Credit score 101: what you don’t know can hurt you

| Tedis Baboumian |

Credit score is one of the biggest indicators of financial health. It’s therefore critical to at least have a high-level understanding of your score to get closer to financial freedom. Dovly’s cutting-edge platform can help make a better score a practical reality, but you should still be aware of the basics to help you get on track.Although you’re no doubt aware that having a high credit score is important for loan eligibility, it’s common not to have insight into what exactly determines that score. If this sounds like you, take a moment to test your knowledge against our credit score 101 checklist:

Credit scores and credit reports are not the same thing

We know this might take you by surprise, but no, your credit score is not the same thing as your full credit report. Your credit score is just a numeric summary of your credit report, and it doesn’t tell you everything. And as you might’ve already guessed, a higher credit score typically equals a cleaner credit report.But here’s why you should look at your entire report and not just your score—because it’s what the banks check. The truth is, when banks look at your credit to consider you for a loan, they pull up absolutely everything on your credit report. This tells them every credit card you’ve ever opened, how much debt you’ve accumulated, whether you’ve filed for bankruptcy, and much more. With this in mind, you need to be aware of all the items impacting your score so you can correct any negative items.

You have more than one credit score

You might’ve heard of the FICO® Score, but this isn’t the only credit score you have. In fact, the three major credit bureaus teamed up to create a direct competitor to the FICO Score. This score, known as the VantageScore, calculates your credit differently than FICO. So, to best stay on top of your credit, you need to be checking both.

Your salary doesn’t directly impact your credit score

Sure, a higher salary means more money to pay toward debts, but salary doesn’t directly impact your score. This is because credit bureaus don’t factor your salary into whether you deserve a high score. Your score is impacted by payment history, amounts owed, length of credit history, credit mix, and inquiries.  And don’t worry, even if you have some negative items affecting your score, most blemishes aren’t forever and can be corrected over time.

Having a credit balance can hurt your score

While you’re here, we need to debunk this myth: having a credit balance is not good for your score.  What’s actually good for your score is using your credit card and paying it off on time—not leaving charges there to sit. By letting charges stay on your card, you could be dragging down your score without even realizing it. Alternatively, using your card and promptly paying off the balance shows financial institutions you’re responsible enough to pay back a loan. Take our advice and choose the latter approach. You’ll be thankful later.

Canceling old credit cards might also hurt your score

You might be wondering why canceling an old card would negatively affect you. Fewer cards means fewer charges, right? While this is technically correct, it also decreases your credit limit. All open credit cards contribute to your overall credit limit, whether you use those cards or not. The higher your limit, the easier it is to keep your utilization ratio down. And the lower your ratio, the higher your score. This isn’t to say you should never cancel a credit card, but just keep this in mind before you do.

Dovly can help

You don’t have to be alone when navigating your credit—Dovly is here every step of the way. We bring an intelligent approach to credit, and we automate the process so you don’t even need to think about it. Dovly’s AI credit engine can get you a head-turning credit score with credit (re)building, monitoring, alerts, scores, tips, and tricks – all in one place. Try it risk-free with our free membership tier.

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