Top Credit Score Facts
Harrison Pierce is a writer and a digital nomad, specializing in personal finance with a focus on credit cards. He is a graduate of the University of North Carolina at Chapel Hill with a major in sociology and is currently traveling the world.Read full bio
Credit scores are an important factor in determining one’s financial future, yet most people remain unaware of the specifics behind credit scoring. Did you know that a person’s credit score can reflect more than just their payment history? Factors such as accounts’ diversity, age, and total balances are also considered when creating a credit score. It is also interesting to note that according to Experian, 30% of a credit score is determined by one’s payment history. In contrast, the remaining 70% is related to other factors. Understanding the details behind calculating a credit score can provide vital information for those wishing to improve their rating or maintain a good one.
Here are some of the most interesting credit score facts.
1. Credit reports haven’t always been objective
Early credit reports blurred the lines between objectivity and subjectivity when evaluating a borrower’s financial history. Creditors would provide anecdotal information, often from their encounters with past performance, that did not always reflect the whole picture. For example, a lender might report that a customer was slow to pay but neglected to consider that the customer had been dealing with an emergency. Without any hard evidence to support the remarks in these reports, borrowers were at risk of having their creditworthiness inaccurately judged. Furthermore, any potentially damaging events or trends could become magnified due to this subjectivity. As such, early credit reports provided an inaccurate snapshot of individuals’ credit profiles that did not give lenders sufficient insight into their financial reliability and could be influenced by class, race, and gender.
2. Many were concerned with privacy in early credit reporting
Early credit reporting was highly controversial due to privacy concerns. Privacy advocates argued that these systems gave companies unprecedented access to a person’s data without sufficient transparency and safeguards. They also noted that the data collected by credit bureaus could be easily abused, as it lacked any kind of quality control procedures, such as accuracy checks or dispute resolution mechanisms. Furthermore, critics worried that consumer repayment history would be used for purposes other than loan approval decisions, such as setting insurance rates for homeowners and car owners. Overall, an early version of a credit reporting system lacked the necessary regulations to ensure consumer protection and privacy.
3. Equifax was known to collect sensitive data in early credit reporting
Equifax has a long and storied history of collecting sensitive data for credit reporting, going back to before the turn of the century. They are one of the major credit bureaus that store information about consumers, such as Social Security numbers, birth dates, and address history. For early credit reporting systems, Equifax also requested physical or behavioral characteristics such as hair color, height, weight, and other biometric data points to verify a person’s identity. This intensive collection required significant effort from the consumer and Equifax staff to store and manage the information securely. This approach has become less popular in recent years due to technological advances and improved security solutions. However, Equifax still holds decades’ worth of crucial personal information from people worldwide.
4. The Fair Credit Reporting Act was born after discussions of digitizing credit history
In 1970, America saw the birth of the Fair Credit Reporting Act (FCRA). Fueled by conversations regarding computerizing one’s credit history, this federal law established regulations over who could access a consumer’s credit report. The FCRA also provided workers with many unlawful alternatives regarding how employers screen job applicants and how businesses deal with their current employees. This legislation enabled consumers to get inaccurate information corrected on their reports which prevented prejudice and allowed for fair consideration when competing for loans and financial services. Ultimately, the FCRA helped revolutionize credit reporting in the U.S. and promoted an environment where companies could trust the accuracy of the reports they received.
5. Credit scoring algorithms were created before the credit score itself
Credit scoring algorithms have an interesting and rich history. They were created to help lenders assess a borrower’s creditworthiness well before the use of the credit score became commonplace. Before the development of modern systems, it was tough to evaluate potential borrowers quickly and digitally. Credit scoring algorithms changed this, allowing for nearly instantaneous analysis of borrowers’ history to determine their risk level. These algorithms enabled lenders to be more competitive and reach more borrowers than ever, expanding access to credit for more people. The advancements made by these algorithms are integral to the efficiency of lending today and remain a vital piece in assessing risk and accurately screening borrowers.
