Debunking Myths About Your Credit Score
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What common misconceptions about credit reports and scores does the episode introduce?
Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. You're entitled to a free copy of your credit report, but there's a good chance not everything on the credit report is accurate. We'll discuss with a Wall Street Journal news editor. First, some money and market news you should know. This coming holiday season, a lot of Americans making a list and checking it twice will be buying those gifts with store credit cards. About a third of Americans say they plan to open a store card during the holidays, but CompareCards.com says that half of the people who've opened one say they regretted it. Interest rates on retail cards have risen over the past year, even as the prime rate, which most credit card issuers use to set their interest rates, has fallen over the same period.
The average annual percentage rate for retail cards now stands at 26%. That's up a third of a percentage point from a year ago, and that's about five percentage points higher than the overall average credit card rate. Forget the double cheeseburgers. The hottest items on fast food menus are breakfast go-tos like egg and sausage sandwiches. Spending on breakfast at fast food restaurants has gone up 30% over the past five years. And in the third quarter of this year, Starbucks and McDonald's each captured more than 20% of the share of store visits during typical breakfast hours. They're followed by Subway, Chick-fil-A, Dunkin' Donuts, and Burger King, each vying for 5% to 15%. Wendy's came in at under 5%, but that was without a breakfast menu.
Now Wendy's is spending tens of millions of dollars and hiring thousands of workers to bring breakfast to nearly 6,000 U.S. restaurants, hoping to get a bigger bite out of that market share.
Your credit score can make or break your chances of getting a credit card or impact bigger milestones in life, like securing a car loan or a mortgage.
How do store credit cards and rising retail card APRs affect consumers this holiday season?
But there are a lot of theories related to what can knock your score lower. But not all of them are true. Let's debunk some of those myths with Wall Street Journal news editor Demetria Gallegos. So, Demetria, could checking your credit score actually hurt your score?
There are no circumstances under which checking your own score is going to hurt your score. Now, if a lender is checking and they're planning to extend credit to you, like you're trying for an auto loan, for example, or a new credit card, that is a hard inquiry and it will cost you a few points. There are gray areas which I think contribute to the confusion. For example, some rental applications are a hard inquiry. Others are not. You can open up a bank account, for example, without costing yourself on your credit score. But if you applied for overdraft protection, that's when they may make a hard inquiry, and that would affect your credit score. But again, to find out your own score, it will never cost you points, and there are several ways to do that for free.
Why does your credit score matter for loans, mortgages, and major purchases?
So how does someone keep track of their credit score free of charge?
There are a couple of mechanisms for doing that.
Can checking your own credit score or report ever lower your score?
Anyone can see their FICO score, their FICO score 8, which is a very popular model, through the Discover credit scorecard. You don't have to be a member or own a Discover card in order to sign up and be able to track your FICO score there. You can also track your Vantage score 3.0 through popular personal finance applications like Credit Karma or Mint.
And so if you're shopping around for a good rate and you have several lenders checking your score, those checks don't add up. There's actually an assumption that if somebody is shopping around, that's fairly benign.
A lot of people decide not to comparison shop for things like mortgages and car loans because they're aware that every credit inquiry from a potential lender is going to discount points from their score. But what's actually going to happen is that the credit scoring models are going to recognize that multiple inquiries by lenders within a short period of time are indicative of you shopping around or rate shopping.
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Chapters
7 chapters
1
What common misconceptions about credit reports and scores does the episode introduce?
0:05–2:00
2
How do store credit cards and rising retail card APRs affect consumers this holiday season?
2:00–2:54
3
Why does your credit score matter for loans, mortgages, and major purchases?
2:54–3:01
4
Can checking your own credit score or report ever lower your score?
3:01–4:02
5
How can you monitor your FICO or VantageScore for free and avoid hard inquiry pitfalls?
4:02–6:24
6
Will opening new credit cards always improve your credit score or can it sometimes hurt it?
6:24–8:12
7
Does carrying a balance or using debit instead of credit help your credit score?
8:12–10:16
Speakers
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