Misinformation about credit reports, credit scores and other consumer credit issues can cause people to unwittingly mismanage their finances. People who want to raise their credit scores or apply for credit cards and loans need to understand how various actions impact their credit histories and the way creditors and lenders view their creditworthiness.
How Do Creditors Decide Whether to Approve a Credit Application?
Creditors try to determine how risky it would be to extend credit to an applicant. They review credit reports to evaluate how you manage the debts you already have. Creditors pay particular attention to whether you have made credit card and loan payments on time. They also consider whether you've had a stable work history based on the employment information you list on your application. The total amount of debt you already have is important as well. Your application may be rejected if you're using all of your available credit because the creditor is concerned you're taking on more debt than you can afford to repay.
How Many Credit Scores Do I Have?
A credit score is calculated based on the information in your credit file at credit-reporting companies. The score is impacted by many factors, such as whether you pay your accounts late or whether one of your debts has been turned over to a collection agency. Your files at credit bureaus usually don't contain the same information. That's partly because some creditors only report information about your accounts to one or two credit bureaus. Therefore, consumers can have several different credit scores. According to the Experian credit-reporting company, creditors and lenders may use as many as 1,000 different scores, although some are used more frequently than others.
Do Inquiries in My Credit Files Affect My Credit Scores?
An inquiry is a notation in your credit files that indicates a creditor or lender asked to see information in your files. According to Experian, inquiries have a small impact on consumers' credit scores, since they usually aren't the main reason a person has a poor credit score. Inquiries take on more significance if other information is lowering a person's score, such as large amounts of debt or delinquent accounts. Inquiries that are added to your credit files when you or an employer request a copy of your credit reports aren't seen by creditors and don't affect your credit scores.
Can I Have Too Many Credit Cards?
You probably have too many credit cards if you're having trouble paying your debts. A 2008 Bankrate article titled "4 Burning Questions About Credit Scores" says the average number of credit cards per cardholder in the United States is 9.5. It's debatable whether having so many cards is a problem. People who can't avoid maxing out their credit cards probably shouldn't have more than one or two because using up all of the available credit on a card can negatively impact credit scores. Cardholders who keep their credit card balances low and pay them off every month likely won't have a problem handling multiple cards.
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