scores are just one piece of the puzzle when it comes to your financial well-being, but they can have a significant impact on your financial opportunities and future. So, it’s important to stay informed and take steps to improve your credit score if necessary. Whether it’s paying bills on time, reducing credit card balances, or disputing errors on your credit report, taking proactive steps to improve your credit score can help you achieve your financial goals and secure a stronger financial future.