7 Things you Probably Didn’t Know Affected Your Credit Score
All Credit Reports are Not Created Equal — This means that your interest rate is somewhat dependent on whichever credit report your lender uses. This may not sound significant but a few points could mean the difference between being classified from the no credit risk category to the some Credit Risk category or even the default credit risk category. This could mean having several percentage points added to your loan.
Make sure you check which Credit Reporting Agency your lender is using and if you have a better score with another agency, ask the lender to consider that report instead. Depending on the situation, it could be a good idea to switch to a lender who primarily uses a different reporting agency.
Where you got Your Credit Card can Affect Your Credit Score — In the past, your credit score was often calculated by rating credit cards issued through national banks higher than ones listed through local banks or credit unions. Although this calculation is rarely used anymore, some lenders still calculate your score this way. Owning a credit card issued through a local bank or credit union could be hurting your credit score if you end up with a lender using this old fashioned credit score calculation.
The Credit Report you buy may Not be the One Your Lender Sees — When you buy a Credit Report, the score you see is based on a specific calculation by that reporting agency. When a lender looks at your score, they could be using a different calculation and likely a variety of different scores based on calculations associated with specific risks (auto loan score, mortgage score, bankcard score, etc.). So don’t be surprised if the lender replies to your loan request differently than you expected.
There Might Be Errors on Your Credit Report — It is estimated that up to a quarter of consumers are affected by errors on their credit reports each year. Just imagine paying a higher interest rate or not getting approved at all due to an error! To avoid this, make sure to check your credit report at least once a year for errors. You have the right to one free credit report each year from each credit agency. Only you will be willing and able to find the errors so prudence may be your best bet here.
Divorce Doesn’t Apply to Your Credit — Divorce will not automatically separate your joint accounts. Although you might manage your credit responsibly, your credit might be still getting damaged by your ex. When you divorce, you must send letters to each credit agency formally acknowledging your divorce. Even once you have done this, errors are likely still going to be made. Checking your credit reports after a divorce can be vital to avoid costly errors that will drop your credit score.
Credit Repair Companies Don’t Repair Much on Your Credit Report — Although credit repair companies can talk a big talk, most of the time they don’t walk a big walk. Most credit repair companies offer grandiose promises to fix your credit. The reality is they can really only send dispute letters to have items temporarily removed from your report to give you time to address them. However, if you cannot prove the error, the negative items will simply be put back on. Some of the better credit repair companies will negotiate with the creditor for you to make sure you are rewarded on your report for not defaulting on your loan. Although, overall these companies will make bigger promises than they can follow through on.
Your Credit Score can Fluctuate a lot — Your credit score is constantly being updated and your score is partially calculated by factoring in your credit card utilization rate (total card balances/card limit). One day you might have a 30% credit card utilization rate and another day a 70% or 80% credit card utilization rate. This factor can cause your credit score to fluctuate quite a bit. So don’t be alarmed, just make sure you keep your credit card utilization rate to a minimum when seeking larger forms of credit.