Tip:
Highlight text to annotate it
X
SAL KHAN You hear the word “credit report”, and
you hear the term “credit score”, and sometimes they, they seem to be used interchangeably.
What, what’s, what’s the difference between the two?
ROB HABGOOD Yeah, Sal, it’s a great question. A, a credit
report is a personal credit history, and it pulls in a lot of different information, um,
information about when you’ve applied for credit, um, on all your credit accounts, whether
they’re credit cards, or auto loans, or a mortgage. Um, and there’s a lot of detail
in there. So it will, it will highlight the open dates, the current status of the account,
um, how you’ve used the account, um, and what your payment history has been, um, on
each of those accounts. So, you know, these can end up being several pages long. Um, it’s
a lot of detail for each individual. Um, when you apply for credit, or apply for a new job,
um, the, uh, you know, the, the credit report will be requested from one of the top three,
um, uh, credit bureaus. So Equifax, or Experian, or TransUnion. Um, and, uh, then that will
determine ... they’ll use that as part of their decision-making process. Um, a credit
score, um, is a, a very different thing because it’s just a number. Um, it basically is
taking all the information on the credit file and summing up it into one number that is
an indication of your likelihood to pay on your current credit or future credit obligations.
Um, you know, one important thing here, Sal, is that, uh, everybody should know that they
can get a free copy of their credit file, um, of their, of their credit report. Um,
they can go to AnnualCreditReport.com, and you can get one free copy from each of the
three major credit bureaus each year, and it’s important to do that to really see
what’s there, um, and monitor whether it’s improving or not. Um, and if you do see an
inaccuracy, um, there’s a clear process of what you can do to make that, to get that
corrected.
SAL KHAN And just to emphasize, getting that, that,
getting that inquiry into your credit report or ... that, that is, does not ... you know,
when we asked Ian earlier, he said one of the metrics that goes into it are the number
of inquiries, and I would assume that if you get a ton of inquiries into it, that might
hurt your score, but there is a subtlety there between whose inquiry, who’s inquiring,
(Laughs) I should say.
ROB HABGOOD Right, right. That’s right.
SAL KHAN And so is, it’s ... there, there, it, it,
it ... so wh-, when does it hurt your score, or when, when, when does it not hurt your
score when you, when you get an inquiry?
IAN COHEN Um, Rob, do you want me to answer that?
ROB HABGOOD Yeah, go ahead.
IAN COHEN I can take that. So, uh, banks will check
your credit frequently before sending offers to you. That does not count. Checking your
own score will never hurt your score. The only thing that affects your score is a hard
inquiry, and that’s when you actually apply for credit. And that makes a lot of sense.
Um, the measure of risk is, is somebody out applying for, uh, $30,000 worth of credit
in a day? The only thing that’s being measured is when you’re actually applying for credit
SAL KHAN I see. So Ian, just to make, make sure I ... because
this seems like a very important point ... a hard inquiry is what would ... what would,
what would potentially affect your actual credit score. That would be a lender seeing
whether you are qualified for a certain amount of debt. What about, uh, and, and obviously
if you are looking into your own credit report, that would be I guess a, a soft inquiry. What
about something, uh, in, in between? What about if it’s a, a landlord who is not looking
to lend money, but just wants to see how, how credit worthy you are?
IAN COHEN So it depends what kind of pull the landlord
does. Generally that does not affect your credit score. One very important thing to
note here is if you’re, um, uh, looking for an auto loan, and you apply for seven
auto loans in the period of two weeks, that generally doesn’t count as seven inquiries.
It generally counts as one because they’re all for the same type of loan. Um, uh, Branden,
do you want to add anything to that?
BRANDEN RECKER Yeah, absolutely. You know, I just want to
expand upon that, (Clears Throat) not just auto loans, but also mortgages, you have the
option to go ahead and shop around and get the best rate on that, as well, and the same
idea, as long as you do it in that two to three-week window, it only counts as one inquiry.
SAL KHAN I see. So in general, when you’re lo-, getting
debt, they will be hard inquiries, but if you’re getting ... if you’re shopping
around in a small period of time, it won't necessarily be so bad. They’ll ... it will
look like you’re just some ... shopping around and, and you’re comparing rates,
but then also, just so people know, so they’re not afraid, if a, if a landlord is doing an
inquiry, and if they’re doing a soft inquiry, so they’re not looking to give, lend you
something, or if you yourself are looking into your own report, that doesn’t count
as, as something that will actually ding your report?
BRANDEN RECKER Correct. And again, we just want to make sure
to say that out loud, is that this is only regarding mortgages and auto loans where you’re
allowed to shop around. Credit cards you want to shop around, you need to do your homework,
or online, and, or kind of the creditor themselves.
SAL KHAN I see. So credit cards, you could ... it,
it, it might look a little bit worse if you are getting multiple inquiries in a short
amount of time?
BRANDEN RECKER Absolutely.
SAL KHAN Interesting. Interesting. I didn’t appreciate
that before. See, I ...
BRANDEN RECKER (Laughs)
SAL KHAN ... you, you learn things on these ... (Laughs)
IAN COHEN So when you go out, when you go out Chr-,
uh, holiday shopping this year, and you’re, you’re offered all these store credit cards,
think twice before you apply for that credit as opposed to the one that you really want.
SAL KHAN I see. So that ... do the research before
you apply while ...
IAN COHEN (Overlap) Yeah.
SAL KHAN ... home and auto ... you, you, you have a
little bit more leeway there?
IAN COHEN The 15 percent you save on that purchase may
actually cost you a lot more, um, in the interest rate on that card. So, uh, yeah, don’t just
grab all those cards for discounts.