The Top 5 Things That No One EVER Tells You About Your Credit Score But You MUST KNOW!
Know Your Credit Part 2: One of the most frustrating things that I encountered while trying to understand my credit score was attempting to piece together all the scattered information on the subject. It is impossible to go to one place and get all the information you need, caveats and side notes included. The confusion led me to some poor financial decisions. Being that I do not want you to face the same difficulties I will create a string of blog post, that if followed in order will give you a complete understanding of credit scores in snack sized bits. All so you can digest it without being overwhelmed. At the end you will be the expert and run me out of town.
- Hard Inquiries: A Necessary Evil
Here is a fun exercise, ask people what they think about hard inquiries. You will probably hear a few that will make them seem like the equivalent to a serial killer for your Credit Score. *Cue the scary music* But are hard inquiries really that evil? Well, it really depends.
It is important to note that applying for most credit lines (e.g. credit cards, auto loans, mortgages etc.), will result in a hard inquiry. That’s because a hard inquiry allows entities to obtain your records and see your full financial history. This information includes but is not limited to: when you asked to open a credit line, how many times, for what reason, how many are currently open, your debt, on and on and on…
Hard inquiries also deter the opening of new credit lines by sometimes dropping your credit score. For the most part you could lose 5–10 points, which in reality is not much. However, many times the “loss” of points is more than covered with the addition of a credit limit. That’s because credit usage composes 30% of your calculated score.
That doesn’t sound that bad right? So now you can open up tabs and apply to all the credit cards out there. ERRRRRRHHHH! Wrong.
Hard inquiries, while only affecting your score by a few points do become a problem in excess. Some institutions will automatically deny your request for a credit line if they believe you have too many hard inquiries. Yes, even if you have a “Good” credit score or better. For example, Chase Bank is said to have a 5/24 rule which states that if you open more than 5 credit cards in 24 months, you will automatically be denied for most of their financial products.
With all that being said, yes hard inquiries will negatively affect your credit score by a few points. No, it’s not the end of the world. They are needed to start any health credit history, but you must be selective about what hard inquiries you want on your report.
2. Soft Inquires: Should You Worry?
This has to be one of the top asked questions about credit scores. Does checking my credit score negatively affect it? The answer: No.
Many people think that checking their credit score is a hard inquiry however, that’s not the case. Institutions are able to obtain your information through Soft Inquires. That’s how companies like Credit Karma are able to give you your credit score. Ever wonder why you are getting all those credit card offers in the mail? The loan offers? They all have most of your information and they get it through soft inquiries. So go ahead, open up the Credit Karma account or any other SAFE account that provides you with your credit info.
3. You have the RIGHT to know your credit score for FREE
If you don’t want to open up an account to check your credit information through soft inquiries, you have the right to get a free credit report from the top three credit bureau for free! One from each bureau annually. This becomes especially useful when you are looking to borrow money because it gives you the most accurate information. It is best to get one report every four months in order to have your accurate info given to you throughout the year. To get these reports visit www.annualcreditreport.com. This is the only website recommended by the government to access your full reports.
4. Credit History: Gugu Gaga Weighs Heavy
I recently went to a dealership to buy a car I was in deep need of. First of all, I HATE car dealerships. Used car sells folks don’t have the best reputation for a reason, but I digress. Anyway, as a way to confront the B.S. I prepared. I knew what I wanted, I knew my budget, I made sure my credit score was excellent. I was gearing up for war and determined not to lose.
After haggling with them, showing them that I was not there to be pushed around we got to the part where we had to sign off on the loan. They said, you have a really good credit score, but its “light.” My credit history was a little more than 2 years old. The result? A whopping 9% interest rate on the loan. I thought my body was going to explode.
I was so upset! “How?! I have an excellent credit score! How is this possible?!” That day I learned a very valuable lesson, that I hope you will learn after reading this. While your credit history is said to only affect 15% of your credit score, the reality is that’s comes with a big IF. Lenders have underwriters and those folks have their own way of accessing you as a risk. If your credit history average is under five years old you can potentially be hit with high interest on loans unless you get a really good co-signer. When it comes to credit cards you might get denied when all indications show that you shouldn’t. This is the type of thing you cannot avoid. It takes time to build a solid credit score. Therefore, make sure you limit opening up new credit lines and avoid closing old credit lines. When you are starting to create credit history try to get all the new credit lines within your first 2 years; thereafter, avoid frequently opening new credit lines as they will lower your average credit age.
5. “Excuse me sir, your debt called, it says you’re broke?”
Another huge lesson that I learned when trying to get a new car was something that no one, not even the internet really warned me about. The underwriters will heavily way your income to debt level. In other words, how much money do you make verses how much money you owe. This might seem obvious to some but it can be easily over looked. What if you have all your credit cards paid off? You’re good right? NOPE. How about those student loans? Those personal loans? Any other loans? Those monthly payments are going to be heavily considered, so make sure you don’t get blindsided!
Oh, you have a “high” credit score? That’s cute.
My first car buying experiences taught me a whole lot about credit and all the small fine prints that come with it. While having a “good” credit score is a great sign of credit health it is not the end all be all. Make sure you take into consideration that every single institution has their own way of “grading” you.