6. Everything we know about credit scores today began in 1989
The advent of credit scores in 1989 revolutionized the way lenders considered loan eligibility. By assigning numerical values to everyone’s credit history and assessing this information against predetermined criteria, lenders drastically expedited the approval process and extended credit access to more borrowers. Furthermore, it allowed them to differentiate between high-risk and low-risk consumers, ensuring that each party had a safe and fair financial agreement. As we know them today, credit scores remain a reliable predictor of an individual’s ability and likelihood to repay debt, making them an invaluable tool for lenders.
7. Models for determining a credit score can vary between countries
Credit scoring models are influential in determining an individual loan applicant’s creditworthiness. Depending on the country, these models may differ in methodology and purpose. From a complex U.S. model based on proprietary algorithms to more simple models based on country-specific governance of the banking system, credit scoring models can vary significantly from nation to nation. As such, international banks and other financial institutions need to understand these different approaches when evaluating prospective borrowers from abroad. Moreover, understanding how these differences impact a borrower’s ability to access adequate financing can help businesses better serve global customers and increase their outreach capabilities.
8. 5 factors determine your credit score
In the U.S., your credit score is determined by five different major factors. These include payment history, which reflects how often you pay bills on time or if you have any delinquent debt that needs to be settled; amounts owed, which evaluates how much debt you owe both in total and by credit type; length of credit history – or the number of time lenders can view your credit patterns; new credit, which considers all new loans or lines of credit applied for; and lastly, types of credits used (including mortgages, auto loans, student loans). Each factor weighs differently as part of your overall score, and understanding these items can help provide insight into where to focus when attempting to improve your credit rating.
9. The credit score you have in the U.S. doesn’t matter abroad
Many people in the U.S. worry about their credit score, as it is important for obtaining loans and other credit products at stores and banks. However, when traveling abroad, having a high credit score might not be a priority; knowing your credit score may not even matter. Depending on the country, there are usually different systems to determine what kind of loan or product you may qualify for. Keeping track of your credit score is still essential to good financial management back home, but when you travel abroad, it is important to know that there may be no need to factor it into your overall plans.
10. Hiring managers may prefer candidates with higher credit scores
Having a high credit score is becoming increasingly important in the job market. Many employers consider an individual’s creditworthiness when screening potential hires, particularly when the job requires handling large amounts of money, as that could indicate responsible decision-making. In some cases, employers will even have a required credit score for employment; if the candidate’s score is below this threshold, they generally cannot be hired. While this shows how integral having a good score has become in our economy, it also suggests that other ways to measure financial responsibility should be considered to create a more accessible and equitable job landscape.
11. Your credit report can cost you a job
Applying for a job can be stressful enough, especially when you are counting on a positive outcome. Unfortunately, this process can become even more challenging if your potential employers decide to investigate your credit history. A poor credit score may lead an employer to reject your application, which may be extremely disheartening after having invested so much effort into the job search. It is best to stay vigilant concerning keeping up with payments and credit balances to ensure that your credit doesn’t become a barrier to obtaining any new work opportunities down the line.
12. The success of your relationship may be determined by your credit score
Recent studies show that credit scores may be more indicative of the health of a relationship than previously assumed. Research has shown that higher credit scores predict longer, healthier relationships, whereas lower scores indicate a decreased likelihood of couples staying together. Not only does one’s credit score determine one’s ability to make large purchases and build financial security, but it appears that it also affects intimate relationships. While this correlation is not absolute, it speaks volumes about how much our financial decisions can lead to other outcomes outside of money. Couples should pay close attention to their credit scores while in a relationship, as good habits now could have long-term effects on the success of their partnership.
13. There are around 26 million Americans that don’t have a credit score
It’s important to understand the prevalence of having a low or no credit score in America. A shocking 26 million Americans, about 8% of the population, currently have no credit score due to yet-to-be-established or thin credit histories. People with thin or nonexistent credit scores typically don’t qualify for loans, making it harder to rent apartments and purchase homes. Building a good credit score takes time and responsible financial planning; however, other options, such as alternate lenders providing financing to individuals with thin or no credit, are available. An informed understanding of responsible ways to build one’s credit can help those facing this challenge, allowing them equal opportunities to build a better future.
