Credit scores can be difficult to understand: what are they, why do I need one, and what are they used for? — are some of the common questions.  

At FinFit, we often get questions about how credit scores really work. We’ve compiled a list of frequently asked questions to help you quickly find the answers you need regarding credit scores.  

What is a credit score?  

A credit score is a 3-digit number that shows you how likely you are to be accepted for credit. It’s based on your credit report, which is a record of how you’ve handled credit in the past. When we say credit, we mean when you have borrowed in the past, or certain types of unpaid bills – this includes: credit cards, personal loans, some utility bills, overdrafts, mortgages, mobile phone contracts, medical bills, and when you pay for something in monthly installments such as a new car, a sofa, or home appliance. 

What is a credit report?  

A credit report is an overview of your own credit history and current financial status. It 

contains account information (such as credit cards, auto loans, student loans, mortgages and rent), public records (such as judgments or bankruptcies), and inquires (requests by lenders to view your credit). Different credit bureaus will hold slightly different credit reports on you, but they are all based on the same base information provided by these sources. 

Who determines my credit score? 

There are three main credit bureaus, all of which create unique credit scores. They are Equifax, Experian, and TransUnion. 

Does checking your own credit report or credit score reduce your credit rating in the same way that applying for credit often does? 

No. Checking your credit score or obtaining your credit report doesn’t have any negative impact on your credit rating. 

Why do I sometimes get refused credit even though I’ve never been in debt? 

Credit scores are based on healthy use of credit. Having some credit accounts, consistently paid on time, is generally good. 

If I build up a good credit score and then stop borrowing, will my good credit score diminish? 

If you go from having a loan or credit card to having no types of credit agreement – not even a credit card that you pay in full each month, mortgage, or car payment – your score will gradually reduce. This is because the agencies can’t see how you have been managing credit recently. That’s why it can be helpful to have a credit card and use it to meet some expenditures, as long as you repay it in full each month. 

Does my corporate credit card affect my credit score? 

No. A corporate credit card agreement is between the card company and your employer and has no bearing on your credit score. 

Is it okay if I max out my credit cards, if I pay off the full amount each month? 

Maxing out your credit cards results in a high credit utilization ratio – an important factor in credit score calculations. Your credit score utilization ratio is the amount of credit you’re using on your cards, compared to the amount of credit you have available. When you max out a credit card, your credit utilization for that card is 100% – most financial experts recommend keeping your credit utilization below 30%. While you should aim to always pay  credit card statement on time and in full, using more than 30% of your credit limit could still hurt your scores, even when you do so. 

I have a loan that I have always paid on time, but the lender has made mistakes posting payments to my account. This is showing as missed payments on my credit report and affecting my score. How do I fix this? 

The first thing you need to do is to contact the lender and get them to: 

1. Agree they are at fault with the payments
2. Agree that they will inform the credit agencies that they have made a mistake
3. Then check your credit report in 3 or 4 months to check that they have rectified the mistake

You can also dispute any errors on your report directly with the credit bureau.