Whether you’re funding your first savings account or growing an existing rainy day fund, actually depositing money into your savings should be the easiest part. But if you’re still taking cash or checks to your local bank branch, you might find putting money in your savings to be inconvenient and even time-consuming.
If you’re considering opening an online bank account, especially if that bank doesn’t have a local brick-and-mortar branch, you might wonder how to deposit money into savings accounts that are online. Here’s a look at how to regularly add to an online savings account without ever needing to leave your couch.
Automated deposits from an existing account
Automation is one of the best tools to help you reach your savings goals. By removing the hands-on element of the savings process, you save time and energy and eliminate one of the most common savings hurdles: getting in your own way.
Call it a sunny day fund—online savings with no monthly fees
Discover Bank, Member FDIC
With an online account, such as the Discover® Online Savings Account, you can set up automatic transfers from a linked account (such as your checking account). Once your accounts are linked, you can move money back and forth whenever you want to contribute to savings or withdraw for a special expense.
First, decide how often you want to contribute to your savings account. This decision might be based on a personal savings goal you’ve set or could depend upon your paycheck schedule. Next, think about how much you can afford to save. Keep your account’s cash flow in mind, like when you get paid and when bills are due. Lastly, plan to revisit your automatic savings plan occasionally to make sure you’re saving the right amount and at the right intervals.
Direct deposits
Many employers today offer direct deposit, which electronically puts your paycheck in your bank account. But did you know that you can usually route a portion of your pay into a savings account, too?
With direct deposit, you can allocate a flat dollar amount or even a percentage of your pay into a dedicated online savings account. This often involves speaking with your employer’s HR or payroll department, then filling out a direct deposit form with your savings account information.
Next, choose the dollar amount (or percentage). You’ll get the rest of your paycheck as usual—and grow your savings.
ATM deposits
You may have a regular influx of cash to deposit into your savings account, but visiting a local branch during banking hours may not be possible or convenient. In this case, you might be able to add cash to your account through a network ATM.
Some network ATMs allow you to insert cash using the debit card connected to your checking account. Assuming you maintain checking and savings accounts at the same institution, the machine will ask which account you want to deposit the funds into, then will count your cash and provide a receipt.
The benefits of making ATM deposits to your savings account are that you don’t need to wait in a long line, speak with a teller, or plan your visit around the bank’s business hours. Not all banks or accounts offer this service, though, so check whether your online savings account supports ATM cash deposits.
Can you deposit a check into a savings account?
With mobile check deposits, you can use your phone, web browser, or other connected device to deposit paper checks from anywhere. There’s no need to visit a bank branch or mail your check, and funds can sometimes be available in just minutes.
This process applies to both checking and savings accounts. You can make a mobile check deposit from your phone or other connected device to initially fund your account or add money. Just sign the back of your check, use the bank’s mobile app to take pictures of both sides, confirm the amount, and click “deposit.”
Transfers between accounts
Once you’ve linked another account—whether a Discover checking account or one at another banking institution—you can easily initiate transfers between your accounts. If you have multiple eligible Discover bank accounts, transferring between them is easy and can be done through the mobile app or online.
If you want to transfer from an external bank account into your savings, you should request to link the accounts. This process might take a few days to complete and is typically done through a series of small automated clearing house (ACH) deposits that you’ll confirm. Future transfers between financial institutions might take anywhere from a few hours to a couple of business days, depending on the accounts.
Another option is to make a wire transfer to your savings account from another bank account. Discover doesn’t charge for incoming wire transfers, but a service charge may be associated with domestic or international wires from your outgoing account.
Start adding to your online savings account regularly
Gone are the days of visiting a bank branch to fund your savings account. With a Discover Online Savings Account, you can set up automatic transfers, deposit checks from your mobile phone, arrange transfers from linked accounts, or even accept direct deposits from your employer. And if you’re wondering how to check your savings account online, that’s as simple as logging in on your device. It’s now easier than ever to manage your savings and meet your financial goals in the process.
Want to learn more? Visit the Discover Online Savings Account page to see how an online account can make planning for the future even easier.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Some credit facts you need to know are your credit score is based on five key factors, FICO credit scores range from 300 to 850, checking your own credit won’t hurt your score, and twelve more facts outlined below.
With all of the misleading and incorrect information about credit floating around, it’s no wonder some of us feel lost when it comes to our credit reports and credit scores. Fortunately, we’re here to help set everything straight with these simple and clear explanations.
We’ve taken the time to compile the most important credit facts you need to know to understand your credit and everything that impacts it. Just as importantly, we’re setting the record straight when it comes to credit myths that have been lingering for too long. Read on to learn everything you’ve always wanted to know about credit.
1. Your credit score is based on five key factors
Most lenders make their decisions using FICO credit scores, which are based on five key factors. That means that when you apply for a new credit card or loan, these are the primary influences on whether you’ll end up getting approved. Here are the five factors, in order of importance: payment history, credit utilization, length of credit history, credit mix and new credit inquiries.
35% – Payment history. Your ability to consistently make payments has the biggest impact on your score. Having late and missed payments is detrimental to your credit score, while a streak of on-time payments has a positive effect.
30% – Credit utilization. Your utilization measures how much of your available credit you’re using across all of your cards. By using one-third or less of your total credit limit, you could help improve your credit.
15% – Length of credit history. In general, having a longer credit history is helpful, though it depends on how responsibly you’ve used credit over time. Using credit well over time signals to lenders that you can be trusted to manage your finances.
10% – New credit. Applying for new credit leads to hard inquiries, which can negatively impact your credit score. Spacing out your new credit applications—and only applying for credit when you need it—helps your score.
10% – Credit mix. Having a variety of different types of credit—like credit cards, an auto loan or a mortgage—can influence your score as well. A diverse credit portfolio demonstrates your ability to successfully manage different types of credit.
With the knowledge of exactly how your score gets calculated, you can make smarter decisions with credit.
Bottom line: Credit scores aren’t as mysterious as they first appear, and you have control over all of the factors that determine your score.
2. Credit reports are different than credit scores
Although they are related, a credit report and a credit score are different. Also, it’s a bit misleading to talk about a single credit report or a single credit score, because the reality is that you have several different credit reports, and your credit score can be calculated in many different ways.
A credit report is a collection of information about your credit behaviors, like the accounts you have and when you make payments. Three main bureaus—Experian, Equifax and TransUnion—each publish a separate credit report about you.
A credit score uses the information in your credit report to create a numerical representation of your creditworthiness. In other words, all of the information in your report is simplified into a single number that gives lenders an idea of how likely you are to repay a debt.
Surprisingly, your credit report does not include a credit score. Instead, lenders who access your report use formulas to determine a score when you apply for credit. The most common scoring models are FICO and VantageScore, but lenders can make modifications to the calculations to give more weight to areas that are more important to them.
Bottom line: You’ll want to be familiar with both your credit reports and your credit scores, as they each play a role in helping you obtain new credit.
