The world of credit reports and scores can sometimes be a lot to unpack, but understanding its complexities can help you better prepare yourself for some of life's major milestones. Here are 10 facts about credit that many people don't know—a few of these might help you improve your credit score.
1. Checking Your Credit Won't Hurt Your Score
You can check your credit reports and scores without worrying about hurting your credit scores.
When you apply for a new credit account, however, creditors generally request a copy of your credit reports. When they do, a record of the request (called a hard inquiry) gets added to the report. Hard inquiries can hurt your credit score—although the impact is often minor—and they stay on your reports for up to two years.
Checking your own credit report results in what's labeled a soft inquiry. These inquiries don't affect your credit scores at all. Similarly, report requests for non-lending reasons typically result in a soft rather than a hard inquiry.
2. Late Payments Only Impact You Once You're 30 Days Late
A late payment can hurt your credit score, and the damage could be pretty significant—especially if you currently have a good to excellent score. Late payments stay on your credit reports for up to seven years. However, missing your due date won't immediately impact your credit score: Your payment has to be at least 30 days past the due date before your creditor can report it as late to the credit bureaus.
But that doesn't mean there won't be other consequences. You could be charged a late payment fee and lose benefits (such as a promotional interest rate) as soon as you miss the due date.
3. Carrying a Credit Card Balance Won't Help Your Credit
Actively using your credit card and having your credit card issuer report your balance and on-time payment to the credit bureaus can help your credit score. This is especially the case if you have a low credit utilization ratio—when you're only using a small portion of your credit card's credit limit. However, you don't need to carry a balance from month to month or pay interest to see a positive effect on your credit score. Simply using your credit card regularly and paying the balance in full each month can boost your score.
Just keep in mind that your credit utilization ratio depends on your credit limit and balance as they appear in your credit reports. Credit card issuers tend to report your card's credit limit and balance around the end of each statement period, which is often about three weeks before your bill is due. That means that even if you pay off your balance each month, your credit report may still show a utilization ratio above 0% depending on when you make your payment.
4. Paying Down Credit Card Balances Early Might Help Your Scores
You might want to frequently use your credit card to finance purchases and earn rewards, but a high credit utilization ratio can hurt your credit scores. Based on what you learned about the timing of credit card reporting, you know that credit card issuers usually report your balance at the end of your statement period. So, if you pay down your balance early, you can get a lot of reward without having a high balance (and high utilization ratio) that could hurt your credit score.
5. Your Credit Can Impact More Than Credit Cards and Loans
Credit card issuers and lenders often use credit reports and scores, but your credit can be important even if you're not taking out a loan. For example, landlords might check your credit before offering you a rental. In some states, employers and insurance companies can also use your credit reports to help them make decisions or determine your premiums. Insurance companies may even use separate credit-based insurance scores in their decisions.
6. You May Have Dozens (or Hundreds) of Credit Scores
You might have heard of the FICO® Score☉ and VantageScore® —the main two companies that develop consumer credit score models. FICO and VantageScore have multiple versions of their credit scores, and FICO even has different versions for various types of credit, including loans and credit cards. Fortunately, the actions you take to improve one of your credit scores will tend to improve all your scores.
Each scoring model also scores one of your credit reports from either Experian, TransUnion or Equifax, the three national consumer credit reporting companies. And it's common for your credit reports to have some differences—since creditors are not required to report accounts to all three credit bureaus—which can result in the same model generating different scores for each report.
7. Some People Aren't Scoreable
Credit scoring models require a minimum amount of data to score someone. For instance, FICO Scores may require someone to have an account that is at least six months old and have activity in their credit report during the previous six months. VantageScore only requires an account and activity—even if it's only a month old—in a credit report to score someone.
People who don't have a credit report or who don't have enough information in their report to generate a score are sometimes called credit invisible or unscoreable. If you're not scoreable because you've never used credit, or haven't used it in a while, you can take steps to establish credit and build your credit.
8. You Can Add Information to Your Credit Reports
Most of the information in your credit reports comes from creditors and collection agencies reporting data to the bureaus. You don't have control over this, although you can review your credit reports and dispute information you believe to be incorrect.
But you can also use tools to add new positive information to your credit report. For example, you can use Experian Boost®ø to add eligible rent, utility and select streaming services payments to your Experian credit report. Credit scoring companies can then take this information into account when calculating credit scores based on your Experian report.
9. Creditors Can Choose Which Credit Scores to Use
Creditors can choose to use whichever credit scoring model they prefer, and you won't necessarily know which scoring model they'll use to evaluate your application. They could even use multiple credit scores in combination, and some creditors develop their own proprietary scoring models.
A custom score might help creditors more accurately assess risk. These custom scores may also be able to score consumers that aren't scorable by conventional models.
10. Companies Are Using AI to Build New Credit Scores
Credit scoring companies and creditors are using artificial intelligence and machine learning (a type of AI) to help them create new scoring models. The advanced technology, combined with access to large amounts of data, can help score developers uncover more accurate ways of determining risk.
The resulting credit score models need to comply with the Fair Credit Reporting Act if creditors want to use them to approve or deny credit applications, and creditors need to be able to prove their lending practices aren't discriminatory against protected groups. With this in mind, the score developers have to figure out a way to use AI to create scores that can be fully explained—lenders can't rely on machines making a yes or no decision just because.
Monitor Your Credit for Free
You know checking your credit won't hurt your credit score, but did you know you can also check your credit for free? Experian gives you free access to your Experian credit report and a FICO® Score 8 based on your report. Your report and score get updated monthly, and you'll also receive free credit report and score tracking with immediate notifications for any unusual or suspicious changes.