25 Surprising Facts About Credit Scores That Could Boost Your Financial Health

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Building a healthy credit score can be highly beneficial. This three-digit number is a sign of your creditworthiness, which many lenders seriously consider when determining your interest rates or extra fees. Credit scores encourage lenders to give borrowers much lower interest rates for mortgages, personal loans, etc., which can significantly reduce the loan’s overall cost. Here are 25 surprising facts about credit scores that could boost your financial health:

Your Payment History is a Big Part of Your Credit Score

Your payment history determines about 25% of your entire credit score. Therefore, you must maintain a good payment history to improve your credit score. This includes making timely debt payments each month for outstanding loans. A late payment can severely damage your credit score, and debts sent to foreclosure or bankruptcy can even do more harm with long-lasting consequences.

The Total Amount You Borrow Affects Your Credit Score

Many people need to be aware that the total amount of borrowed funds and the portion of outstanding balances in your credit can also play an essential role in defining your credit score. This means that your credit utilization ratio, or the amount you borrow using your credit card or other credit accounts, can be used to determine your credit score. Paying off high-balance credit cards on time each month can help boost your credit score and improve your financial health.

About Six Months of Timely Payments Can Improve Your Credit Score

If your credit score has been severely impacted, you must remember that you can take action to improve it over time. However, it can take up to six months of timely payments on all your bills to see a noticeable difference in your credit score. This is important to remember if you plan to take out a large loan like a mortgage. Consider improving your credit score before meeting with lenders to access lower rates and lower costs for the loan.

No Credit History Can Lead to a Low Score

If you have never taken out a loan or used any credit card or account, lenders cannot evaluate your creditworthiness. While many people may think that a lack of credit history can result in a neutral or high score, it can be the opposite. If you plan on taking on a large loan, consider using a credit card or a small loan to create a healthy credit history that lenders can refer to.

Closing Credit Card Accounts Can Lower Your Score

Many people find closing credit card accounts when they are not in use a practical option, especially because the account will remain dormant for a long period. However, depending on the age of your credit card and your credit card limit, doing so can hurt your credit score. It may be more useful to talk to a financial expert to determine what kind of consequences you may see by leaving your account open or closing it.

Your Credit History Accounts for 15% of Your Score

A long credit history can determine how well you manage debt and ensure you meet all your bills on time. This can play an essential role in determining your credit score, with some bureaus of credit score calculation considering the age of your credit accounts. If you want to prove your financial health over time, develop a strategy for adequately managing credit cards throughout adulthood.

Checking Your Credit Score Does Not Do Much Damage

Many people think checking your credit score can damage it, causing it to decrease. However, the soft inquiry that occurs when you check your own score does not impact your overall score. It may be better to regularly monitor your credit score to determine its accuracy and to see what steps you may need to take in case you attempt to increase it for a loan you plan on taking out.

High Incomes Don’t Guarantee High Scores

A common misconception many people have concerning their credit scores is that having a high income can be essential in increasing your credit score. However, this is not true. High incomes can influence your creditworthiness. However, it is not a direct factor when calculating credit scores. Your credit score may still be low if you have a high income but a history of failing to make timely payments on your outstanding debts.

Having a Credit Mix Can Influence Your Credit Score

A good credit mix can indicate how you can successfully manage multiple debts and different credit types at once and can influence your total credit score. Your credit mix can account for about 10% of your total credit score and is an essential factor to consider if you want to improve your credit score. However, you must remember that a credit mix will be beneficial only if you can properly manage it and meet timely payments as required.

Credit Repair Companies Can Help You Improve Your Score

Suppose you are looking to apply for a loan but have yet to have the opportunity to improve your credit score beforehand. In that case, consider using the assistance of credit repair companies. These companies negotiate with your creditors and the credit agencies on your behalf to improve your credit score for a monthly fee. These companies can benefit borrowers who urgently require loans and want to improve their scores before talking to potential lenders.

Increasing Your Credit Line Can Increase Your Score

Another great way to demonstrate your creditworthiness is to have a higher credit line. Consider talking to your credit card company to increase your credit limit, especially if your account is in good standing. This can prove your creditworthiness to lenders and help improve your financial health. However, with a higher credit limit, you must still be wary of how you spend your money to ensure that you continue to maintain healthy credit.

Using Too Much Credit Can Lower Your Score

Credit utilization is an essential factor in determining your credit score. If the ratio of your credit card balances to your credit card limits is too high, your credit score will likely decrease. It is essential to keep a low credit utilization rate, which can occur through lower use of your credit card. This can help you seem more financially secure and signal to lenders that you may be overextended. Your financial health can thus be determined by how much you use your credit cards.

