15 Surprising Facts About Credit

The demand for financial education is growing, and understanding credit can give you a nice advantage in your future. Whether you are a young adult building credit with your first credit card or a military family improving your money management strategy, mastering credit is your key to success. Keep reading for fifteen surprising facts about credit that could help you make smart financial decisions:

1. Credit Reports and Credit Scores Are Two DIFFERENT Things

Although these terms are commonly used interchangeably, they actually refer to different things. For starters, your credit report is a thorough record of your credit history, whereas your credit score is a three-digit number that indicates your creditworthiness. Think of it this way: Your credit report lays out your mission details, and your credit score shows the readiness status.

2. You Have Many Credit Scores

Believe it or not, you don’t have just one credit score! You may have heard about FICO and VantageScore, which are the two main companies that generate credit scores. Each of them creates several scores tailored for different types of credit, such as credit cards and loans. And luckily, the steps you take to improve one score generally helps you improve all your scores.

In addition, each scoring model uses data from one of the three main credit bureaus: Equifax, Experian, and TransUnion. Since creditors are not required to report to all three, your credit report with each bureau might contain different information. This means that even with the same scoring model, your credit score can vary depending on which bureau’s data is used.

3. Viewing Your Credit Report Won’t Hurt Your Score

It’s a common misconception that checking your credit report can damage your credit score. But in reality, this is a "soft inquiry," which has no negative effects. Making a soft inquiry and regularly reviewing your credit report is a smart way to keep track of your financial health and spot any potential fraud.

4. Too Many Credit Applications is a Red Flag

While a soft inquiry can’t hurt your score, a hard inquiry can. Applying for multiple credit accounts in a short period can be damaging for two reasons. First, each new application triggers a “hard inquiry,” where financial institutions review your credit. This temporarily lowers your credit score. Secondly, having too many credit applications is risky because it tells lenders that you’re financially unstable and desperate for cash. To keep your score healthy, stay aware of how often you apply for credit and spread out your applications.

5. Rent and Utility Payments Can Be Added to Your Credit Report

Did you know that on-time payments for rent and utilities can improve your credit? Many military families find themselves renting during assignments, and reporting these payments can show your trustworthiness as a borrower. By including the payment records on your credit report, you have the opportunity to boost your credit without taking on additional debt, which is especially helpful for financial stability during transitions.

6. Countries Have Different Scoring Systems

For those stationed internationally, it’s important to understand that credit scoring systems differ worldwide. Each country uses its own models and criteria to evaluate creditworthiness. As a result, your credit score in one country might not translate the same way in another. This can impact your financial decisions abroad.

7. Credit Scores Impact More Than Just Credit Cards and Loans

Why is credit so important? Your score doesn’t just help you get approved for a loan or credit card. It can also influence your insurance premiums, interest rates, and ability to rent an apartment. Therefore, having a good credit score can unlock financial opportunities in many areas of your life.

8. Future Employers Can Review Your Credit

For specific roles, like those related to finance or government, potential employers may look at your credit report. They do this to evaluate your trustworthiness and financial responsibility However, rest assured that they can only do this with your consent, and they will only see your report—not your credit score!

9. Credit Bureaus Don’t Decide Your Creditworthiness, Lenders Do

While the actual data is provided by credit bureaus, lenders are the ones who ultimately determine your creditworthiness. They look at your credit report to evaluate your financial habits—such as payment history and credit utilization—to determine the terms of loans and credit. This process impacts things like interest rates and whether you get approved for loans, so it’s important to manage your credit carefully and know how your actions impact what lenders decide.

10. You Can Still Get a Loan Without Good Credit

Even when the odds seem stacked against you, there is still a way forward! Having bad credit can sometimes make it harder to secure a loan, but it is still possible through reputable lenders—not payday loans. Some lenders offer loans for people with poor or less-than-perfect credit. But remember, these loans can sometimes have higher interest rates, stricter terms, and may require additional collateral or fees. So make sure to weigh the costs and know your loan terms before deciding!

11. Your Income Does NOT Affect Your Credit Score

Salary having an impact on your credit score is a myth. These two things are not related. Instead, it is based on factors such as payment history, credit utilization, credit mix, new credit, and the length of your credit history. However, income can still play a role in lending decisions—it shows lenders that you have the ability to manage and repay debts.               

12. Pay Balances Early or More Often

Keeping a low credit utilization is your key to a good credit score. Your credit utilization ratio is how much of your credit limit you are currently using, and it’s typically calculated when your issuer reports your balance to the credit bureaus (at the end of the billing cycle). Simply put, lenders prefer a ratio below 30% because it signals responsible credit use. So if you pay off your balances early or more often, you are assuring that a lower utilization ratio is being reported.

13. Keep Your Old Accounts Open

While it might seem practical to close unused credit accounts, doing so can actually lower your credit score. Believe it or not, maintaining older credit accounts is beneficial because it contributes to the length of your credit history and the utilization ratio—two important factors of a strong credit profile.

14. Credit Mix is Important

A variety of credit types, such as installment loans (like car loans) and revolving credit (like credit cards), can positively affect your score. This diversity shows lenders that you can manage different financial responsibilities without spreading yourself too thin. So if you have a well-rounded credit profile, it will open doors to better credit terms and opportunities.

15. Building Credit Can Be Easy!

Building your credit shouldn’t be intimidating! If you are wondering how to build credit in the military, a secured credit card offers a simple and safe way to start improving your credit. For example, Armed Forces Bank’s Credit Builder Secured Credit Card is intended specifically for this purpose. The Credit Builder card is easier to qualify for because it requires a cash deposit, which serves as your credit limit. This makes it possible for individuals with limited or poor credit histories to still have access to credit and build a positive profile. And the best part? Armed Forces Bank automatically reports your responsible behavior to the three major credit bureaus, so you can improve your credit score easily!

Get started with the best credit card for building credit!