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By Stephanie Walden for Capital One
Quiz
How well do you understand credit scores?
You probably already know that a strong credit score can be a source of financial empowerment. It’s an entryway to big events such as buying a car, getting a mortgage or making other milestone purchases. But how well do you really understand how credit scores work? A recent survey conducted by the Capital One Insights Center found that many Americans aren’t 100% sure what their credit score means — or how to build or repair their credit. To kick off the new year equipped with the knowledge necessary to meet your financial goals, take the quiz below to see whether you’re an expert or need a refresher.
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QUESTION 1 of 9
Credit scores range from:
300-850
250-900
300-800
100-850
Credit scores range from 300-850. While only 16% of survey respondents missed this one, there is some debate on what counts as a good score. Generally, a credit score between 670 – 739 is considered a good score.
Next question
QUESTION 2 of 9
Which of the options below is an effective way to rebuild your credit?
Carrying a balance on a credit card from month to month
Canceling every credit card you own
Applying for multiple loans at once
Catching up on overdue bills
One of the first steps when it comes to rebuilding credit is to ensure you’re up to date with any past-due payments. Despite what 37% of survey respondents think, carrying a balance on your credit card each month isn’t likely to boost your credit score. In actuality, paying off your credit card bill on time every month is much more likely to improve your credit score. As for answer C, you should space out loan applications when looking to improve your credit score — applying for too many within too short a time frame can have a negative impact.
QUESTION 3 of 9
Which of the following can help improve and build your credit?
Responsibly using a secured credit card
Becoming an authorized user on someone else’s credit card
Making payments on time
All the above
A secured credit card is a type of credit card that offers you an opportunity to build or rebuild your credit with responsible use. An authorized user is someone who has been granted access to use another cardholder’s account. A card issuer may report an authorized user’s activity on the credit card to one of the three major credit bureaus, helping them build their credit history. A history of on-time payments helps show lenders that you can manage credit responsibly. Lenders set their own credit policies and standards to determine creditworthiness, so each company may have different criteria for what is considered a good credit score.
QUESTION 4 of 9
True or false: Major credit bureaus like Equifax, Experian and TransUnion use the exact same information to determine your credit score.
True
False
Although the specific factors that credit reporting agencies use to evaluate creditworthiness are unknown, the exact information each agency collects may vary. This can lead to subtle differences in your score across these three nationwide credit reporting agencies.
QUESTION 5 of 9
Which of the following actions will have an impact on your credit score?
A soft credit inquiry
Multiple hard credit inquiries
Your spouse’s credit score
The total amount you spend each month
The survey results indicate this is an area of confusion for many people, as 28% of respondents incorrectly believe that hard credit checks by a business or company cannot affect their score, and another 25% were unsure. It’s important to know the difference between a soft credit inquiry, which might be performed when you’re shopping around for a loan, and a hard credit check, which happens when you actually go through the process of applying for a new line of credit. A soft credit inquiry won’t hurt your score, but a hard credit inquiry might cause it to dip by a few points—and could be more harmful if many hard inquiries are performed in a short time frame. As for answers C and D, although it’s a common misconception among 41% of Americans that their spouse’s credit score can impact their own, every individual has their own credit score regardless of marital status. But if you have a shared account or you’re an authorized user of your spouse’s account, you could affect each other’s scores. Finally, while the total amount you spend each month may impact your score, it tends to be more relevant in the context of your overall credit limit, your income and your debt-to-credit or credit utilization ratio.
QUESTION 6 of 9
If you’ve already got excellent credit, which of the following can help you stay in good standing?
Getting as close to your credit limit as possible
Proactively checking your credit report for errors
Canceling a credit card you’ve had a long time, but haven’t used in a while
Applying for new lines of credit once per month
Keeping an eye on your credit score and regularly checking your credit report isn’t only a good idea when you’re on a cusp of a major purchase — it can also help you keep an eye out for anything amiss, including instances of fraud. Keeping regular tabs on your score through resources like CreditWise from Capital One will not change your score. Again, there’s a common misconception associated with this practice: The survey found that more than one-quarter (27%) of Americans incorrectly think checking their score can negatively impact it. On the flip side, getting too close to your credit limit or applying for too many lines of credit in a short period of time can cause your score to dip. What’s more, canceling a credit card you’ve had for a long time can lower the amount of overall credit available to you, consequently affecting your debt-to-credit ratio.
QUESTION 7 of 9
True or false: Having too low a credit score means you won’t be eligible for any type of credit.
If you guessed true here, you’re not alone: The survey found that 70% of respondents thought the same. But in reality, this is a misconception — some lenders even work specifically with people who have a low score and are looking to rebuild it. (Expert tip: Here’s everything you need to know about getting a credit card when you’ve got bad credit.)
QUESTION 8 of 9
An example of someone who might not have a credit score is:
Someone who has recently canceled their only credit card
Someone who has never had a credit card or loan
A credit card owner who is under 21
Trick question — everyone over the age of 18 in the U.S. has a credit score
If you missed this one, you’re not alone: This is a common misconception shared by around 42% of survey respondents. There are some people for whom the credit bureaus don’t have enough information to issue a credit score. In fact, about 45 million Americans fall into this category, according to the U.S. Government Accountability Office. Not having a credit score can impact the ability to get a loan for everything from higher education to housing. Looking to establish credit from scratch? Here are some helpful tips.
QUESTION 9 of 9
True or false: Carrying a balance each month is the best way to quickly increase my credit score.
Answer explanation: Around 37% of respondents incorrectly think that carrying a credit card balance from month to month can help increase their credit score. Interestingly, this incorrect conviction is stronger among members of younger generations — while just 15.8% of the Silent Generation believe this myth, 48.3% of Millennials and 52.5% of Generation Z believe it. In truth, carrying a credit card balance means that you owe interest on the amount that hasn’t been paid off — so it’s not a great tactic for optimizing your financial health. Not to mention, carrying too high a balance can result in a high credit utilization rate, which also lowers your credit score.
Show my results
YOU HAVE
Limited
credit knowledge
It looks like you’ve got a little bit of studying to do. But don’t stress, there are plenty of online resources to help you do your homework. For example, check out this explainer on why credit is important, this article on building credit from scratch or this guide on how to get your first credit card.
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Fair
You’re getting there, but there’s room for improvement. Luckily, there are plenty of online resources to help you get up to speed. And although boosting your credit score will take some time, you can build up your knowledge base in just an afternoon. Check out this explainer on how long it takes to rebuild credit.
Good
Everyone gets tripped up sometimes, but the good news is that you’re on the right track. You can brush up on how to build or rebuild your credit by visiting Capital One’s resources, including this helpful guide to interpreting your credit card statement.
Very good
Not bad at all! If you want to take your knowledge up a notch, check out Capital One’s resources, including these common credit card mistakes to avoid.
Excellent
Congratulations, you aced it! Looks like you’ve got a good grip on the ins and outs of your credit score. Keep up the good work, and stay up to speed with Capital One’s resources like these tips for maintaining good credit and using credit cards responsibly.
