OK, it’s almost back to school season. Time for a pop quiz. Test your knowledge of credit scores.
1. The top possible credit score is:
2. Checking your own credit score too many times can have an adverse effect on the score.
3. In case of a security threat, you can freeze all your credit reports with one phone call.
4. Credit reports include marital status.
5. Your credit report includes your gas and electric bill payment history.
Ready for the answers? I called up Heather Battison, a vice president at TransUnion, one of the “big three” national credit reporting companies, for help.
1. This was a bit of a trick question. The top possible credit score is all of the above. The industry standard top score is 850, but some credit scoring formulas are different. A score of 750 or above should be enough to get very low rates and access to lots of credit products. Battison says the average score in TransUnion’s database hovers around 645, “which is not the greatest.”
2. This is false. Checking your own credit score will not have an adverse effect on the score. Battison says that according to TransUnion’s annual survey of credit myths, this is one of the most widespread false beliefs among consumers. In their most recently released survey, 43 percent thought it was true. The misconception arises because when credit reporting agencies receive too many “hard inquiries” from banks or other lenders, your score can indeed take a hit. But when you check your own credit, it’s known as a “soft inquiry.” And you should do it at least once a year at www.annualcreditreport.com. Check more often if you are applying for a loan.
3. This too is false. You cannot freeze all your credit reports with one phone call. TransUnion and Equifax offer a product called Multi-Bureau Lock. Experian, the other major credit reporting agency, you’ll have to notify separately. A credit lock prevents lenders from accessing your credit report. In the case of identity theft, a lock would prevent anyone from opening new accounts in your name. If you need more credit, Multi-Bureau Lock can be reversed with a swipe from your mobile phone. That’s why Battison says TransUnion has begun advising consumers to keep their credit locked as a default option. Note, this is less drastic than a security freeze, which requires verifying one’s identity through a multistep process when you want to turn it on again.
4. False. Credit reports do not include marital status. This is another of the most commonly believed myths in TransUnion’s survey. More than half of consumers over 55 got this wrong. Marital status isn’t on a credit report, and you and your spouse have separate credit histories and credit scores. That said, your spouse’s credit can certainly affect yours when it comes to any joint purchases or joint accounts. The terms of a mortgage, auto loan or credit card will be dictated by the person with the lower score if you go in together. And people can become responsible for their spouse’s student loans under some circumstances.
5. It depends. Fifty-one percent of Transunion survey respondents believed utility payments are included in their score. Some utility companies report only late payments, meaning that the information can hurt you but not help. Other utility companies give the good news along with the bad: both the on-time and the late payments.
How did you do on the quiz? Are you credit-savvy or a total novice? Report back and let me know what other questions you have about credit scores.
Anya Kamenetz’ most recent book is “The Test: Why Our Schools Are Obsessed with Standardized Testing, but You Don’t Have to Be.” She welcomes your questions at firstname.lastname@example.org.