14. Even if you don’t have a credit score, you may still have credit reports
Contrary to popular belief, having a credit score is not an essential requirement for having credit reports. Credit reports contain important financial information about individuals and are usually used to assess the risk related to loan approval, insurance premiums, etc. Many banks and financial institutions can access your credit report even if you do not have a credit score. They may use this information and additional data points to assess risks associated with potential transactions or agreements. Having credit reports without a credit score can be beneficial in certain cases, such as when a person seeks student loans or needs to prove financial responsibility without borrowing.
15. You have 30 days before a late payment appears on your credit report
Making payments on time is essential to maintaining a healthy credit score, yet sometimes life can be unpredictable. Fortunately, late payments typically don’t appear on your credit report until after they’ve been delinquent for 30 days, giving you ample opportunity to make up missed payments and avoid harm to your credit. Therefore, it’s important to stay in tune with the dates your bills are due so that you can anticipate possible delays or other issues that could negatively affect your credit score.
16. You might be able to boost your credit score by increasing your credit limit
Increasing your credit limit may seem daunting, but it can have many positive effects. A higher credit limit tells potential lenders that you are responsible for larger credit limits, improving your chances of loan approval. Additionally, increasing your credit limit will boost your credit score by reducing the debt utilization ratio or the available revolving credit you use. To make this process even easier, request a higher limit on an existing card so that you don’t have to worry about opening a new account or enduring a hard credit inquiry. Increasing your scores and having more access to available credit can improve economic well-being!
17.You can boost your score by getting a new credit card
Applying for a new credit card can benefit your credit score with careful consideration. When managed responsibly, adding a piece of plastic to your financial portfolio is a great way to diversify your credit mix and help contribute to the growth of your score. Additionally, if you can maintain a low balance on the card and make payments on time and in full, this also increases the impact of this targeted tactic. Ultimately, weigh the pros and cons before taking this step and ensure you can commit to using debt responsibly before moving forward with any decision.
18. Credit scores and credit reports are different
Although people commonly refer to their “credit score” when discussing their credit, it is important to know the difference between a credit score and a credit report. A credit score is a 3-digit number based on information in your credit report, providing lenders with a snapshot of your creditworthiness at that moment. A “credit report” is much more complex; it contains information about your past and current accounts, inquiries from potential lenders, payment history, occupancy status, and more. It’s crucial to check both regularly since changes in either can affect your financial life for years to come.
19. Late payments will eventually fall off your credit report
Missteps with credit can lead to negative items in your credit report that can bring down your credit score and cause lenders to give you unfavorable terms. However, good news exists: These items will eventually come off your report. Most negative items, such as late payments and collection accounts, will stay for seven years before falling off – although bankruptcies can last ten years or more. In some instances, it may be possible to object to incorrect negative information in the report, leading to its faster removal. Even if an item cannot be removed, many consumers find relief in knowing that the issue will eventually become a distant memory.
Learn more: Late Payments on Your Credit Report
20. The vast majority of lenders use your FICO score when making borrowing determinations
A FICO® score is a powerful tool used by 90% of lenders to make borrowing determinations. This number helps lenders decide if they should provide a consumer with debt and what terms should be applied. FICO®, since its establishment in 1989, has continued to improve its algorithm and develop products that accurately project creditworthiness. Having the right FICO® score can give borrowers the ability to access loans and other forms of financing at the best possible terms. To maintain financial stability, it is critical for all borrowers to protect their FICO® scores.
21. You might have more than one credit score
With the current requirements for applications to mortgages, auto loans, and many other types of credit, there is a need to achieve an optimal credit score. To help meet this goal more effectively, some financial institutions have developed multiple models of credit scores that they use in their lending decisions. Multiple credit scores are becoming increasingly common as lenders turn to different criteria when measuring an individual’s creditworthiness. By considering multiple sources and qualities when assessing one’s financial trustworthiness, it is easier for lenders to make wise decisions and ensure that only capable borrowers are given access to funds. As such, having multiple credit scores should not be viewed as strange or wrong; instead, it should be seen as a tool that assists with responsible borrowing practices.