3. Negative credit items will eventually come off your credit report
Negative items on your credit report can cause damage to your credit score. Negative items include late payments, collection accounts, foreclosures and repossessions.
Although these items can lead to significant drops in your credit score, their effect is not permanent. Over time, negative items have a smaller and smaller impact on your score, as long as your credit behaviors improve so that more recent items are more favorable.
Additionally, most negative items should remain on your report for seven years at the most due to the regulations set by the Fair Credit Reporting Act. A bankruptcy, on the other hand, can last up to 10 years in some cases.
Bottom line: Negative items can cause a decrease in your credit score, but they aren’t permanent. Start building new credit behaviors and your score can recover over time.
4. FICO credit scores range from 300 to 850
One of the most common credit scoring models is produced by the Fair Isaac Corporation, also known as FICO. While you may hear “FICO score” and “credit score” used interchangeably, there are in fact several different scoring models, so you could have a different credit score depending on which lender or financial institution you’re working with. The score you’re assigned by FICO will usually always be in a range from 300 to 850.
Accessing your FICO score gives you the chance to have a high-level overview of your credit health. Scores that are considered good, very good or exceptional often make it much easier to get new credit cards or loans when you need them. On the other hand, scores that are fair or poor can make getting new credit more difficult.
Here’s an overview of the FICO scoring ranges:
800 – 850: Exceptional
740 – 799: Very Good
670 – 739: Good
580 – 669: Fair
300 – 579: Poor
Remember, though: credit scores are not fixed and permanent. Your score responds to factors like payments, utilization and credit history, so positive decisions now will benefit your score in the long term.
Bottom line: The FICO scoring ranges lay out broad categories to give you a sense of how you’re doing with credit—and can also help you set a goal for where you want to be.
5. The majority of lenders use FICO scores when making decisions
While there are multiple credit scoring models, the majority of lenders check FICO scores when making decisions. That means that when you apply for new credit—whether it’s a credit card, a loan or a mortgage—the score that’s more likely to matter is your FICO score.
That’s important to know, because many free credit monitoring services will show you score estimates or your VantageScore. Some credit card companies provide a FICO score, however, and you can also request to see the credit score that lenders used to make their decision during the application process.
Fortunately, credit scoring models tend to reference the same data and weight factors fairly similarly. That means if you make on-time payments, keep your utilization low, avoid opening up too many new accounts and have a consistent credit history with a variety of accounts, you’ll probably be in good shape regardless.
Bottom line: Knowing your FICO score can help you have an idea of how lenders will view your application for new credit.
6. You have many different types of credit scores
Credit scores vary based on the credit bureau reporting them and the credit scoring model used. The major credit bureaus all have slightly different information regarding your credit history. This means that these three, along with other credit reporting agencies, report several FICO credit scores to lenders to account for different information they’ve collected.
There are also different scores specific to particular industries. For example, auto lenders review different risk factors than mortgage lenders, so the scores each lender receives might differ. Although it can get confusing, the most important things to remember are the five core factors that affect your credit score.
Bottom line: Although many people reference their credit score in the singular, the truth is that there are many different types of credit scores that take into account different factors.
7. Checking your own credit won’t hurt your score
Many people believe that checking their credit score or credit report hurts their credit, but fortunately, this isn’t true. Getting a copy of your credit report or checking your score doesn’t affect your credit score. These actions are called “soft” inquiries into your credit, and while they are noted on your credit report, they shouldn’t have any effect on your score.
Hard inquiries, on the other hand, are noted when lenders look at your credit during an application process—and these can temporarily reduce your score. This is used to discourage you from applying for new credit too frequently. However, the effect is typically small, and after a couple of years the notation of a hard inquiry will leave your report.
Bottom line: You can check your own credit report and credit score without any negative effect—and we actually encourage you to do so to stay on top of your credit health.
8. You can check your credit score and credit reports for free
There are three main ways to check your credit for free. You’ll likely want to take a look at both your credit reports and your credit scores. Here’s how to get a hold of both of those:
You’re entitled to a free credit report once each year by visiting AnnualCreditReport.com, a government-sponsored website that gives you access to your reports from TransUnion, Experian and Equifax.
You may be able to check your credit score free by contacting your bank or credit card company. Additionally, many free services—like Mint—enable you to monitor your score for free. Just make sure to note which kind of credit score you’re seeing, because there are many different scoring methods.
The information you find in your credit report lays out the factors that determine your credit score. By scanning your report closely, you’ll likely find out the best strategy for improving your score—for instance, by improving your payment history or lowering your utilization.
Bottom line: Information about your credit is freely available, so take advantage of those resources to stay on top of your credit report and score.
9. Your credit score can cost you money
Ultimately, the purpose of credit scores is to help lenders determine whether they should offer you new credit, like a loan or a credit card. A lower score indicates that you may be at greater risk for default—which means the lender has to worry that you won’t pay back your debts.
To offset this risk, lenders often deny credit applications for those with lower scores, or they extend credit with high interest rates. These interest rates can cost you a lot of money over time, so working to improve your credit score can have a measurable effect on your financial life.
Consider, for example, a $25,000 auto loan. With a fair credit score, you may secure an interest rate of 5.3 percent—so you’ll pay a total of $3,513 in interest over five years. With an excellent credit score, your rate could drop to 3.1 percent, and you’ll save nearly $1,500 in interest charges over that same five-year period.
Bottom line: A good credit score can have a positive impact on your finances, and a bad score can cost you money in interest charges.
10. Canceling old credit cards can lower your score
If you have a credit card that you’re no longer using, you may be tempted to close the account entirely. Before doing that, though, consider how it could impact your credit score.
Recall that two credit factors are utilization and length of credit history. Closing an old account could affect one or both of those factors when it comes to calculating your score.
Your credit utilization could drop after closing an account because your credit limit will likely be lower. Since utilization represents all of your balances divided by your total credit limit, your utilization will go up if your credit limit goes down (and if your balances stay the same).
Your length of credit history could be lowered if you close an older account that is raising the average age of your credit.
Some people worry that having a zero balance on their credit card can negatively impact their score. This is just a credit myth. A zero balance means you aren’t using the card to make any purchases. Keeping the credit card open while not using it actually works to your benefit. You’re able to contribute to the length of your credit history, while not risking the chance of debt and late payments.
You may need to use the card every now and then to avoid having it closed. Additionally, if the card has an annual fee, you may need to close the card or ask to have the card downgraded to a version that does not have a fee. Still, if there’s a way to keep the card open, it’s often good to do so even if you don’t plan to regularly use it.
Bottom line: An old credit card can benefit your credit score even if you aren’t using it anymore.
11. You can still get a loan with bad credit
It’s true that getting a loan can be more difficult with bad credit, but it’s not impossible. There are bad credit loans specifically for people with lower credit scores. Note, however, that these loans often come with higher interest rates—or they require some sort of collateral that the lender can use to secure the loan. That means if you don’t pay your loan back, the lender will be able to seize the property you put up as collateral.
