If you've ever wondered about your credit score, you're not alone. ZILLOW OPULATIONS SCIENCE shows that the average American knows only two things about credit scores. This gap exists across all age groups. Boomers and Generation X'ers knew less about credit than the Gen Z's. For the answers to the most frequent questions regarding credit scores, read on.
Common questions regarding credit scores
Your credit score can make a big difference when applying for loans, apartments, and jobs. If you want to reach your financial goals, it's essential to understand what credit score means. Credit scores are determined by several factors, including your credit utilization, payment history, and debt. Your credit score tells lenders how likely your future repayments on borrowed funds will be.
How to calculate your score
Lenders use your credit score to determine if you are a risky borrower. It can range between 300 and 850. This score tells lenders whether or not you will be able repay loans. Your credit history can have an impact on your score, so make sure to keep it up to date.
Soft inquiry vs. hard inquiry
There are two types in your credit report: a difficult inquiry and soft inquiry. Each type of inquiry has a different impact on your credit score. When you apply for a loan such as a car loan or student loan, a hard inquiry is made. Depending on your credit history and credit score, a hard inquire can reduce your credit score anywhere from zero to five percentage points. This means that it's important to avoid making new applications for credit if you don't need to.
Impact of hard inquiry upon your credit score
Hard inquiries are made on your credit reports when you apply for a loan. Hard inquiries indicate to potential lenders that you are actively seeking credit. This will impact your credit score, as it will be listed on your report, regardless if the application is accepted or denied. Hard inquiries indicate that you have had credit requests in the past two years.
Credit score improvement
Paying your bills on time is a key aspect of maintaining good credit. Late payments can negatively impact your credit score. The amount of payments you make is more than 30% of credit score. You can avoid falling prey to the temptation to neglect to pay by setting up automatic payments.
Before applying for a loan, it is important to know your credit score
Because credit scores can affect loan applications, it is essential to understand your credit score. It provides information about how you manage your finances. Many lenders use your credit score to determine how you will repay your loan. However, your credit score is only part of the equation. Lenders can also consider your income which can impact your score. You can avoid being taken advantage by red flags by regularly reviewing your credit score.