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Credit Score basics FAQs
Q: Why don't I have a credit score?
A: Credit scoring models cannot generate a
score without sufficient credit information. If you have
little or no credit history, you will probably not have a
credit score available. If you have never had a credit
account, try applying for a retail, gas or secured credit
card to begin your credit history. If you keep your
outstanding debt low and pay your bills on time, before long
you'll receive additional offers for credit. However, you
may want to be cautious and only apply for credit that you
really need.
Q: Who calculates credit scores?
A: When a lender requests your score, it is
calculated by a computer at the lender's location, by a
third-party service provider such as a mortgage reporting
agency, or may be applied at a consumer reporting agency.
The score is one of many pieces of information the lender
may use in evaluating your credit application.
Q: How often do credit scores
change?
A: Your credit score is a fluid number that
changes as your credit report changes. Therefore, any change
to your credit report could impact your score. However, most
credit scores do not change more than 30 points in a
quarter.
Q:What is the range of the
Experian credit score?
A: The Experian credit score ranges from
340 - 820 with a higher score indicating lower risk.
Q:Do creditors and lenders have
access to score factors as well as numeric scores?
A: Yes, and they should relay these factors
to you as to reasons why you did or did not receive
approval.
Q:Will I be penalized for shopping
around for the best interest rate?
A: Credit scores count every
consumer-initiated credit application. Therefore, excessive
applications for credit can adversely affect a score.
However, it is becoming more common for risk score models to
recognize when a consumer is shopping for the best rates and
either ignore inquiries for a specific purpose within a
period of time, or count multiple inquiries for a specific
purpose as only one. This is most common in mortgage and
auto lending. In such cases, shopping around will have
little or no impact on a risk score.
Q:Who ... or what ... decides
if I get my loan?
A: Banks, credit card companies, auto
dealers, retail stores and lenders decide if you get your
loan. Most businesses that issue credit or loans use credit
scores to quickly summarize a consumer's credit history,
saving the need to manually review an applicant's credit
report and providing a better, faster risk decision.
Although many additional factors are used in determining
risk - such as an applicant's income versus the size of the
loan - a credit score is a leading indicator of one's basic
creditworthiness.
Q:Can I use a credit score as
leverage for a lower interest rate when seeking a loan or
line of credit?
A: It is never a bad idea to work with
issuers and lenders to reduce your interest rate. You
definitely have more leverage if a credit score puts you in
the low risk range. However, because there are many
different credit scores, the model used to calculate the
score you obtain, and the score itself, may be different
than the one the lender uses in making its decision. For
instance, you may get a generic credit risk score from
Experian, but an auto lender might use its own custom
scoring model with a different scale, so the numbers won't
be the same but will likely represent a similar level of
risk.
Q:Will most lenders approve a loan
or line of credit if the credit score is equal to or greater
than 720?
A: Criteria for accepting loans vary by
lender. Some lenders will only extend loans to low risk
consumers; others accept loans from consumers with a more
risky credit history. There are many different risk score
models with different scales, so a 720 on one might be good
but a 720 might represent high risk in another risk scoring
system. That is why the number alone is not very helpful. A
lender should be able to describe what the number
represents, whether it is good or bad, and more importantly
provide the risk factor statements that explain what from
your credit history or application most impacted the score
at the time it was calculated.
Q:Do lenders and creditors
look at all three credit reporting agency reports and credit
scores calculated using information from each report before
approving a credit or loan application?
A: Not always. Most mortgage lenders will
look at reports from all three credit reporting agencies and
credit scores calculated using information from each; but
other lenders will use just one agency's report and one
credit score.
Q:Do preapproved offers get
considered as new credit and affect a credit score?
A: No, only applications for credit
initiated by the consumer will affect your score. Inquiries
into your credit for account review purposes as well as
preapproved offers of credit have no effect on credit
scores.
Q:Do finance companies have a
negative impact on a credit score?
A: The presence of a loan finance account
can negatively affect your score because they often carry
high interest rates (which may hamper your ability to
repay), which many lenders view negatively. However, these
accounts, when paid on time can also have a positive affect
on your score (if the loan helps you to make your payments
in a more timely fashion for example).
Q:Does having too many
credit cards affect a credit score?
A: Having too many credit cards with either
high balances or large amounts of credit available can
negatively impact risk scores depending on the overall
credit history.
Q:If my spouse had bad credit
before we were married, will that affect a credit score?
A: If you hold a joint credit account, have
co-signed a loan or have authorized use of another person's
credit, these items could affect a score if they appear on
your credit report. It's important that joint account
holders or authorized users understand that their credit
behavior does affect the other joint account holder or main
account holder.
A credit account held solely in the name of your spouse,
child or any other family member cannot impact your credit
score. However, in community property states, all debt
acquired during a marriage is considered a joint debt,
regardless if the account is joint or in the name of an
individual spouse.
Q: Does
co-signing for a loan affect a credit score?
A: Absolutely. By cosigning, you are
accepting full responsibility for the debt if the other
person does not pay as agreed. A cosigned account will
appear on both your credit history and the other person's.
All loans and credit card accounts that appear on your
credit report will impact credit scores.
Q:Do late payments affect a credit
score?
A: Paying bills on time is generally the
single most important contributor to a good credit score.
Being late on any bill, for any length of time, is a
possible indication of future non-payment of debt and is
almost always viewed negatively by lenders. Any late
payments will remain on your credit report for up to seven
years.
Q:Does renting or leasing a
home affect a credit score in any way?
A: The presence of a real estate loan that
has always been paid on time shows lenders that you have
established a strong credit base, and reflects positively on
your credit responsibility. The lack of a real estate loan
on your credit report does not decrease your score; however,
it generally means that your credit score is not as high as
it could be.
Q:Do inquiries affect a
credit score?
A: Careful study has shown that inquiries
are an indicator of credit risk. Recent inquiries indicate a
person may have outstanding accounts that are not yet part
of the credit report. The more inquiries that appear on a
borrower's credit file, the more likely a borrower may not
be able to pay his or her bills as agreed. However,
inquiries have a relatively small impact on your credit
score. In a credit scoring model, there are other, stronger
indicators of future payment performance, such as past
payment history and use of credit. These indicators can
offset an inquiry. Inquiries are rarely, if ever, the only
reason for poor credit scores or being declined. They only
become significant if there are other issues, such as late
payments or very high debt as compared to income you include
on your credit application.
Q:Does every inquiry affect a
credit score?
A: Credit scores only consider inquiries
initiated by the consumer. These include mortgage
applications, credit card applications and auto loan
applications. Inquiries that don't affect scores include:
requests by you to the consumer reporting agency for your
personal report, lenders using credit information for
account review purposes, lenders using credit information
for "preapproved" credit offers, or inquiries for use in
making employment decisions. Inquiries that don't impact
risk scores are shown only on the credit report you request
directly from Experian.
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