10 Questions to Test Your Credit IQ

A major part of managing your finances is keeping up with your credit score. Good credit can have all sorts of benefits to your bottom line, like low interest rates on new loans, cheaper insurance premiums, and even job security (that’s right, some employers check your credit).

But the confusing heap of information out there can get overwhelming. Here, we simplify things by giving you nutshell answers to your most pressing credit questions.

Questions

Question 1) How is my credit score determined?

Question 2) What is the range of possible credit scores?

Question 3) What’s an average credit score?

Question 4) What is considered a “good” credit score?

Question 5) What are the easiest ways to improve my credit score?

Question 6) Does my salary affect my credit score?

Question 7) What is a credit bureau?

Question 8) What is identity theft and how can it hurt my credit?

Question 9) What can I do to protect my credit from ID thieves?

Question 10) Do I owe the debts that an identity thief incurs in my name?

Answers

Answer 1) Your credit score is based on five major factors:

Payment history: 35%
Level of debt: 30%
Length of credit history: 15%
Amount of new credit: 10%
Types of credit: 10%

Answer 2) FICO scores range from 350 to 850, but there are also other scoring formulas that exist on similar scales.

Answer 3) In the U.S., the average credit score is in the 690 to 720 range.

Answer 4) These days, a score of 720 or higher is considered good. Having a good credit score means you’ll get the best rates on loans and credit cards.

Answer 5) Pay your bills on time; keep your debt as low as possible; don’t apply for lots of credit accounts in a short time; be patient.

Answer 6) No, credit scores do not take your income into account. However, if you don’t earn enough money to pay your bills on time each month, your credit score will suffer. Also, lenders will ask for your income on an application for a new loan or credit card.

Answer 7) A credit bureau (sometimes called a credit reporting agency) is a repository of consumer information. Creditors report our monthly payment history to the bureaus and also use the data the bureaus maintain for each of us to judge our creditworthiness. There are three main credit bureaus: Equifax, Experian, and TransUnion.

Answer 8) Identity theft happens when criminals use pieces of your personal information (such as a credit card number, Social Security number, name, or date of birth) to buy goods and services, take out lines of credit, or apply for a job or government benefits in our name.

ID theft hurts your credit especially when the fraudster uses your information to open new credit cards or loans, and then skips out on the bill. These unpaid debts are recorded in your credit history, and hurt your credit score.

Answer 9) First, get a copy of your credit report and look for unfamiliar accounts. You are entitled to one credit report from each bureau each year. Visit AnnualCreditReport.com to claim yours. You can also consider subscribing to a credit monitoring service that will alert you whenever new accounts are opened in your name.

Answer 10) No. But it won’t be fun disputing the debt with debt collectors and the credit bureaus. If you are a victim of ID theft, check out this Recovery Guide to reclaim your identity.

How'd you do? Don't worry if you didn't know many of these answers. Credit and identity theft can be tricky subjects to understand. Check out more SpendOnLife guides to learn more.