Your credit score is an importantpartof yourfinanciallife.Agood score can help you qualify for the best credit cards(like the one with the travel perks you’ve been eyeing)and get the best rates on things likea personal loan,a carloan oramortgage. Insurancecompaniesand landlordsmay check it to ensure that you are fiscally responsible.
So,howmuchdoyou know about credit scores? Take this quiz to find out how youstack up.The answers mightevenhelp you improve your score.
1. True or false: You only have one credit score.
A. True
B. False
2. Having multiple kinds of credit,such ascredit cards,personal loans, auto loans, mortgagesand/orstudent loanswill
A. hurt your credit score.
B. improve your credit score.
C. not impact your credit score in any way.
D. give you a headache.
3. True or False: Maxing out your credit card won’t hurt your scoreaslong asyou make your payments on time.
A. True
B. False
4. Canceling an old credit card
A. could hurt your credit score.
B. will improve your credit score.
C. has no impact on your creditscore.
D. is something you should always doafter you pay off a card.
5. A bankruptcy no longerimpactsyour creditscoreafter
A. 8years.
B. 5years.
C. 7years.
D. 10years.
6. True or False: Checking your own credit score or credit report will hurt your credit.
A. True
B. False
7. Applying fora number ofloans or credit cards
A. willhurt your credit scoreif you do it in a short period of time.
B. willhave no impact on your credit score.
C. willnot hurt your credit score as longsoyou don’t apply forlots of different types of credit in a short timeframe.
D. could hurt your credit score dependingon what types of credit you apply for and when you apply for it.
Ready to take the next step? A financial advisor can show you how all the pieces of your financial plan fit together.
SO HOW DID YOU DO?HERE ARE THE ANSWERS:
1. True or false: You only have one credit score.
A. True
B. False
Answer:B – False
It’s commonly thought that everyone has just one credit score, but that’s incorrect. You are probably familiar with yourFICO score, which is the oneabout90percentof lenders check. The second most common isVantageScore, which was created by the three national credit bureaus, Equifax, Experian and TransUnion, in 2006. In addition, eachof thesethreeagenciescan have slightly different information on your credit history, which can cause discrepancies in how your score is calculated. There are also multiple creditors and services thatuse the agencies’ data but mayinternallycalculatecredit scores differently.
2. Having multiple kinds of credit,such ascredit cards,personal loans, auto loans, mortgagesand/orstudent loanswill
A. hurt your credit score.
B. improve your credit score.
C. not impact your credit score in any way.
D. give you a headache.
Answer: B – improve your credit score.
Whilebalancing all this maygive you an occasional(andhopefully,short-lived)headache, it will be worth it for the boost in your credit score.One of the criteria used to calculate your FICO score is your credit mix. This factor counts for 10 percent of your score. It’s deemed important because it shows creditors your ability to handle making payments on multiple types of credit accounts at the same time.
3. True or False: Maxing out your credit card won’t hurt your scoreaslong asyou make your payments on time.
A. True
B. False
Answer: B
The amount you owe accounts for 30 percent of your total FICO score. This category looks not just at how much you owe in total but also at how much of your available credit you’re using. Ideally, your credit utilization should stay below 30 percent. For example, if you have one credit card with a $10,000 credit limit, you should try not to charge more than $3,000 on your card per month. If you do carry a higher balance on your card, you might appear to be struggling financially—and that makes you a bigger risk.
4. Canceling an old credit card
A. could hurt your credit score.
B. will improve your credit score.
C. has no impact on your creditscore.
D. is something you should always doafter you pay off a card.
Answer: A – could hurt your credit score.
Canceling an old credit cardwould likely dingyour credit scorefor several reasons. First,the length of your credit history makes up 15 percent of your total FICO score. If you cancel an older account, it no longer shows upin your credithistorysoyou lose thispositivemetric.Second,it willlower your amount of available credit,thus increasing your credit utilization ratio,which (as mentioned above)should stay below 30 percent.Third, youcould also lose points if you had a stellar payment history on that account. Since your payment history accounts for 35percentof your score,havingan account in good standing disappearcould have asignificantlynegative impactyour credit score.
5. A bankruptcy no longerimpactsyour creditscoreafter
A. 8years.
B. 5years.
C. 7years.
D. 10years.
AnswerE–Both C and D
If you declared bankruptcy, you won’t have to suffer under the weight of having taken this action forever. After seven years, late payments, collections and Chapter 13 bankruptcies(a reorganization bankruptcy, where you can keep your assets)will no longer appear on your credit report andwillcease to affect your credit score.ButChapter7 bankruptcies (known as liquidation bankruptcies, where your assets are liquidated and sold)will stay on your credit report for 10 years.
6. True or False: Checking your own credit score or credit report will hurt your credit.
A. True
B. False
Answer: B– False
Checking your own credit score is considered a soft credit check and will not impact your score in any way. You can check your FICO score by paying to access it onFICO’s website. There are alsoa number ofdifferent banks and credit card issuersthatgive youfreeaccess to your credit score if you’re a customer. But you cancheck your credit report for free once a yearfrom all three credit bureaus. It’s easy to do and gives you an opportunity to see if there are any mistakes on your report.
7. Applying fora number ofloans or credit cards
A. willhurt your credit scoreif you do it in a short period of time.
B. willhave no impact on your credit score.
C. willnot hurt your credit score as longsoyou don’t apply forlots of different types of credit in a short timeframe.
D. could hurt your credit score dependingon what types of credit you apply for and when you apply for it.
Answer: D–could hurt your credit score depending on what types of credit you apply for and when you apply.
Applying for any type of credit typically results in what is called a hard credit check. However, how much this will harm your credit score will depend both on what types of credit you’re applying for and the timeline of your applications. For credit cards, every separate applicationwill likely loweryour credit score. But if you’re applying for a loan oramortgage and shopping around for rates, it will count as just one credit inquiry if you makeall ofthose applications within a 30-day period.
How manyquestionsdid you get right? Congratulations if you answered most of them correctly! If you didn’t, learning more about financial basics could help you improve your scoreand help youqualify for better rates.Go herefor more articles aboutways toimprove your credit.
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