If you don’t need a loan immediately, you could consider trying to rebuild your credit before applying. There are credit builder loans, which are specifically designed to help you build up a strong payment history and improve your credit in the process. Unlike a traditional loan, you pay for a credit builder loan each month and then receive the sum after your final payment. Since these loans represent no risk to lenders, they’re often willing to extend them to people with poor credit history looking to raise their score.
Bottom line: You can get a loan even with bad credit—but sometimes it’s wise to find ways to raise your score before applying.
12. Credit scores aren’t the only deciding factor for lending decisions
While credit scores are important in lending decisions, lenders may take other factors into account when deciding whether to offer you new credit. For example, your income and employment can play a significant role in your approval odds. Additionally, some loans (like auto loans and mortgages) are secured by collateral that the lender can seize if you default. These loans may be considered less risky for the lender in certain cases because the asset can help offset any losses from nonpayment.
In many cases, your debt-to-income ratio is also an important factor in whether you’re approved for a loan or credit card. Lenders consider your current monthly debt payments (from all sources) as well as your monthly income to determine whether you may be overextended financially.
Two different people may pay $1,500 each month for student loans, a car payment and a mortgage. That said, if one individual makes $3,500 each month and the other makes $8,000 each month, their situations will be considered very differently by a potential lender.
Bottom line: Keeping your credit score high can help you secure credit when you need it, but you’ll want to stay on top of all aspects of your financial health.
13. Your credit report can help you spot fraud
Regularly checking your credit report can help you notice fraud or identity theft. If someone is using your information to open accounts, they will show up on your credit report.
If you notice an account that you did not open, you’ll want to start taking steps to protect your identity from any further damage. You may also want to freeze or lock your credit, which prevents anyone from using your information to open up more accounts.
Bottom line: Reviewing your credit report provides you an opportunity to notice when something is amiss.
14. Joint accounts affect your credit scores, but you do not have joint scores
If you have a joint account with someone else, that account will be reflected on both of your credit reports. For example, a loan that was opened by you and your spouse will show up for both of you—and will affect both of your credit scores. That said, your credit history, credit report and credit score remain separate. No one—including married couples—has a joint credit report or joint credit score.
In addition to joint accounts, you may also have authorized users on your credit card, or be an authorized user yourself. Authorized users have access to account funds, but they are not liable for debts. That means that if you make someone an authorized user on your credit card, they can rack up charges, but you’ll be on the hook if they don’t pay.
Because joint account owners and authorized users can influence credit scores in significant ways, we advise you to be careful about who you open accounts with or provide authorization to.
Bottom line: Even though joint account owners and authorized users can influence someone else’s credit, there are no shared credit reports or joint credit scores.
15. Many credit reports contain inaccurate credit information
The Federal Trade Commission found that one in five people has an error on at least one of their credit reports, and these inaccuracies can greatly impact your credit. (Also see this 2015 follow-up study from the FTC for more information regarding credit report errors.) This is why you should frequently check your credit report and dispute any inaccurate information. For example, since payment history accounts for 30 percent of your credit score, one wrong late payment can significantly hurt your score.
It’s important to get your credit facts straight so you understand exactly how different things impact your score. One of the first things you should learn is how to read your credit report so you can quickly spot discrepancies and ensure that the information reported is fair and accurate.
After scrutinizing your credit report, you can look into other ways to fix your credit, like paying late or past-due accounts, so you can help your credit with your newfound knowledge. You can also take advantage of Lexington Law Firm’s credit repair services to get extra help and additional legal knowledge to assist you.
Bottom line: Your credit report could have inaccurate information that’s hurting your score unfairly. Fortunately, there is a credit dispute process that can help you clean up your report and ensure all of the information on it is correct.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Becoming an authorized user on an open credit account, paying down student loans and securing credit builder loans can help young adults build credit.
Learning how to build credit at 18 can pay dividends throughout your life and help you explain financial concepts to others. Length of credit history is one of many factors that impact your overall credit score, so building credit early on can make it easier to secure credit cards and loans in the future.
Here, you can learn how to build credit at 18 and better understand which factors influence your credit health. You can also discover how Lexington Law Firm can help you improve your financial literacy.
Key takeaways:
You don’t have a credit score until you take actions that are reported to credit bureaus.
Length of credit history makes up 15 percent of your FICO® credit score.
Paying down student loans will positively affect your credit over time.
Table of contents:
1. Learn what credit score you start with
Starting credit scores vary from person to person and are largely based on each individual’s financial habits. When you first secure a loan, a credit card or a line of credit, your credit habits during the following six months will determine your starting score. Afterward, your credit score can increase or decrease based on several factors.
Who provides credit scores?
Credit reporting bureaus keep track of your credit history and provide reports based on your financial habits. Equifax®, Experian® and TransUnion® are the three main credit bureaus you can request a credit report from. Your credit score will be based on the information found in your credit report.
The law requires each bureau to provide at least one free report each year. Checking one of your credit reports every few months throughout the year can help you track your credit habits and progress.
2. Become an authorized user on a credit card
Just like other adults, young adults can become authorized users on another person’s credit card with the cardholder’s permission. With this method, an individual without any credit history can make purchases with a credit card and gradually build credit.
The caveat to this method is that all activity with a credit card will affect everyone connected to it. If a young adult gains access to one of their parents’ credit cards, the child’s activity will increase or decrease their parent’s credit score as well as their own.
3. Apply for a student loan
As previously mentioned, length of credit history can positively impact your credit score. For many young adults, a student loan will be their first credit account until they can acquire a credit card.
Paying off your loan might temporarily cause your score to dip, as your oldest account will be closed. However, regularly making timely payments will benefit your overall credit score far more than this dip will hurt it.
4. Secure a credit builder loan
Credit builder loans are helpful options for individuals with no credit history and people looking to repair their credit. These loans often have flexible requirements for applicants, though they typically have higher-than-average interest rates and brief repayment terms.
Community banks, credit unions and online lenders offer various credit builder loans. Large commercial banks don’t usually offer these loans, as their small payout amounts (normally $300 – $1,000) aren’t helpful to their everyday operations.
5. Frequently review your credit report
Challenging an error on your credit report and getting it removed can be an effective way to improve your credit. To discover these issues, it helps to routinely check your credit reports throughout the year.
Equifax, Experian and TransUnion all accept challenges by phone or online, and Lexington Law Firm can also help you challenge any errors on your report. Explore our services and see what features our tiered plans provide.
6. Space out your credit card applications
Every time you apply for credit, a hard inquiry occurs. This means that a third party (i.e., the bank offering the credit card you applied for) asked to review your credit report. Hard inquiries can appear on your report for years, but they’ll generally only hurt your credit for 12 months.
Issues can arise if you apply for too many credit cards or other lines of credit in a short period. Those dings against your credit can mount and damage your credit. On the other hand, spacing out your applications can help keep your credit healthy and stable.
