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15 credit facts everyone needs to know in 2021



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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Understanding how credit works is crucial to building and maintaining a healthy score. This may feel difficult to do when lots of outdated (and incorrect) credit advice lingers. It’s no wonder some of us feel lost and don’t know where to start when managing credit. In a recent study, we found that one in four Americans can’t tell the difference between a credit score and a credit report.

To demystify fact from fiction, we brought together the most important credit facts you need to know to understand your credit score and everything that impacts it. Take a look at our list below to learn more about how important your credit score really is.

1. Your credit score is based on five core factors.

Five factors impact your FICO score and account for varying percentages of your total credit score. These factors are important to keep in mind when applying and using credit. Some credit myths, like carrying a balance to improve your score, can actually damage your score and add unnecessary debt if you don’t know the real credit facts. The following are the five factors that impact your score:

breakdown of five factors that impact your credit
  • 35%Payment history. Your ability to consistently make payments holds the biggest impact on your score. Having late and missed payments are detrimental to your credit score. If you want to improve your score, you’ll need to catch up by staying on time with future payments.
  • 30% Credit utilization. This is the second most impactful aspect of your credit score. Credit utilization is determined by the amount of credit you’re using compared to the total credit you have available. The lower your credit utilization ratio, the better your score.
  • 15% Length of credit history. Credit history takes a smaller, but still important role in influencing your credit score. A longer credit history gives the major credit bureaus a bigger snapshot of your past transactions. This allows them to predict how you will handle your credit and your potential risk.
  • 10% Inquiries and new credit. The amount of inquiries to review your credit report also affects your score. Too many hard inquiries can negatively impact your credit score. However, inquiries made under a short period are less harmful. This is because credit bureaus understand these can occur on a case-by-case basis, like when shopping for a car.
  • 10% Diversification of credit. Lastly, the diversity of your credit types makes up the last area that impacts your credit score. A diverse credit portfolio benefits your credit score since it demonstrates your ability to successfully manage different types of credit.

2. Credit reports are different from credit scores.

Credit reports are different from credit scores. Credit reports list every piece of your financial history that affects your creditworthiness. Reports are helpful if you want to review your credit history to find any inaccuracies, instances of fraud or just want to know how you’re financially performing.

Your credit score, on the other hand, is a numerical grade of your creditworthiness. Checking on your credit score gives you a quick snapshot of your score if you want to know where you stand before you start house hunting, car shopping or anything else that relates to your credit.

Credit scores are important in regards to your overall financial health. Your score comes into play when you begin to make bigger purchases, like buying a home or car. Your credit score also affects you when applying for a credit card. Maintaining a healthy score will help you get the best loans and offers when necessary.

3. Negative credit items will eventually come off your credit report.

Most negative items will remain on your report for seven years at the most due to the regulations set by the Fair Credit Reporting Act. Bankruptcy, on the other hand, can last up to 10 years or more in some cases.

4. FICO credit scores range from 300 to 850.

Credit score ranges vary depending on the credit bureau. Knowing your score can help you understand how you can improve it. For example, if you’re looking to move from “fair” to “good,” it’s important to know where those scores lie on the spectrum. Below you can find the credit ranges used by FICO.

fico credit score ranges
  • 800–850: Exceptional
  • 740–799: Very Good
  • 670–739: Good
  • 580–669: Fair
  • 300–579: Poor

5. Majority of lenders use FICO scores when making decisions.

Bill Fair and Earl Isaac founded the FICO credit scoring system in 1956 as a way to help lenders make well-informed lending decisions. FICO analyzes scores from the three major bureaus: TransUnion, Equifax and Experian (sometimes referred to as “The Big Three”).

90% of lenders use your FICO score when making lending decisions. More recently, the The Big Three came together to create FICO competitor VantageScore to offer a more consistent score across the three bureaus.

6. You have many different types credit scores.

Credit scores vary based on the credit bureau reporting them. The major credit bureaus all have slightly different information regarding your credit history. This means that these three, along with other credit reporting agencies, report several FICO credit scores to lenders to account for different information they’ve collected.

There are also different scores specific to particular industries. For example, auto lenders review different risk factors than mortgage lenders, so the scores each lender receives differ.  Although it can get confusing, the most important things to abide by are the five core factors that affect your credit score.

7. Checking your own score won’t hurt your score.

Many believe that checking your credit score hurts your credit, but this is not true. Ordering your credit report or checking your score (called “soft” inquiries) doesn’t affect your credit score. Hard inquiries, like when lenders look at your credit, do negatively impact your score. However, the consequences are small and temporary, especially if the queries are made close together in time.

