What is your credit IQ?

How well do you understand what goes into your credit report and credit score? Take our quiz and find out.

Check which of the following are true or false:

1. As soon as you pay off an overdue account, the late payments are removed from your credit report.

 True
 False

2. When shopping around for a loan, it’s best to make all your inquiries within a short period of time.

 True
 False

3. Filing for bankruptcy will erase the blemishes on your credit report and allow you to start from scratch.

 True
 False

4. You can request a copy of your own report without lowering your credit score.

 True
 False

5. You only need to check your credit report with one of the three credit bureaus.

 True
 False

6. Your income has no effect on your credit score.

 True
 False

7. A good way of raising your credit score is to obtain several credit cards, even if you don’t plan to use them.

 True
 False

Add up how many you answered correctly:

1. False. Paying the balance of an overdue account is always a good idea. However, missed payments will still show up on your report because they are part of your credit history. Delinquencies of 30 to 180 days will stay on your report for seven years from the date of the missed payment. The good news is that older delinquencies gradually become less of a factor in your score.

2. True. Whenever a lender contacts a credit bureau to access your file, it can lower your credit score by several points. However, credit bureaus and lenders recognize that people often shop around for the best rate and terms on a loan, so they have adjusted their formulas accordingly. In general, any inquiries you make about a mortgage or car loan within a 30-day period count as just a single inquiry when your score is calculated.

3. False. For people in severe financial distress, declaring bankruptcy may be the only option. But while a bankruptcy can erase your debts, it will not wipe clean your credit report. Bankruptcies will be noted on your credit report for seven to ten years, depending on the type of bankruptcy you file for.

4. True. Checking your own credit report will not lower your score. In fact, it’s a good idea to monitor your credit file regularly to make sure that it is accurate. (For more information, read the article here.)

5. False. While Equifax, TransUnion and Experian use similar formulas when calculating your credit score, each collects its data independently. Therefore, each bureau may have slightly different information in your file, and it’s a good idea to check your report with each of them.

6. True. Whether you make $20,000 or $500,000 a year has absolutely no bearing on your credit score, and your income does not appear anywhere on your credit report. However, lenders will consider your income when determining how much money they are prepared to lend you.

7. False. Using a mix of credit accounts -- a mortgage, a car loan and a credit card, for example -- and making regular payments on all of them will help you establish a solid credit history. However, opening accounts you won’t use does nothing to build up a positive credit rating. It may even backfire as too much available credit can lower your score. You should only apply for credit cards that you genuinely need.

What your score indicates:

6 to 7: You’ve a top-notch credit IQ. Your thorough understanding of credit reporting means you’re well prepared to start shopping for a loan. Get started at www.LendingTree.com

4 to 5: Your credit IQ is about average. You have a basic grasp of how credit reporting works. Rereading the answers to the questions you missed will help you be better prepared to go ahead with a loan application.

Less than 4: Your credit IQ indicates you could benefit from learning a little more about credit reports and scores. A good place to begin is the LendingTree Smart Borrower Center.

 

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