7. Manage your credit utilization ratio
Your credit utilization measures your current account balances against your total credit limit. The higher your utilization is, the more negatively it will affect your credit. Ideally, it’s best to keep your utilization below 30 percent, or even 10 percent if possible.
Here’s an example to help visualize credit utilization. If you have a total credit limit of $5,000 and you’re currently using $500 of your available credit, your credit utilization will be 10 percent.
8. Use a credit monitoring service
Credit monitoring simply refers to reviewing credit reports and making decisions based on that information, whether you see inaccurate information that needs to be fixed, or accurate information that shows you where you can improve your credit usage. People can do this process themselves or seek out a credit monitoring service for help. Institutions like banks, credit unions and the three credit bureaus all provide distinct credit monitoring services.
Learn to manage credit with Lexington Law Firm
Young adults looking to build and manage their credit have many resources at their disposal. Still, professional advice from individuals with years of experience can make a big difference. Lexington Law Firm can provide a free credit assessment to help you get a sense of where your credit is starting and where you may want to go from here.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Brittany Sifontes
Attorney
Prior to joining Lexington, Brittany practiced a mix of criminal law and family law.
Brittany began her legal career at the Maricopa County Public Defender’s Office, and then moved into private practice. Brittany represented clients with charges ranging from drug sales, to sexual related offenses, to homicides. Brittany appeared in several hundred criminal court hearings, including felony and misdemeanor trials, evidentiary hearings, and pretrial hearings. In addition to criminal cases, Brittany also represented persons and families in a variety of family court matters including dissolution of marriage, legal separation, child support, paternity, parenting time, legal decision-making (formerly “custody”), spousal maintenance, modifications and enforcement of existing orders, relocation, and orders of protection. As a result, Brittany has extensive courtroom experience. Brittany attended the University of Colorado at Boulder for her undergraduate degree and attended Arizona Summit Law School for her law degree. At Arizona Summit Law school, Brittany graduated Summa Cum Laude and ranked 11th in her graduating class.
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If you successfully dispute a charge, the bank will notify the merchant and return funds to the issuing consumer via a chargeback. From here, merchants can decide if they want to dispute the chargeback or not.
If you file a dispute for a credit card charge with a bank, that bank will quickly notify the corresponding merchant that you’ve initiated this process. From here, the merchant can review your claim and decide whether or not to accept or deny your dispute.
Disputing a credit card charge can be a lengthy process with sweeping ramifications. That’s why it’s important to understand what a credit chargeback is and whether this tool is the best option at your disposal.
Key Takeaways:
Merchants may want to cancel a chargeback even if your bank sides with you.
Your bank will initially cover the cost of a chargeback until the matter is settled.
It’s often best to contact a merchant before initiating a chargeback.
What Is a Chargeback?
A chargeback occurs when you successfully dispute a charge on your credit card. The charge is taken off your credit card account and the money paid to the merchant is reversed (or “charged back” to the merchant). Many people dispute credit card charges for services not rendered. For example, there was a strong link between COVID-19 and chargebacks throughout 2020 as many companies struggled to keep up with demand.
A chargeback can be a powerful tool for consumers who do not receive products or services they paid for, but it comes with several caveats. Even if the credit card company sides with you, the merchant may not—and they may try to collect the chargeback funds.
What Happens When You Dispute a Charge?
The Truth in Lending Act is the federal law that gives consumers the legal right to dispute credit card charges if there is a billing error, as outlined in the Federal Reserve’s Consumer Compliance Outlook. This law defines a card issuer’s responsibilities when cardholders file disputes.
When you dispute a charge with your credit card company, it must conduct what the law calls a “reasonable investigation” to determine whether the charge was correct. It must also present you with the result of the investigation within 90 days.
During that process, the credit card company typically reaches out to the merchant involved in the charge. It requests documentation from the merchant regarding the transaction in question, and the merchant may be able to state why the charge was correct.
If the credit card company sides with you, it removes the charge from your credit card statement, and you do not need to pay the charge on your credit card.
Can a Merchant Try to Collect the Money From You After a Chargeback?
The Truth in Lending Act covers your right to dispute a credit card charge, but it doesn’t define what merchants are obligated to do—nor does it bar a merchant from trying to collect the money from you later. Instead, merchant agreements outline what actions a merchant can and can’t take concerning a dispute.
A chargeback means that the credit card company decides in your favor regarding the dispute. It doesn’t mean the merchant agrees or that they’ll return your funds.
Merchants can engage in “chargeback representment” to challenge your chargeback request and prove the original payment was valid. This process can be challenging, and merchants must decide if the potential loss of revenue is worth it—or if they might lose consumer trust with an aggressive approach without evidence.
The merchant might also seek to recover its loss by invoicing you for the charges. If you don’t pay, it might threaten collections activity or even sue you. Understanding your debt collection rights is pivotal if legal action seems imminent.
What’s the Difference Between a Refund and a Chargeback?
Chargebacks are granted by card issuers, while refunds come directly from merchants. While chargebacks can become lengthy and complicated processes, refunds are often straightforward.
So long as your claim aligns with a merchant’s terms and conditions, you’ll likely receive a refund shortly after the merchant receives the product you wish to return.
How Do You Manage Chargebacks?
No one wants to deal with an issue only to have it pop up unexpectedly in the future—especially financial issues that could affect credit scores. Here are some tips to avoid future issues when you request a chargeback.
Only Dispute Credit Card Charges If You Have a Legitimate Reason
Unfortunately, some people request chargebacks even if they received the goods or services in question. They might do so because they have a problem with the vendor or simply because they don’t want to pay for the products. That last instance counts as fraud, and it could lead to your credit card account being closed or other legal consequences.
Reach Out to the Vendor First
Before you file a chargeback, give the merchant a chance to make the issue right first. Many merchants are willing to work with you and might refund the money, offer an exchange, or work to resolve your specific grievance.
As part of your chargeback process, you’ll want to demonstrate that you attempted to contact the merchant about the issue. If you file a chargeback without working with the vendor first, you give the vendor more of a reason to insist that you still owe the money.
Act Quickly
You must dispute a credit card charge in writing, and your letter should reach the credit card company within 60 days of the first bill or statement with the error on it. This short timeline means knowing how to read a credit card statement is critical.
Keep an Eye on Your Account
According to the Federal Trade Commission, you can withhold payment for disputed charges while the investigation is underway. Your credit card company can’t penalize you with late fees, interest, or reports to the major credit reporting agencies regarding nonpayment of those charges.
That doesn’t, however, extend to your account in general. Implementing relevant tips for improving your credit history can keep your score from falling during the investigation. If you do pay your credit card charges and then realize something isn’t right, you can dispute that error. A decision in your favor might result in a credit to your account.
Save the Documentation
Don’t toss receipts, emails, or other evidence just because the chargeback occurred. You might need the documentation again if the merchant decides to try to collect from you. Typically, the higher the amount in question, the more important it is to maintain your documentation.
