Are you part of the 34 percent of Americans that never thought to check your credit score? Or, are you one of the 13 percent too afraid to order the report? No matter the case, credit score confusion is a main contributing factor as to why Americans avoid reviewing their credit reports. In addition to encouraging you to regularly perform a free credit score check, DMV.com researchers reveal 10 things you may not understand about credit scores to shed some light on this important personal finance topic.
1. How to Conduct a Credit Score Report
A reported 40 percent of millennials have no idea how or where to obtain their credit scores. Ordering your credit report is not an intimidating task to fulfill. Thanks to trusted online resources like DMV.com, you can access your free credit score in just a few minutes; from the comfort of your own home, and even from your smartphone. Reviewing your credit score regularly is important, as your financial activity can raise or lower your score. Unlike the complicated, drawn-out processes of our competitors, our simple online credit report form is easy to fill out, and you can check on your credit as often as you’d like without penalty. In addition, we offer customer support to reassure you about the process, just in case you are unsure about filing your request.
2. The Effects of Checking Your Own Credit Score
If you check your own credit, your score will NOT drop. The opposite is a myth! There are two kinds of credit report inquiries: soft inquiries and hard inquiries. Any time you check your personal credit score, you are filing a soft inquiry, and this will not negatively impact your score. In fact, you can check your credit score to your heart’s content, and not a single bad thing will happen. Hard inquiries, however, are made by creditors and may impact your credit score negatively. Ten percent of your credit score is made up of inquiries. If you are planning on meeting with a creditor in the near future, your best option is to run your own credit report, so you can learn your credit range ahead of time without damaging your score.
3. Credit Score Ranges
If you are told you have bad credit, you may have no idea what that means, aside from the implication that you are in financial trouble or close to it. Currently, you can achieve one of five categories of credit, depending on your range:
Excellent: 750 and above
Good: 700 – 749
Fair: 650 – 699
Poor: 550 – 649
Bad: 549 and lower
If you fear your credit is worse than “fair,” request a copy of your credit history so you have solid evidence about your status. Then, consider taking certain steps toward improving your credit score, so you can earn back the financial opportunities you may have lost.
4. The Harms of Delinquency Status
If you choose to neglect your credit, which means not addressing your bills on time or failing to submit your required minimum payments, you will be faulted as “delinquent.” Typically, delinquency is reported to credit card bureaus as soon as two consecutive payments are missed. If you are not worried about delinquency yet, you will be once you receive notice that your credit score has dropped an alarming 125 points. Delinquency status will deter potential creditors from entering into contracts with you, which will make it extremely difficult to request the loans you need. Delinquency is immediately reflected on your most up-to-date credit report, once filed.
5. Closing Existing Accounts Does Not Benefit Your Score
If you have several credit card accounts open, do not close them once you pay off your debts. Contrary to popular belief, closing an existing account will not improve your credit score. Instead, it will damage your credit! Once you close an account, you will lose the credit limit associated. This will hurt your credit utilization rate, especially if you continue to spend heavily and do not have the credit line to support your habits. Instead, once your balance reaches zero, the best course of action is to simply leave your existing account open and forget about it. The last thing you want to do is rack up more charges once you are debt-free.
6. Opening New Accounts Affects Your Credit
There are several disadvantages associated with opening new credit card accounts. First, the hard inquiry made by the creditor will cost you several points. Next, the new card will lower your average credit age, which makes up 15 percent of your credit score. In addition, your credit utilization may rise if you charge a balance that takes up most of your available credit limit. However, you can benefit from opening a new account, so long as you do not make purchases on your other credit cards and adhere to timely payments of the full monthly balance charged to your new account.
7. Beware of Co-Signing
Did you know that co-signing on a loan or opening a joint account can affect your credit score in a negative way? Once you agree to co-sign, you are declaring both legal and financial responsibility, which includes the actions assumed by your partner. For instance, if you co-sign on your relative’s auto loan, and he or she falls behind on payments, both of your credit scores will suffer. Conversely, if you are the one who fails to make your car payments, your co-signer’s credit will undoubtedly drop. Check your credit score for free, and encourage your partner to do so as well, and then have a financial discussion prior to co-signing to help both of you understand what’s in store.
8. You Can Dispute Credit Report Errors
If you run your credit report, receive the results and find that there are any inaccuracies, you have the ability to file a dispute. When the time comes to dispute an error on your report, you can contact the credit bureau or the data furnisher that supplied the false information. However, if the credit bureau needs to cross reference information with the data furnisher, you may experience a delay in results. A dispute overturned may help raise your score.
9. How Medical Debt Affects Credit
If you are in medical debt because you refuse to pay your medical bills, your credit score will take a hit. Once the medical facility sends your due bill(s) to a collection agency, the credit bureau will hear about it. And, the more recent the occurrence is, the more it will impact your credit score. Never dismiss medical debt, as it has the ability to drastically lower your score.
10. Loss of Potential Benefits
Having a low credit score strips you of several financial benefits you would likely have access to with high credit. For example, you will not be able to easily negotiate the terms of a new car lease, a home mortgage or a bank loan. In addition, you will miss out on decent limits and low interest rates on new credit card applications. Furthermore, you will not have access to waived security deposits on certain services and utilities.
If you are unsure of your current credit score, request your credit report prior to attempting any of the above scenarios.