Answering Common Questions About Personal Credit

A credit score measures the likelihood that someone will pay back borrowed money within a certain time period. Credit bureaus typically calculate this score by looking into a person’s credit history, current debts, and frequency of new credit applications. Even though every person’s credit situation is different, there are some basic concerns that most people have about building their credit scores.

Why Do Credit Card Companies Raise Interest Rates?

Under the Federal Credit CARD (Accountability Responsibility and Disclosure) Act, credit card companies can no longer raise interest rates for any reason. Instead, they can only raise the rate on someone’s outstanding balance if he or she is more than 60 days late on a payment. Credit card companies can also increase the interest rates on new purchases if they give issuers 45 days advanced notice.

How Many Credit Cards Should Someone Carry?

Even though the ideal number of credit cards varies by person, most people are fine carrying only two major credit cards. A person should use a low-rate card when he or she needs to carry a balance. It is also a good idea to look for cards without annual fees, unless the credit card company offers substantial rewards.

Does Checking Credit Hurt Your Credit Score?

If someone uses a service that sells credit reports directly to consumers, this is considered a “soft inquiry.” Soft inquiries show up when someone looks at his or her own credit report, but not when creditors review the score. As a result, soft inquiries do not impact credit rating. However, if someone applies for a new credit card, cell phone, or insurance plan, this will generate an official report and can potentially drop a score a few points.