Monitor Your Credit With Credit.com
Chargebacks won’t affect your credit score alone, but there’s a margin for error while investigation is underway. In addition to reviewing your statements regularly, ensure you’re familiar with the laws that protect you and how you can assert your rights.
If any type of inaccurate negative reporting dings your credit—whether it’s related to a chargeback collection or not—tools like credit repair letters can be vital. One way to help protect yourself is to stay on top of your credit and invest in products and services that let you easily monitor your credit, such as ExtraCredit®.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
VantageScore® and FICO® use somewhat different factors to determine credit scores. They also have separate requirements for credit history and distinct credit score ranges.
VantageScore® and FICO® are both accurate credit scoring models with unique nuances. For example, FICO treats credit mix and age of credit as two separate categories, while VantageScore lumps them into one category (mix and age of credit).
Lenders can use your FICO score and VantageScore when deciding to approve or decline your loan applications. Learning how both models work can help you have a positive impact on your credit. We’ll compare and contrast FICO and VantageScore to help answer questions like “Why are my credit scores different?”
Key takeaways
VantageScore and FICO are both accurate scoring models that use different factors to calculate your credit score.
FICO was established in 1981, while VantageScore was founded in 2006.
Payment history impacts VantageScores and FICO scores the most
Table of contents:
What is a FICO score?
Your FICO credit score is a credit scoring model created by the Fair Isaac Corporation (FICO) that is based on information in your credit reports with the three major credit bureaus—Equifax®, Experian® and TransUnion®. FICO score 8 is the most popular version of this model, and other versions can specifically weigh your habits with auto loans and credit cards.
What is a VantageScore?
Your VantageScore is also based on information in your credit reports with the three major credit bureaus, and it was created by those same credit bureaus as an alternative to the FICO scoring model. VantageScore 3.0 is the most commonly used version of this tool, which debuted in 2013. VantageScore 4.0 incorporates machine learning to analyze a person’s credit habits over time.
Why are my FICO score and VantageScore different?
There are multiple reasons why your FICO score and VantageScore may differ, and it comes down to the way each model calculates scores. Here are several ways that these popular scoring models differ from each other.
Creation and history
The Fair Isaac Corporation was founded in 1956 (then called Fair, Isaac and Company), and they created the FICO score model in 1981. The corporation’s long-standing history is one of the reasons why so many lenders use its scoring models.
VantageScore Solutions, LLC, created the VantageScore model to gauge your creditworthiness using a different formula than FICO. This model was created in 2006, and many lenders have adopted it since.
Minimum scoring criteria
FICO requires at least six months of credit activity to generate a credit score. Moreover, your credit report must display a tradeline (which refers to an item such as a credit card or line of credit) with at least six months of activity.
VantageScore simply asks that clients have at least one tradeline item on their credit reports. There’s also no minimum monthly requirement for that item.
Credit score values
When comparing your VantageScore vs. FICO score, knowing which factors affect each model is important.
FICO Score 8 consists of the following five factors:
Payment history (35 percent): Gauges how often you make payments on time.
Accounts owed (30 percent): Weighs how much of your available balance you’ve used.
Credit age (15 percent): Measures the average age of your open credit accounts.
Credit mix (10 percent): Indicates how diverse your open credit accounts are.
New credit (10 percent): Looks at any new credit accounts you’ve applied for.
VantageScore 3.0, on the other hand, looks at these six metrics:
Payment history (40 percent): Weighs your on-time payments and your missed payments.
Depth and age of credit (21 percent): Measures your credit mix and the average age of your credit.
Credit utilization (20 percent): Is the same as FICO’s “accounts owed” category.
Total balances (11 percent): Looks at your outstanding balances across all accounts.
Recent credit (5 percent): Examines your behavior with new credit.
Available credit (3 percent): Refers to how much credit you currently have available.
Based on these factors, it’s easy to see why your FICO score and VantageScore can differ. Credit mix is scrutinized by VantageScore far more than FICO, which is why it can help to responsibly manage different credit accounts. FICO, on the other hand, weighs new credit activity more heavily—so pace yourself when applying for new credit.
Is your FICO score or VantageScore more important?
Your FICO score and VantageScore are both important because they can help you get a sense of your current credit habits. However, auto loan lenders, commercial banks and landlords favor FICO. This means that your application for a new rental property will likely be approved or declined based on the strength of your FICO credit score.
There’s a lot of overlap between FICO and VantageScore, so most credit-building tips apply to both models. For example, payment history is the most important factor for both FICO and VantageScore, so making timely payments will positively impact both scores.
Several other ways to increase your credit scores include:
Frequently check your credit report to dispute errors and review your habits.
Limit the number of credit cards or loans you apply for all at once.
Learn how Lexington Law Firm’s focus tracks can help you rebuild your credit after major life events.
Monitor your credit with Lexington Law Firm
Responsible credit habits will build your credit no matter which model is being taken into account. Lexington Law Firm can help you better understand your current credit habits, help you manage account inquiries and address errors on your credit reports.
Learn more about our services and see if they will suit your needs.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Sarah Raja
Associate Attorney
Sarah Raja was born and raised in Phoenix, Arizona.
In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts. Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Credit mix refers to the different types of credit accounts a person has open at any given time.
Credit mix refers to the different types of credit accounts a person has open at any given time. If your accounts are varied and include a diverse mix of loans and credit cards, they’ll positively affect your credit. However, it’s important not to take on more debt than you can handle as you work to increase your credit mix.
If you’re wondering “what is credit mix?” then this guide is for you. We’ll explain how this element impacts your credit and dispel several credit myths about credit mixes.
Key takeaways
Auto loans, credit cards and student loans all contribute to credit mix.
Credit mix accounts for 10 percent of your FICO® score and about 21 percent of your VantageScore®.
Paying off a loan can decrease your credit mix.
What is a good credit mix?
Credit accounts fall into two categories: installment loans and revolving debt. Installment loans refer to instances where you borrow a set amount of money and then repay your debt over time through installment payments.
Examples of installment loans include:
Auto loans
Business loans
Mortgages
Student loans
Revolving debt, on the other hand, refers to accounts that let you repeatedly borrow money up to a preset credit limit. Credit cards and home equity lines of credit are the most prominent examples of revolving debt.
A good credit mix will incorporate a combination of revolving debt and installment loans. Responsibly managing two to three credit cards, one auto loan and one mortgage will positively impact your credit.
Do different types of credit cards affect your credit mix?
Yes, which is one of the reasons why institutions like Equifax® recommend holding at least 2 different types of credit cards. For example, managing one credit card from a commercial bank and another from a retail store can steadily improve your credit.
How does credit mix affect your credit score?
Credit mix weighs on your credit score differently depending on which scoring model is considered. Most lenders use FICO score and VantageScore when approving people for loans—and both models have different credit score factors.
FICO score
Created by the Fair Isaac Corporation (FICO), this model looks at the following five factors when calculating credit scores.
