11 Facts About Credit You May Not Know

1. Checking Your Credit Won't Hurt Your Score

You can check your credit report and credit scores without worrying about hurting your credit.

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 of a single hard inquiry is minor, usually less than five points—and they stay on your reports for up to two years.

Checking your own credit report results in what's called 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.

Learn more: Does Checking My Credit Lower My Score?

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 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.

Learn more: Credit Score Basics: Everything You Need to Know

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 line. 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 (or high utilization ratio) that could hurt your credit score.

Learn more: What Affects Your Credit Scores?

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 can use your credit reports to help them make hiring decisions (with your written consent).
• Insurance companies can use your credit reports to help them determine your premiums; in states where it's allowed, they may even use separate credit-based insurance scores in their decisions.

Learn more: Why Is Credit Important?

6. You May Have Dozens (or Hundreds) of Credit Scores

You might have heard of the FICO^® Score^Θ and VantageScore^® credit scores—the main two companies that develop consumer credit scoring 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.

Learn more: Why Are My Credit Scores Different?

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.

Learn more: Ways to Build Credit if You Have No Credit History

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 you have the right to 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, and you could see an immediate increase to your credit scores powered by Experian data.

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.

11. Credit Scores Have Been Around Since 1841

Living in today's credit-driven economy, in which the tech and algorithms used to calculate borrower risk rapidly evolve, you might get the impression that credit is an invention of the modern world. In reality, credit has a long history dating back to before the 1900s.

Early Credit Reporting

The first standardized method for evaluating creditworthiness was invented in 1841 by the Mercantile Agency. Back then, borrower information was gathered and interpreted in a subjective way, which led inevitably to biased lending practices. Fortunately, credit scoring has come a long way, moving through history toward more objective metrics.

In 1958, data company Fair, Isaac and Co. (known today as FICO) built its first credit scoring model. Then, in 1989, FICO^® Scores began to be used by lenders to predict risk and evaluate borrowers.

Credit Scores Now

Today, 90% of top lenders use FICO^® Scores to evaluate potential borrowers' creditworthiness. That means that, when you apply for a loan, the lender is likely to use your FICO^® Score as part of their decision. Today's FICO^® Scores are calculated using the following information from your credit report:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10%

Learn more: What Is a FICO^® Score, and Why Is It Important?

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 FICO^® Score. You can sign up for free credit monitoring to stay on top of changes to your credit. 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.