4. What if I know my credit score but I don’t know what the number means?
Considering that credit scores are just three-digit numbers, it’s reasonable to find them confusing at first. “Your FICO® Score can range from 300 to 850,” explains Jeanlys.
Here are all the FICO® ranges: poor: 300–579, fair: 580–669, good: 670–739, very good: 740–799, and exceptional: 800+.
If your score is hovering around 700, it’s important not to get complacent. “It’s important to remember that different lenders have different standards,” Jeanlys says, “so keep building up your score to ensure financial success.”
5. Does having a credit card help or hurt if I’m trying to build credit?
Credit is a bit of a catch-22: You have to use it to prove you can be trusted with it.
“A credit card allows you to establish and build a record of credit usage,” says Jeanlys. If you use the card and pay your bill on time, you’re demonstrating to lenders that you’re financially responsible.
“Paying bills on time is an important factor when it comes to calculating your credit score,” explains Jeanlys. “As such, missing credit card payment deadlines or paying less than the minimum payment requirement can negatively impact your score.”
In short: Credit cards can help you build credit as long as you use them responsibly.
6. I wasn’t happy with my credit score and wanted to improve it. What should I do?
First, be realistic. Improving your credit score takes time, and the best way to rebuild credit is to manage it responsibly. However, there are steps you can start to take immediately, including:
- Paying your bills on time. Payment history is an important factor when it comes to calculating your credit score. So, if you struggle with meeting payment deadlines, it’s time to set up some reminders or enroll in autopay.
- Paying down your debt. Your credit utilization—meaning the size of your card balance—is the second biggest factor. If you’re carrying debt, consider creating a payment plan that prioritizes paying down high-interest debt first.
- Checking your credit report. Remember: Knowledge is power. If you check your credit report regularly, you’ll be in a better position to spot and remedy any errors.
7. I’ve heard that checking your credit score can make it go down. What’s that about?
Yes and no. It comes down to the difference between “soft inquiries” and “hard inquiries.”
Soft inquiries occur when you check your own credit report, when your credit report is checked as part of a background check, or when a financial institution administers a pre-approved credit card/loan offer. Soft inquiries do not negatively affect your credit score.
However, when a lender makes an inquiry (aka a request for your credit report information), there is a small impact on your credit score. These inquiries, which can happen when you apply for new credit or a loan, are called “hard inquiries.” But their impact begins to fade after the first 12 months, and they drop off your credit report completely after two years.
8. If I’m shopping around trying to find the best rate for a mortgage or car loan, is that going to destroy my credit score?
“If you are applying for a mortgage or car loan and ‘rate shopping,’ it’s likely that several lenders will check your score around the same time,” Jeanlys says. “In that case, as long as all the inquiries fall within a 30-day period, they’ll only be treated as one inquiry and won’t have an impact on your score.”
9. How do I know if I have the right credit card for my needs?
You need to think about your current financial situation and goals before you can make the right decision for your needs.
“If you’ve racked up a large balance on a variable rate card, consider transferring that balance to a no-fee, low-or zero-interest credit card that can offer some relief as you pay it off,” Jeanlys explains. “Or, if you plan to travel extensively in the coming year, consider applying for a card that offers travel rewards and allows you to get the most from those purchases.”