Payment history (35 percent)
Amounts owed (30 percent)
Credit history (15 percent)
New credit (10 percent)
Credit mix (10 percent)
Credit mix will somewhat affect your FICO credit score, while payment history is the most significant factor.
VantageScore
VantageScore Solutions, LLC, created this model, which incorporates credit mix into the same category as credit age. Here’s how VantageScores are calculated:
Payment history (40 percent)
Age of credit and credit mix (21 percent)
Credit utilization (20 percent)
Total balances (11 percent)
Recent credit (5 percent)
Available credit (3 percent)
Credit mix can moderately affect your VantageScore, though payment history is still the most important factor.
How can you fix your credit mix?
Opening a multitude of credit accounts might sound like a good idea, but this can significantly hurt your credit if these accounts are mismanaged. Instead, it’s better to gradually open new accounts that accommodate your financial situation—then commit to making timely payments on any account in your name.
Checking your credit report can help you understand your current credit mix and get a sense of what credit you might want to apply for next.
Learn more ways to improve your credit mix with Lexington Law Firm
Lexington Law Firm offers tiered services to help clients with their credit needs and answer their credit questions. Get started with a free credit assessment now.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Sarah Raja
Associate Attorney
Sarah Raja was born and raised in Phoenix, Arizona.
In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts. Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
While getting denied on a credit card application doesn’t impact your score, the hard inquiry from applying for credit may temporarily cause your score to drop a few points.
Not getting approved for a credit card can be a bummer, but does getting denied hurt your credit score? Read on to discover how getting denied affects your credit, potential reasons why your application was denied and the next steps to get approved in the future.
Table of contents:
How does applying for a credit card affect your credit?
After you submit a credit card application, the lender will likely perform a credit check to evaluate your credit history. This triggers a hard inquiry, which is a lender’s request to obtain your credit report from the credit bureaus.
Typically, a hard inquiry causes your credit score to drop around five points or so. While hard inquiries remain on your credit report for two years, the effect on your credit score only lasts a few months to a year. Remember that the effect on your credit is the same regardless of whether your application is approved or denied.
While scoring models provide rate shopping windows for auto loans, student loans and mortgages, these windows don’t apply to credit card applications. To lessen the effects of hard inquiries on your credit, try waiting at least six months between submitting credit card applications.
6 reasons why credit card applications are denied
Below are potential reasons why your credit card application was denied and tips to increase your chances of being approved in the future.
1. Insufficient credit history
Insufficient credit history means that there isn’t enough information in your credit file to determine your risk.
When applying for a credit card or loan, lenders look at your credit history to determine your track record as a borrower. A lack of a credit history is essentially a giant question mark for the lender, which prevents them from assessing your risk level.
Credit tip: Consider applying for a secured credit card or becoming an authorized user on someone else’s account to begin building credit.
2. Poor credit score
Many credit cards have credit score requirements for approval. While this varies from card to card, most require a credit score in good range or higher, which starts at 670 according to the FICO® model. The higher your credit score, the more likely lenders are to approve you and offer favorable interest rates and terms.
Credit tip: Take steps to improve your credit score, such as making timely payments, lowering your credit utilization and disputing inaccuracies on your credit report.
3. Late payments
A history of late payments may indicate to lenders that you might struggle to repay the credit they lend you. Not to mention that payment history is the most important factor in determining your credit score, so too many late payments can severely damage your credit.
Credit tip: Enroll in autopay or set reminders to pay your bills on time.
4. Too many hard inquiries
In addition to the effect that hard inquiries have on your credit score, applying for too many credit cards in a brief time frame might signal to creditors that you aren’t financially stable and, therefore, are a high-risk borrower.
Credit tip: While there is no hard and fast rule, consider waiting about every six months between each new credit card application.
5. High debt-to-income ratio
Your debt-to-income ratio is the amount of debt you owe each month divided by your monthly income. Generally, a low debt-to-income ratio indicates to lenders that you have a higher likelihood of being able to make payments.
Credit tip: To maintain a good debt-to-income ratio, aim to keep your total monthly debt payments under 36 to 43 percent of your monthly income.
6. Inaccuracies on your credit report
Having errors or inaccuracies on your credit report can stand in the way of getting approved for credit. To check for errors, download a free copy of your credit report at AnnualCreditReport.com and identify errors such as incorrect accounts, inaccurate balances or errors regarding your personal information.
Credit tip: If you find errors on your credit report, file a dispute with the credit bureau to potentially have the inaccurate information removed.
Steps to take after getting denied for a credit card
If your credit card application is denied, consider taking the following steps to increase your chances of approval:
Determine why your application was denied: Creditors must send you an adverse action notice that details why your application was denied.
Ask the creditor to reconsider: Most banks have a credit card reconsideration line you can call to plead your case. You may have been denied by mistake, so it never hurts to follow up.
Wait to reapply: While your first thought may be to reapply for the card, try waiting six months between submitting credit card applications.
Research alternative cards: Some credit cards are harder to get approved for than others. For example, platinum rewards cards have more stringent requirements than secured cards. Consider the card’s score requirements against your own score before applying.
Seek preapproval: Many creditors send preapproval letters after using soft inquiries to determine that you meet the initial criteria to get approved for the card. While preapprovals don’t guarantee approval, they can help you filter through cards you won’t get approved for without getting a hard inquiry on your credit report.
Monitor your credit: As you work to improve your credit, continue to check your credit score and report so you can determine when you have a better chance at approval.
At Lexington Law Firm, our team could help you manage and work to improve your credit to potentially get approved for credit cards and loans. To determine your current credit status, get your free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Sarah Raja
Associate Attorney
Sarah Raja was born and raised in Phoenix, Arizona.
In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts. Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
A credit limit is the maximum amount of money a person can currently borrow from a financial institution.
Credit cards and lines of credit let us borrow funds from banks, credit unions and various companies. Credit limits determine just how much money we can borrow without incurring penalties like overdraft fees. Americans tend to gradually increase their credit limits as they age; Experian® reported that the average credit card limit for Generation Z in 2022 was $11,290, while the average credit limit for Baby Boomers was $40,318 that same year.
“What is a credit limit?” may be such a common question because multiple factors can influence a person’s limit. We’ll explore this question and discuss how to increase your credit limit.
Key takeaways:
Financial institutions largely set credit limits based on a borrower’s credit history.
Credit utilization is based on your credit limit and your available credit.
Regularly practicing good credit habits can increase your limit
Table of contents:
How are credit card limits determined?
Your credit limit is determined by the institution you borrow money from, whether they’re a bank, a credit union or a government agency. Credit limits take several factors into account, including your income and credit score. People with higher credit scores and income are normally approved for higher credit limits because lenders view them as financially responsible people.
Annual revenue
When a borrower applies for credit or asks for a credit limit increase, lenders look at annual revenue. From their perspective, a borrower with more income is more likely to make their payments on time—and vice versa.
