We regularly offer free classes to the public, called Lunch and Learns, on a variety of money topics. One of the most popular is our seminar on credit scores. The class takes the mystery out of understanding a credit score, and people have an opportunity to get their questions answered.
So, what are they asking? Ferdousi Faruque, Hanscom Federal Credit Union's senior relationship manager, is one of the skilled instructors on the topic. She recently shared the top three questions that she gets at credit score seminars, along with her answers:
1. Why has my credit score dropped? I thought it was much higher.
You can have a squeaky clean payment record and still have a less-than-great score if you carry balances on your credit cards. Just using more than 30% of your limit can affect your score.
Have you recently closed an unused card? That could reduce your capacity. Plus, if it was your oldest card, your length of credit may have changed.
2. What’s the difference between installment and revolving credit? How does that affect my credit?
An installment loan is paid off over time and usually has collateral. Think of a car loan or home equity loan. Revolving credit can be used, paid off, and used again. A credit card is the best example of revolving credit.
Having an installment loan with a good payment history boosts your score. You are proving that you can handle debt and that lenders have trusted you in the past. With revolving credit, the lender could get burned if you suddenly run up your balances and have trouble making payments.
It's like the difference between good and bad cholesterol. Installment debt keeps your credit healthy, like good cholesterol protects you from heart disease. Revolving debt can damage your financial health if it’s too high, just as high levels of bad cholesterol can damage your physical health.
3. How do I read my credit report?
First, look at the top summary to find your total balances of installment and revolving debt and your percent of available credit. That will help you calculate your capacity. You can also easily see how many credit inquiries you’ve had recently, your length of credit, and whether there are any late or missed payments in your report.
Second, look at the individual lines of credit. Check out the payment history. It will tell you the exact payment reported as late or missing, so you can follow up or correct errors.
We answer quite a few other questions during our credit score seminars. And everyone who attends a Lunch and Learn program can enjoy a free lunch. As Ferdousi likes to say, “We fill their bellies and their brains.” Please check the events pages for upcoming seminars.
You can also learn to read a credit score by requesting a credit score review of your own. It is a free service for our members!