22. On average, US consumers have 4 credit cards
Consumers in the U.S. commonly carry an average of 4 credit cards, giving individuals access to various benefits and convenient payment options. Credit cards can help establish a good credit score to purchase larger items like homes or vehicles. They are also often used for fun activities, such as vacations or experiences with friends and family. Consumers need to make smart decisions about their spending habits when utilizing credit cards – maintaining payments on time, keeping balances low, not taking on more debt than expected, and monitoring their card activity regularly. The better you manage your credit cards, the more they can effectively work in your favor!
23. Your score will put you into one of five categories
Knowing your credit score is an important part of financial health. Understanding the range of a credit score is equally as important as knowing your number. There are a variety of ranges for credit scores, including excellent (750-850), good (700-749), fair (650-699), poor (600-649), and bad (Below 600). Credit scores can be improved with the responsible use of credit. Taking steps such as making on-time payments and maintaining a low balance compared to the maximum available limit can positively affect your score. Knowing the multiple credit score ranges will allow you to make educated choices regarding managing debt and making future financial decisions.
Related: Credit Score Ranges
24. A good credit score can save you thousands
Your credit score is a vital part of your financial health, and it can be used to help you save thousands of dollars. A good credit score tells lenders that you are responsible and reliable when managing your finances, which allows you to access lower interest rates and better borrowing terms. With lower rates, you can receive better deals on large purchases such as a car or home, reducing the total cost significantly. A good credit score could also give discounts on account fees and insurance premiums. By paying attention to your credit score, this three-digit number can have a powerful impact on your financial situation and help you get the most out of every dollar.
Learn more: What is a good credit score?
25. You are always able to check your credit score without hurting your credit
Many people are intimidated by monitoring their credit score, believing it may negatively impact their score and cause their credit to suffer. The truth is that checking your score does not negatively affect your credit – any dip in your score is actually a consequence of prior actions, such as missing payments or exceeding available credit. Allowing yourself to acknowledge your score can give you a better understanding of how various things might be perceived by lenders when you request credit and can help you make improvements if needed. Knowing what’s going on with your credit and taking action, such as paying down any debt or dispute inaccuracies on the report, is an effective way to improve your financial well-being.
Learn more: Does Checking Your Credit Score Lower It?
Building a good credit score is important in managing your finances and achieving long-term financial security. Education about the basics of credit will help you better understand how credit works and how it can affect you and dispel some common misconceptions. A solid understanding of your credit score, what goes into calculating it, and the essential components of a credit report is key to unlocking the impactful benefits good credit can have on your life. From making it easier to get approved for car loans and mortgages to helping ensure lower interest rates on cards used for everyday purchases, having a better understanding of credit is essential to any sound financial plan.
A good credit score is essential for making sure you can buy anything you need and build a secure financial future. Three key things will help your credit score: paying bills on time, using credit responsibly, and regularly monitoring your report. Paying bills promptly is significant. Every time they are paid late, collection agencies take notice, and it lowers your rating significantly. It’s also wise to use the available credit responsibly by only taking out loans that make financial sense and avoiding excessive borrowing. Furthermore, regularly reviewing your report helps you keep an eye out for any errors or discrepancies. Early detection allows for prompt correction before too much damage is done to your score.
Credit scores are integral to any financial profile, reflecting the borrower’s creditworthiness. A good credit score helps define financial freedom as it offers access to more borrowing options, higher loan amounts, and lower interest rates — all of which can add to substantial savings over time. With a better score, you’re more likely to qualify for the best of these opportunities; conversely, a lower score could mean you won’t be granted access to those same options. Not only do banks and lenders check your credit score when determining if they’ll approve a loan, but many landlords also use your credit rating to determine whether or not they’d like to rent their property out to you. A good credit rating is essential for unlocking greater financial security and freedom.
Understanding your credit score is an important step to achieving financial success. A credit score is a three-digit number that gives lenders an understanding of how likely you are to repay the money you borrow. Generally, a higher credit score reflects less risk and indicates that repayment of borrowed funds is more likely. Credit scores range between 300 and 850, with most lenders preferring higher numbers closer to 750+. Building good credit may take some time, but the result will be worth it. Paying bills on time, avoiding too many inquiries on your report, reducing credit card debt, and limiting your use of available credit can all positively affect your overall score.