Credit score
Credit scores help us qualify for auto loans, mortgage interest rates and credit cards—plus the limits we’ll receive when approved. If you have good credit, then you’ll likely be eligible for high-limit credit cards from the get-go.
Debt-to-income ratio
Lenders can use your debt-to-income ratio to set your credit limit by weighing your monthly debt payments against your total income. A low debt-to-income ratio can prompt lenders to offer higher credit limits since your spending habits show you regularly make responsible financial choices.
Employment status
Your employment status can also affect your credit limit largely due to timing. If you apply for a credit card or ask for a limit increase while you’re seeking a job, you’ll most likely receive a lower limit than you would as a full-time employee.
Credit limit vs. available credit
A person’s credit limit and their available credit are heavily tied together, which can cause people to confuse these two terms. To clarify, your available credit refers to the amount of money you can still borrow after calculating your debt. On the other hand, your credit limit refers to the total amount of money that your lender lets you borrow.
For example, if you have a $10,000 credit limit and spend $5,000, you’ll still have another $5,000 in available credit that you can access during this billing cycle. Your credit utilization ratio is calculated by weighing your available credit against your total credit limit. In this case, your credit utilization would be 50 percent.
How does your credit limit affect your credit score?
Whenever you ask a lender to increase your credit limit, they’ll perform a hard inquiry to review your credit history and help inform their decision. Inquiries briefly cause your score to dip, which is why conventional wisdom recommends not attempting to increase your credit limit right before applying for something vital—like a home or a new car.
Credit limits can also affect your score if you consistently have a high utilization ratio. Credit cards with high limits typically help borrowers maintain lower utilization ratios, which is beneficial for credit health.
What happens if you go over your credit limit?
Exceeding your credit limit can have negative consequences, especially if you do so repeatedly. Some of the drawbacks you might encounter include:
Account review: A lender may review your longtime credit habits, which could potentially lead to a credit limit reduction.
Credit score changes: Credit utilization makes up 30 percent of your FICO® credit score. Repeatedly going over your credit limit could significantly hurt your credit.
Increased interest rates: Depending on your lender’s policies, they may issue a penalty APR on the offending account, which can be much higher than your standard rate.
Overdraft fees: Most lenders will charge a $35 overdraft (or over-the-limit fee) after a specified time period if you don’t pay off your balance.
How to increase your credit limit
If you consistently make your monthly payments on time and keep your utilization low, the credit card issuer may approve your request to increase your limit. But remember to allow six to 12 months before asking. Your issuer probably won’t raise your limit after just one or two months of opening the account or if you’ve been making late payments.
Some credit card issuers will actively increase your limit after they review your account history. Sometimes, they’ll ask you to update your income. If you’ve earned a raise recently, you can provide that information, and the lender may increase your limit. When an issuer reviews your account like this, it does not cause a hard inquiry because you didn’t ask for them to review the account.
Work on your credit with Lexington Law Firm
Credit cards are fantastic resources that can positively impact your life when used responsibly. Even if you get approved for a high credit limit, it’s best to monitor your spending and borrowing habits. Lexington Law Firm offers great services like credit education tools and credit report analysis that may help you with your credit.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Brittany Sifontes
Attorney
Prior to joining Lexington, Brittany practiced a mix of criminal law and family law.
Brittany began her legal career at the Maricopa County Public Defender’s Office, and then moved into private practice. Brittany represented clients with charges ranging from drug sales, to sexual related offenses, to homicides. Brittany appeared in several hundred criminal court hearings, including felony and misdemeanor trials, evidentiary hearings, and pretrial hearings. In addition to criminal cases, Brittany also represented persons and families in a variety of family court matters including dissolution of marriage, legal separation, child support, paternity, parenting time, legal decision-making (formerly “custody”), spousal maintenance, modifications and enforcement of existing orders, relocation, and orders of protection. As a result, Brittany has extensive courtroom experience. Brittany attended the University of Colorado at Boulder for her undergraduate degree and attended Arizona Summit Law School for her law degree. At Arizona Summit Law school, Brittany graduated Summa Cum Laude and ranked 11th in her graduating class.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
VantageScore® 3.0 is a credit scoring model that each of the three major credit bureaus uses to determine your creditworthiness.
VantageScore 3.0 is a popular credit scoring model that helps to reflect a person’s creditworthiness. VantageScore® and the FICO® score model help banks and lenders determine if they’ll offer credit cards and loans to applicants.
Understanding the factors that lower and raise your VantageScore can qualify you for better opportunities in the future. We’ll explain what VantageScore 3.0 is and how it works so you can work to improve your credit.
Table of contents:
How does VantageScore 3.0 compare to other scoring models?
VantageScore 3.0 shares multiple similarities with other popular scoring models, including VantageScore 4.0 and several iterations of the FICO scoring model. There are also certain nuances that set each model apart when comparing VantageScore vs. FICO scoring models.
VantageScore 3.0 and VantageScore 4.0 place a heavy emphasis on a person’s payment history, and they place moderate emphasis on age and mix of credit and credit utilization rates. VantageScore 3.0 does focus more on a person’s total account balances, while VantageScore 4.0 is more concerned with new credit.
FICO scores differ from VantageScore in several ways. FICO scores need six months of account activity to generate credit scores, while VantageScores just need one. Vantage Scores generally take six categories into account, while FICO scores focus on 5. Otherwise, VantageScores and FICO scores both use 300 to 850 credit ranges—and the factors they use to calculate credit scores are generally similar.
How are Vantage credit scores calculated?
If you’ve ever asked yourself, “why are my credit scores different?” learning how a VantageScore is calculated may provide clarity.
Payment history makes up roughly 40 percent of your VantageScore and can significantly increase or decrease your score based on how timely you are with your payments.
The age of your credit and how diverse your credit profile is make up about 21 percent of your VantageScore. If you have a wide range of account types and consistently make positive actions with your oldest accounts, your VantageScore will likely steadily improve.
Credit utilization composes 20 percent of your VantageScore. Your credit utilization ratio is determined by weighing how much of your available credit you’re currently using.
Your brand-new credit accounts only make up five percent of your VantageScore.
The total amount of your account balances contributes roughly 11 percent to your VantageScore. This factor is also linked to your credit utilization ratio.
Available credit makes up about three percent of your VantageScore and generally reflects how much credit you’ve taken out.
The answer to “When do credit scores update?” is a bit complex. Credit scores are frequently updated, but there’s no preset date for these updates. It’s best to regularly check your credit scores and dispute any errors that you notice.
Vantage 3.0 credit ranges
Just like a FICO credit score, VantageScores can fall between 300 and 850. However, there are subtle differences between the credit score ranges of both models. For example, a FICO credit score of 780 would be considered “very good,” while a Vantage 3.0 credit score of 780 is simply considered “good.” Here’s a full breakdown of the VantageScore 3.0 credit score ranges.
Very poor: 300 – 600
Poor: 601 – 660
Fair: 661 – 720
Good: 721 – 780
Excellent: 781 – 850
5 ways to improve your VantageScore 3.0
Consistently practicing good financial habits can improve your VantageScore over time. The following tips can help you work on poor credit and eventually reach and maintain higher scores.
