Test Your Credit Knowledge

1. How many major credit bureaus are there in the U.S.?

There are approximately 1,900 credit bureaus in the US; however, there are only 3 major bureaus: Equifax, Experian & TransUnion.

2. A credit score is often referred to as a ____________ Score.

A credit score is often referred to as a Fair Isaac’s or FICO Score.

3. Closing a credit card account will raise my Credit Score.

True or False?

FALSE. Closing a credit card account will often lower your available credit, which lowers your ratios and can raise the average age of your trade lines. Older accounts show stability and that you can handle credit wisely.

4. When reviewing credit, an underwriter looks at:

A) An average of your credit scores
B) Your highest credit score
C) Your lowest credit score
D) Your middle credit score

When reviewing credit, a mortgage underwriter looks at:

D) Your middle credit score from Equifax, Experian and Trans Union.

5. Credit scores do not affect insurance rates.

True or False?

FALSE.  Having a low credit score may increase your property & casualty insurance rates (i.e. home & car rates), not your life insurance rates.  P&C Insurance companies consider people with lower scores to be greater insurance risks and more likely to file frivolous insurance claims.  So “if you don’t know insurance, know your insurance agent.”

6. Your credit score is not affected by your income.

True or False?

TRUE. A credit score does not consider income or an individual’s occupation; although a person with a high FICO Score with minimal income, will likely not qualify for a large mortgage or unsecured bank loan.

7. By law, a collection agency (or collector) is required to report a collection account on a credit report for 7 years, then remove it.

True or False?

FALSE. By law, a collection agency can keep on account on a credit report for seven (7) years, however, there is no minimum.

8. Opening a new account (under one year old, with no adverse info) will likely lower your credit score.

True or False?

TRUE. Opening a new account will often lower your credit score and raise the average age of your trade lines. Applying for too many accounts can be a sign of financial problems.  Very few bankers are fired for not making a loan, they are fired for making a bad loan. It is better to raise the credit limit on your revolving accounts than apply for new ones.

9. If you lost your wallet or purse, it is better to lose a debit card rather than a VISA or MasterCard with a high limit.

True or False?

FALSE. If you lost your wallet or purse, it is better to lose a VISA or MasterCard because your liability is limited to $50. With a debit card, you can lose everything in your checking / savings account.

10. My Equifax Credit Score is ______
My Experian Credit Score is ______
My TransUnion Credit Score is ______

You should know all three (3) credit scores since different lending institutions use different credit bureaus to evaluate your credit. It is important to run your own credit report 2 times a year, not only to know your credit scores, but also to monitor activity on your account (such as the opening or closing of credit cards, unauthorized activity, unknown charges, new bank accounts, any past due payments, over the limit, identity theft, etc.)

11. Approximately, how many credit bureaus are in the U.S.?

A) 3 - 4
B) 5 - 10
C) Between 500 & 1,000
D) Over 1,500

D) Over 1,500. There are approximately 1900 credit agencies in the U.S. All purchase their information from the “BIG 3” and often tailor it to a specific industry (i.e. automobile dealerships, mortgage lenders, department stores, etc.)

12. Which size Collection Account “concerns” a Banker more?

A) $50.00
B) $500.00
C) $2,500.00
D) All of the above

A) $50.00. When reviewing credit, a Banker is typically more concerned about a small, unpaid debt rather than a large debt. Not paying a small debt is considered a choice. Someone may want to pay a large debt, but NOT have the ability to pay, is considered a condition.  Bankers will often put the initials WNC (= Willful Non-Compliance) next to small accounts, if you have the ability to pay.

13. Credit Rating / FICO Scores do not affect employment.

True or False?

FALSE. Having a low credit score can eliminate an applicant from being considered for employment; and is considered legal discrimination. If the applicant cannot handle their own finances, why would we let them work with our client’s money.  AND if they do not handle money (someone in marketing or sales), will the employee (with poor credit) be distracted from performing their job, wondering about how to pay their mortgage, rent, make a car payment, etc.

14. FICO (credit) scores increase when you decrease your credit card balances by certain percentage points. What are those percentage points? (i.e. 10%, 20%, 30%, etc.)?

________%, ________%, and ________%

FICO Scores get a medium size increase when a credit card balance is under 50% of their credit limit.  The largest increase comes when your balance is under 30%; and there is a minor increase under 10% of the limit.

15. FICO Scores are based on 5 Primary Categories that add up to 100%. What are the percentages of each of the following?

History _______%
Utilization _______%
Mix of Accounts _______%
Time Opened _______%
New Credit _______%

The 5 Primary Factors that influence FICO Scores are: Payment History (35%); Credit Utilization (30%); Time Open (15%); Mix of Credit (10%); and “New” Credit (10%); there are also sub-categories. It is easier to go from a “0” FICO Score to 600, than it is to go from 600 to a 700 FICO Score!

16. Name the 6th BIGGEST Factor that impacts your FICO Score.

The 6th BIGGEST Factor that influence a FICO Score are inquiries. Too many inquires can cause your credit score to drop 10-50 points or more, in a single day.

17. Old adverse items (accounts which have been on your credit report a long time) harm your credit more than new items.

True or False?

FALSE. All adverse accounts harm your credit, however, “NEW” items (0-24 months), are more damaging than older adverse accounts, because they’re weighed more heavily.

18. What is the difference between FICO Scoring and Credit Karma Scoring?

FICO (FAIR ISAAC’S CORP) Scoring is what over 90% of all banks, mortgage lenders, department stores, automobile dealerships, credit card companies, etc. use in decision making. Vantage 3.0 Scoring is a “knockoff” and is what Credit Karma provides to their clients for free.

19. Paying an “OLD” Collection Account harms your credit.

True or False?

FALSE. Paying it improperly, harms your credit rating. Never pay a collection without a written agreement, and never pay with a credit card, a debit card, over the phone, with a cashier’s check or money order. Send a personal check with a restrictive endorsement, for your protection.

20. Name the four (4) Major Credit Bureaus.

The BIG 3 are: Equifax, Experian, & Trans Union. LexisNexis is the 4th bureau, and is used by the other bureaus to report Public Records such as bankruptcies, judgments, tax liens, etc.

21. When is it a good idea to take your credit card to 80% or 90% of the available credit (without going over the limit)?

When a new credit card is issued, it’s often at a very low (or zero) APR.  Use it frequently, it shows you deserve a high credit limit and can handle credit wisely; then take it down under 30%, to maintain your FICO Score.

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