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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