Hard Inquiries Lower Your Credit Score

Every time you apply for a loan or for credit, the lender must conduct a hard inquiry on your credit score, which details your credit history, payment history, and much more. This information can be influential in helping lenders determine your creditworthiness. However, a hard inquiry can also temporarily lower your credit score. This can impact your score only for a short period, and continued good practices from your end can help you recover the health of your credit score.

You Are Entitled to a Free Credit Report Once a Year

If you want to better understand your creditworthiness before applying for a big loan, you can get a free credit report once a year from any of the three major credit bureaus. Checking your credit report is important not only before taking on new debt but also to check for errors or any signs of fraud. This can be very helpful for your financial health as it will ensure that your finances are in order and there are no unexplainable activities.

Carrying Debt Does Not Impact Your Score

Many people believe that carrying a large debt can damage your credit score. However, this is not true. Carrying debt and not keeping up with debt repayments and bills on time can impact your credit score, not the debt itself. You can still have a healthy credit score if you have debt and maintain a good payment history while keeping your credit utilization low. This can indicate your proper financial management skills.

Defaulting on Loans Can Lower Your Score

One of the most important uses of a credit score is to determine your creditworthiness. If you have displayed improper financial management in the past, especially if you have large amounts of loans like student loans or mortgages, you can negatively impact your credit score. Missing payments or defaulting on these loans can severely impact your credit score. However, scores can be improved again over time with prompt payments on these loans.

Credit Scores Can Affect Your Insurance Premiums

While one of the primary uses of credit scores is to determine your creditworthiness when taking out new loans, they can also be used to determine the insurance premiums you receive. Some insurance companies use your credit score to determine auto or home insurance premiums, where lower scores can result in much higher interest rates. This is another crucial reason to remember to maintain a healthy credit score, especially if you want to lower your overall insurance costs.

Good Credit Scores Can Help You Save Money

A good credit score is a sign of good financial health and can be highly influential in determining the future of your finances. Good credit scores can help you receive better rates for different kinds of loans, better terms on credit cards, and even better deals on your housing. The creditworthiness that comes with a good credit score can help you save money in the long run because of the range of benefits that you are likely to qualify for when taking on new credit.

Cosigning on a Loan Can Affect Your Credit Score

If you are considering cosigning on a loan for a loved one, you must remember to consider the impact that consigning can have on your credit score. Your credit score will be directly impacted if the primary borrower has a bad repayment history and behavior. This means that if the primary borrower misses a payment on the loan or defaults on the loan, as a cosigner, your credit score will be impacted and possibly decrease because of their payment behaviors. It is essential to be cautious before agreeing to cosign a loan.

Credit Scores are Not Static

If you have attained a certain number on your credit score, don’t expect the score to remain the same throughout your lifetime. These scores are dynamic and are regularly updated based on your credit activity. A high credit score today does not mean the number will remain the same a month from today. The reverse of this is also true; having a low credit score today means that you can work on your financial health and improve your score over time.

Late Payments Can Stay on Your Report for Several Years

If you have one late payment on your debit or credit card bills, the late payment may be reflected on your credit report for up to seven years. While the impact of the late payment on your actual score can be recovered over a shorter time, the fact that you have a late payment will continue to be reflected for a longer time. This can be an essential point that lenders consider when they undertake a hard inquiry on your credit and discover a late payment.

You May Qualify for a Goodwill Adjustment

Some people can qualify for a goodwill adjustment with a strong repayment history. If you have not been able to keep up with your payments for a month but have displayed a good history of timely payments, you can ask your credit for a goodwill adjustment, where they remove the late repayment from your credit report. While this may not guarantee that the creditor will remove the payment, it can be worth an inquiry as it can play a big role in ensuring a strong credit report.

Credit Scores Can Vary Based on the Model

Different scoring models are commonly used to calculate an individual’s credit score. This includes the FICO and VantageScore models that are commonly used but can reflect slightly different scores based on the calculation model. Your lender may have different preferences for which model they use, which can reflect different scores across different lenders. While the number may vary from model to model, the score’s value may be the same.

Credit Reports May Not Always be Accurate

Credit reports can sometimes carry errors like incorrect addresses and accounts, outdated information, etc. It is, therefore, important to regularly check your credit report to ensure that all your information is in order. This will help you catch and dispute errors if any exist. It is essential to ensure that your credit report carries all the accurate information to reduce the risks of any issues arising when you want to take out loans in the future.

Authorized Users Can Impact Credit Scores

If you are an authorized user of someone else’s credit card, their payment behavior and history can impact your credit score. If these individuals keep up with timely payments each month, your credit score can be positively impacted. However, if these individuals miss out on payments or carry high balances, they could negatively impact their credit score and yours. It is essential to carefully consider all outcomes before becoming an authorized user.

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