8. You can check your credit score and credit reports for free.

There are three main ways to check your credit for free. You can ask your credit card company, request your credit score through your bank, or sign up for a free online service. You can also order your credit report for free. In fact, you’re entitled to one free credit report from Experian, TransUnion and Equifax per year. Request your free credit reports from Annual Credit Report.

free ways to check your credit score and credit report

9. Your credit score can cost you money.

Low credit scores signal to lenders that you’re a high risk. Due to this, you’ll likely have a difficult time finding a lender and probably end up paying high-interest rates. As a result, people tend to dedicate time and effort to credit repair. This can stack up over time if you take out a mortgage while your credit score is low.

Here are examples of other things that are affected by a low credit score:

10. Canceling old credit cards can lower your score.

The length of your credit history makes up 10 percent of your credit history. Keeping old credit cards open will positively impact your score since they increase your overall credit age. Having open credit cards also impacts your utilization. All open cards contribute to and raise your overall credit limit. The higher your limit, the easier it is to keep your credit utilization ratio down.

Some people worry that having a zero balance on their credit card can negatively impact their score. This is just a credit myth. A zero balance means you aren’t using the card to make any purchases. Keeping the credit card open while not using it actually works to your benefit. You’re able to contribute to the length of your credit history, while not risking the chance of debt and late payments.

This is crucial since credit utilization is the second most important factor that impacts your credit score. Closing a really old credit card or a card with a high limit can drastically drop your score. If you need to cancel a card, consider raising the limit on another card to keep your utilization ratio similar.

11. You can still get a loan with bad credit.

Bad credit loans are available for those with low or non-existent credit scores. Depending on the type of loan, you might need to pay high interest rates and offer a valuable asset that a lender can seize if you’re unable to pay back the loan.

12. Credit scores aren’t the only deciding factors for lending decisions.

Like we mentioned earlier, other aspects impact a lender’s decision to grant you a loan or a credit card. Some lenders allow you to give a personal appeal to give context to your credit report. Other factors like a steady job and enough income can also demonstrate your ability to pay back a loan. This brings us to our next credit fact.

factors that can impact lending decisions

13. Your credit report can help you spot fraud.

Periodically checking your credit report allows you to spot fraudulent activity fast. Any large changes in your score are signals to check your report for any inaccurate information. 

Once you see any unrecognized inquiries on your report, you should double-check that the purchases and inquiries listed match up to your recent activity. There is a series of steps you should take once you realize you’re a victim of fraud, like authorizing a credit freeze and adding a fraud alert to your personal credit report.

14. Joint accounts affect your credit scores, but you do not have joint scores.

The activity of a joint account is reflected in both credit reports. For example, if you and your spouse apply for a mortgage, the lender will consider both of your credit histories when making a decision. This does not mean that you and your spouse have a joint or combined credit score.

difference between joint accounts and authorized users

Note that a joint account is different than an account with an authorized user. Joint account holders can use the account and are liable for the debt, while authorized users can use the account but are not liable for the debt.

15. Many credit reports contain inaccurate credit information.

The Federal Trade Commission found that one in five people have an error on at least one of their credit reports. This is why you should frequently check your credit report and dispute any inaccurate information. Inaccuracies can greatly impact your score. For example, one wrong late payment can drastically drop your score since payment history impacts 30 percent of your credit score.

It’s important to get your credit facts straight so you understand exactly how different things impact your score. One of the first things you should learn is how to read your credit report so you can quickly spot discrepancies and ensure that the information reported is fair and accurate. 

After scrutinizing your credit report, you can look into other ways to fix your credit, like paying late or past due accounts, so you can boost your score with your newfound knowledge. You can also take advantage of Lexington Law’s credit lawyer-driven process to get extra help and additional legal knowledge to assist in your credit repair process.

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Credit Cards

Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?



couples credit history

While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.

Users Who Are Authorized

An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.

If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.

Joint Credit Cards Have an Impact on Your Credit Score

Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.

Accounts Individuals

Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.


While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.

Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.

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Credit Cards

Should you pay down debt or save for retirement?



rebuilding credit

While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.

Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.

If you have high-interest debt, pay it down

When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).

In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.

High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.

To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.

If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.

Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.

If you’re nearing retirement, start to save

The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).

Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.

Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.

Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.

Aim for both goals by improving income

As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.

The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.

If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.

For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.

While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Credit Cards

How does a loan default affect my credit?



loan default

Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.

Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.

30 days late

Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.

The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.

More than 30 days late

Payments that are more than 30 days past due can trigger increasingly serious consequences:

  • The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
  • You may receive phone calls and letters from creditors demanding payment.
  • If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.

Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.

Other ways a default can hurt you

Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:

  • If you default on a car loan, the creditor can repossess your car.
  • If you default on a mortgage, you could be forced to foreclose on your home.
  • In some cases, you could be sued for payment and have a court judgment entered against you.
  • You could face bankruptcy.

Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.

How to avoid a loan default

Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:

  • For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
  • For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.

Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.

Clean up your credit

The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.

Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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