1. Don’t apply for too much new credit
Each time you apply for credit, creditors will enact a hard inquiry on your account that temporarily lowers your score. If you apply for too much new credit within a set period, your credit score may sharply decline.
2. Pay down credit card balances
Account balances compose 11 percent of your VantageScore, so paying down your debt can positively impact your credit. Lowering your account balances will also improve your credit utilization ratio, especially if you target your largest balances first.
3. Try to make your payments on time
Since payment history makes up 40 percent of your VantageScore, this step’s importance can’t be understated. Strive to make all of your payments on time. Even if you can only make the minimum payment or have to pay within the grace period, you’ll still maintain good standing with your creditors.
4. Maintain your oldest accounts
Taking positive actions on your oldest accounts will have a greater impact than activity on your newer accounts. Remember that merging your oldest accounts can drastically lower your score if you ever consider using a debt consolidation service.
5. Sign up for a credit monitoring service
A credit monitoring service can maintain watch on your credit reports and clue you into any fluctuations or inconsistencies. Lexington Law Firm offers comprehensive credit monitoring services that can help you take positive steps toward improving your credit.
How can I monitor my VantageScore?
You can monitor your VantageScore by reaching out to the three credit bureaus and requesting a free credit report. You can also capitalize on credit monitoring services like the products offered by Lexington Law Firm. Get your free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Paola Bergauer
Associate Attorney
Paola Bergauer was born in San Jose, California then moved with her family to Hawaii and later Arizona.
In 2012 she earned a Bachelor’s degree in both Psychology and Political Science. In 2014 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, she had the opportunity to participate in externships where she was able to assist in the representation of clients who were pleading asylum in front of Immigration Court. Paola was also a senior staff editor in her law school’s Law Review. Prior to joining Lexington Law, Paola has worked in Immigration, Criminal Defense, and Personal Injury. Paola is licensed to practice in Arizona and is an Associate Attorney in the Phoenix office.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
The lowest possible credit score is 300 for FICO® and VantageScore®. Your credit score doesn’t start at 300, but it can drop due to negative marks on your credit report.
The average credit score in the United States was 716 as of 2022, according to Experian®, and this is a credit score that many people would be happy to have. Using the FICO® score range, 714 falls within the “good” range, but what is the lowest credit score?
There’s a common misconception that the credit score you start with is zero, but that’s not the case. Today, you will learn what the lowest credit score is and the factors and situations that affect your score. Most importantly, we’ll give you some tips to potentially improve your credit, which could save you money and give you more access to lines of credit and loans.
What’s the lowest credit score?
A 300 credit score is the lowest credit score you can have, but this isn’t necessarily the score that you start with. You don’t get a credit score until you have a bill reported to the major credit bureaus. If you’re making your payments on time, you may have a credit score that starts in the 600s. Typically, if you have the lowest credit score of 300, there are negative marks on your credit report that are lowering your score.
Your credit score may differ depending on which scoring model you’re looking at. While the most popular scoring model is FICO, there is also VantageScore®. Both scoring models have a total scale of 300 to 850, so the lowest possible credit score is 300 for both models.
Using the table below, you’ll notice that the ranges are slightly different, but they use a scale of 300 to 840.
FICO
VantageScore
300 – 579 (Poor)
300 – 499 (Very poor)
580 – 669 (Fair)
500 – 600 (Poor)
670 – 739 (Good)
601 – 660 (Fair)
740 – 799 (Very good)
661 – 780 (Good)
800 – 850 (Exceptional)
781 – 850 (Excellent)
5 reasons people have low credit scores
As mentioned, it’s a misconception that your credit score starts at zero. In reality, some derogatory marks can lower your credit score to 300. Your credit score comprises different factors like your payment history, debt, credit age, new credit inquiries and mix of credit types. In many cases where a person has a low credit score, they’re taking actions that negatively affect the five main factors that determine a credit score.
Your credit score is a simplified way for lenders to assess risk. Negative marks on your credit may be a red flag to lenders that you are not capable of paying back a loan. Some of the most common reasons people have low credit scores include:
Poor payment history: Your payment history makes up 35 percent of your credit score, so missing payments and late payments can lower your score significantly.
Collection accounts: When you stop making payments on an account, the lender can sell your debt to a collection agency. This can negatively affect your score for up to seven years.
Bankruptcies and foreclosures: Depending on which type of bankruptcy you file, it can hurt your credit for the next seven to 10 years. Foreclosures stay on your credit report for seven years, according to the Consumer Financial Protection Bureau.
Too many hard inquiries: Each time you apply for a credit card or other services that run a hard inquiry on your credit report, it can hurt your credit.
Errors on your credit report: Sometimes, lenders or other businesses that report to the credit bureaus make mistakes. For example, they may say that you missed a payment. If this happens, you can dispute the errors and potentially help your credit.
Keep in mind that some of the above will hurt your credit more than others.
6 tips to improve your low credit
Achieving the max credit score of 850 is difficult and takes time, but it’s an attainable goal for everyone to improve their low credit. You can improve your low credit with some simple steps and good habits. Even if you have the lowest credit score of 300, over time, you can raise your score to good or even excellent.
Pay off collection accounts: One of the first things you can do to work on your score is to pay off your collection accounts. These hurt your credit quite a bit, so paying them off helps. When you do this, be sure to send a pay-for-delete letter to potentially have the negative mark removed from your report.
Address errors on your report: If there is an error on your credit report, disputing the error may get it removed from your report and improve your score.
Set up automatic payments: Making your payments on time should help improve your credit. Even if you pay just the minimum on your credit cards, on-time payments are beneficial. If you have the funds, you can make additional payments to pay down your debt faster as well.
Keep your credit utilization low: Your credit utilization is the amount that you owe compared to your total credit limit. Ideally, you want this below 30 percent. For example, if you have a $1,000 credit limit, you wouldn’t want to owe more than $300.
Monitor your credit: A great way to work on your score is to check your credit regularly. This can alert you to errors and allow you to adjust your behaviors if you see your credit dip. This is also a great way to stay motivated as you see your credit begin to improve.
Apply for more lines of credit: Yes, applying for too many lines of credit can hurt your score, but you can apply strategically. Having more lines of credit increases your max credit limit and can lower your credit utilization. This also helps with improving your credit age and payment history if you make your payments on time.
Don’t let errors harm your credit
Errors on your credit report can be frustrating and difficult to navigate when you’re dealing with the major credit bureaus. While you can do it on your own, help is available. If you have a low credit score due to errors on your credit report, you don’t have to go through the credit repair process alone. Lexington Law Firm has helped thousands of people repair their credit and has sent out over 221 million credit challenges since 2004. We have a team of credit professionals who are here to help you with your credit by challenging the credit bureaus on your behalf while also providing other services like credit monitoring. To get started, sign up today.
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Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!