Credit scores are honestly one of the most important things in the personal finance space that people don’t fully seem to understand. Your credit can affect your entire financial future and they start being calculated at the age of 18! Who understands anything at the age of 18?

We aren’t taught a ton about how to handle our personal finance in high school, so the fact that decisions we make at 18 can affect our lives for years is a little crazy!

I decided to write this post of 7 super important questions that a lot of people don’t understand about credit, and answered them! I really hope this post can teach you something and if you want to save this post for future reference, save it to Pinterest!

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7 Things You Should Know About Credit Scores

#1 – What is a credit score and why is it important?

A credit score is a number that takes into account all of your historical credit (both positive and negative) and shows possible lenders whether or not you’re a risk to lend money to! So basically, it shows them whether or not you’re likely to pay them back the money you owe!

You credit score is super important because any lender you ask for money is going to have the opportunity to see it. If a lender thinks you may default on a loan, they will give you a higher interest rate so they can squeeze money out of you while they have the opportunity. A bad credit score can really cost you money.

#2 – Who can see my credit score?

You credit score is seen by any company that you ask for money. This could include credit card companies, car companies, mortgage firms, and more. It’s calculated by Equifax and Transunion separately and they also do some minor monitoring of your credit score as well.

When a lender checks your credit score, it’s considered a hard inquiry and can actually decrease your credit score by a few points. This is why you should try and not ask for too much credit close together because it can seriously impact your score. There are also companies like Credit Sesame where you can see your own credit score for free, and this is only considered a soft inquiry and won’t hurt your score.

#3 – Does my income impact my credit score?

The amount of money you make will not affect your credit score directly, but your income can be used by lenders to determine if you’ll be approved for a loan to begin with. You credit score is based on your ability to spend and use money intelligently, but it has nothing to do with how much money you have/make. A person with a yearly income of $100,000 can easily have the same credit score as someone who makes $25,000. It all depends on how you use your money.

These is one small percentage of your credit score that may be slightly impacted by the amount of money you make, and that’s your debt-to-income ratio. This means that if you have doubled the amount of debt that you have compared to the amount of money you make, the score will be hurt.

• Related Post: How to Increase Your Credit Score 100+ Points

#4 – Should I Close Old Credit Card Accounts That I No Longer Use?

The answer to this question depends on the account’s history. If your balance on the card is now 0 and you’ve never missed a payment, keep the card open! There’s a part of your credit score that’s called your length of credit history. This section takes into account how long you’ve been utilizing credit, so the longer you have accounts open, the better your credit will be.

On the other hand, if you have a history of making payments on that card late or missing them all together, close it. It won’t fully erase all negative actions caused by this card, but it can help a little.

One important thing to keep in mind is that the more credit you have available to you, the lower your credit utilization will be. This means if you have a ton of credit available to you, but you only use some of it, your credit score will improve. If you keep you accounts open and are at least active a little bit, you can increase your score.

#5 – Why is my credit score different on different websites?

There are a few different websites out there where you can find your credit score without performing a hard inquiry. If you’ve checked a couple places you can usually see that the score is off by a few points.

This happens because different companies use different credit reporting companies to get your score, and these different companies use slightly different algorithms to apply weights to the five different sections of your score. Once a year, you can get a free credit report from Transunion and that’s the number you should give the most weight to. Don’t worry too much about a slight variance in scores.

#6 – How Long Will a Negative Item Stay on My Credit Report?

A negative item will stay on your credit report for 7 years. I really like this amount of time because it’s also the amount of time that it takes for the cells in your body to regenerate. It’s like every 7 years you get to be a whole different person, both physically and financially.

This means that a financial mistake you make at 23 will only affect you until 30, which isn’t too much time. At least it won’t follow you forever. The only item that stays on an account longer than 7 years is if you file for bankruptcy. In that case, you’ll be stuck with it for at least 10 years.

#7 – What Category Impacts My Score The Most?

The category of your credit score that impacts it the most is your payment history. This means that the best way to keep your credit score consistent is by making sure you make at least the minimum payment every single month. The second you start missing payments, your credit score will drop super fast!

Final Thoughts

Credit scores and credit scores don’t have to be confusing. With a little help (from me?), we can work through this and get you to that coveted 800+ credit score club. The only real way I can continue to help you with your finances, is if you subscribe to my email newsletter (duh)!

I really hope I’ve been able to clear some things up for you and answer some of the most important questions about credit scores. If you learned something new let me know in the comments, if you have any questions, ask them and I’ll get back to you as soon as possible.