15 Facts You Didn't Know About Credit

In today’s world, financial literacy is becoming more important than ever, so knowing the ins and outs of credit can give you a valuable edge. Whether you’re a young adult learning to build credit with your first credit card or a homeowner looking to optimize your financial strategy, understanding how credit works is your golden ticket to success. And while you might think you know everything about credit, there are some surprising facts that could change your perspective. Here are fifteen interesting credit facts you didn’t know!

1. Credit Reports and Credit Scores Are NOT the Same Thing

While both terms are often used interchangeably, they are not the same. Your credit report is a detailed record of your credit history, while your credit score is a three-digit number that represents your creditworthiness. Think of it this way: your credit report is the story, and your credit score is the headline.

2. You Have Multiple Credit Scores

Surprisingly, you don't have just one credit score. You may be familiar with FICO and VantageScore—the primary companies behind credit scores. Both parties keep multiple scores for different types of credit (like loans and credit cards). Luckily, what you do to improve one of your scores typically improves all of them.

Plus, each scoring model pulls from one of the three major credit bureaus: Experian, TransUnion, or Equifax. And since creditors aren’t required to report to all three, your credit reports may contain different information. As a result, you might see varying scores even when using the same scoring model.

3. Checking Your Credit Report Won’t Hurt Your Score

Contrary to popular belief, checking your own credit report does not affect your credit score. This is known as a "soft inquiry," and it is completely harmless. In fact, regularly reviewing your credit report is a good practice for monitoring your financial health and detecting fraud.

4. Opening Too Many Accounts at Once is a Red Flag

While a “soft inquiry” cannot hurt your credit score, a “hard inquiry” can. Applying for several credit accounts during the same timeframe is a bad idea for two reasons. First, each new application results in a hard inquiry on your credit report when potential lenders evaluate your credit. Each hard inquiry lowers your credit score slightly, so triggering too many at once can be very harmful. Second, applying for multiple credit accounts raises concerns for lenders because it suggests that you are taking on more debt than you can handle. As a result, they are less likely to approve your application.

5. You Can Add Rent and Utility Payments to Your Credit Report

Did you know that paying rent and utilities on time can boost your credit? Certain services let you add these payments to your credit report, which showcases your reliability to future lenders. It's a practical way to build credit without assuming additional debt.

6. Countries Have Different Scoring Models

If you have financial ties in other countries, it's important to understand that credit scoring varies globally. Each country employs its own system and standards for determining creditworthiness, meaning a credit score from one country probably doesn’t carry the same weight in another. This can affect your financial decisions abroad.

7. Credit Impacts More Than Credit Cards and Loans

Why does credit matter anyway? Your credit standing plays a role in more than just the obvious—credit card approvals and loans. It also influences rental agreements, insurance premiums, interest rates, and applications for certain services. Maintaining a good score can open doors in many aspects of your life.

8. Potential Employers Can Check Your Credit

For certain positions, especially those involving financial or government duties, employers may check your credit report. They do this to assess your reliability and financial responsibility. But don't worry—only with your permission! And they won't see your credit score, just the report.

9. Lenders Decide Your Creditworthiness, Not Credit Bureaus

While credit bureaus provide the data, it's actually the lenders and creditors who decide your creditworthiness. They use your credit report and score as tools to gauge the risk of lending you money, looking at your financial behavior and reliability. This evaluation process helps determine your credit terms, which affects things like interest rates and loan approvals.

10. You Can Still Get a Loan with Bad Credit

Even if your credit score isn’t where you’d like it to be, all hope is not lost! While having bad credit can make securing a loan more challenging, it's not impossible. Some lenders even specialize in offering loans to individuals with less-than-perfect credit. However, these loans might come with higher interest rates and stricter terms, so be sure to review the costs and terms before making a decision.

11. Income Does NOT Impact Credit Scores

Your salary and income level have no direct impact on your credit score. Instead, your credit score is determined by factors like payment history, credit utilization, and account age (among others). That being said, your income may influence lending decisions because it shows your ability to repay debts.

12. Make Payments Early or More Often

Keeping your credit utilization low is important for a healthy credit score.  Credit utilization is the percentage of your credit card balance compared to your total credit limit. It’s typically calculated at the end of each billing cycle when your credit card issuer reports your balance to the credit bureaus.

A lower ratio—ideally below 30%—is viewed positively by lenders. When you pay your balances early or make extra payments, you ensure that a lower credit utilization ratio is being reported each month, which can improve your credit score.

13. Closing Old Accounts Can Hurt Your Score

It might seem logical to close unused credit accounts, but doing so can actually decrease your credit score. Instead, keeping these accounts open lengthens your credit history and lowers your credit utilization ratio, both of which play a big role calculating your credit score.

14. Mix Up Your Credit Types

A diverse credit mix can positively impact your credit score. That’s because multiple types of credit—such as installment loans and revolving credit—shows lenders that you can handle different financial responsibilities without overextending yourself. Remember, variety is the spice of life!

15. Building Credit is Easier Than You Think!

Building credit doesn't have to be daunting. If you are wondering how to build your credit, tools like a secured credit card can help you start small while safely growing your credit. For example, Academy Bank's Credit Builder Secured Credit Card is specifically designed to help people improve their credit scores. How? First of all, it's easy to qualify because it requires a cash deposit, which becomes your credit limit. This means that individuals with limited or poor credit history can still access credit and start building a positive credit profile. Plus, Academy Bank automatically reports your responsible credit behavior to the three major credit bureaus, helping you get recognized and improve your credit standing!

Get started today and find out why Credit Builder is the best way to build credit!

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