Over the past three years CreditKarma CEO Ken Lin has made a habit out of offering free credit advice on Reddit "Ask Me Anything" threads.
Lin knows a thing or two about the subject matter. He's been a statistician by trade for more than a decade and runs a site dedicated to educating the masses on the lending industry.
On his threads, Lin candidly answers and explains the ins and outs of his business and calculating a credit score.
Here are the best responses from Lin's posts:
Q: Why is the formula for calculating credit scores so secretive? Considering the profound effects that number has on your life, people should at least know how it works.
A: There are multiple reasons. First, the creators and banks are worried that you will game the system if you know the formula. Next, the more cynical answer is that the credit scoring industry generates hundreds of millions of dollars per year in revenue. By keeping them proprietary, the creators can keep charging and claiming that their score is the best.
Q: What are some tips/tricks to improve your score?
A: There are many best practices to building credit that people don't do that they should. #1 is getting a no annual fee credit card. These things are free and they build credit. In many cases, they will even pay you to use them (cashback or miles). I suggest having 3 to 5 credit cards. Apply for them over 2 to 4 years. Never carry a balance. Never buy what you can't afford. If you do just this, your credit score will be in the good category in 2-3 years.
Q: What do you feel is the primary misconception about credit scores that you'd like to clear up?
A: The biggest misconception is that there is only one credit score.
Each consumer has dozens of credit scores. You will never be able to see them all since many are not sold to consumers. This is further exacerbated by the fact that there are three bureaus which means that each score has three variants.
It is up to the bank to decide which credit score they want to use based on the price and how well the score predicts risk.
Q: Is there any harm to having too many cards or too much available credit?
A: Rarely. If you have 20+ cards, it might be too many. But here is a chart you might find interesting: http://www.creditkarma.com/res/img/layout/article/infographic.jpg
Q: I've heard that checking your credit score (or report) can actually hurt your score. Is that true?
A: Another common myth. Checking your own credit score does not hurt it. Applying for credit and having lenders check it does. Both are called credit inquiries. One is a hard (lenders) and the other a soft (you). That is probably the source of the confusion.
Q: Don't the free reports from annualcreditreport.com lack the score itself?
A: Correct. AnnualCreditReport is great. But you don't actually get a score. If you did, check your credit card statement because you got up-sold.
Q: Is it true that I can only check my credit score once per year?
A: You can check your free credit report once per year at annualcreditreport.com by law.
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