It’s National Get Smart About Credit Day. Here are 7 facts you might not know about credit.

To mark the day, MarketWatch talked to experts about why understanding credit is important, and what credit-related facts people sometimes get wrong.

For better or worse, a person’s credit history and score impact many important areas of their lives, said Leslie H. Tayne, the founder and head attorney focusing on consumer and business debt matters at Tayne Law Group, P.C. Having good credit allows you to borrow money at lower interest rates, Tayne said. 

“But your credit also impacts your ability to rent an apartment, open utility accounts, and even get certain jobs,” she added. “Not knowing how credit works or how to build good credit can mean paying more for everyday expenses and missing out on opportunities.” 

More people have had to confront this reality recently as access to credit has tightened, and more would-be borrowers are being rejected when they apply for new credit cards or to expand their current card’s spending limit.

A credit score can have far-reaching consequences. “A single financial opportunity — like a first credit card, a first auto loan or a student loan — can be a critical step to establishing individual financial health and generational wealth that can change the trajectory and livelihood of families and communities for generations,” said Aparna Shah, senior vice president and general manager of direct to consumer at Equifax
EFX,
+2.87%.

While most Americans (90%) say they “at least somewhat understand what a credit score is,” only 37% check their credit score monthly, according to a survey this year by Fair Isaac Corporation
FICO,
+0.74%,
which provides credit scores.

Knowledge about credit seems to accrue with age: Most baby boomers in the survey (96%) said they completely or somewhat understand credit scores. Meanwhile, one in five members of Gen Z said they “only understand credit scores a little or not at all.” And 29% of Gen Z members said they either didn’t have a credit score or didn’t know if they had one, FICO found.

For National Get Smart About Credit Day, here are seven facts about credit and credit scores that you may not know, but should, according to experts.

1. The APR on your primary credit card is … ?

As the Federal Reserve has hiked interest rates to try to tamp down inflation, interest rates on credit cards have soared to all-time highs of more than 20%, making it more expensive than ever to carry a credit-card balance. As of Oct. 11, the average annual percentage rate, or APR, was 20.72%, according to Bankrate. 

Alarmingly, many consumers don’t know what the APR is on their primary credit card. Among people who carry a balance from month to month, 43% don’t know what rate they’re paying on that debt, a Bankrate survey this year found. The younger a credit-card user is, the less likely they are to know their card’s rate, Bankrate found, with 50% of Gen Z members in the dark about their card’s rate, compared with 39% of baby boomers.

2. Creditworthiness can affect your job prospects

If you’re applying for a job where you’ll be handling money, or for a role involved with the military or government, there’s a good chance the employer will run a credit check on you, said Christina Roman, a consumer education and advocacy manager at Experian
EXPGF,
-4.46%.
The employer will be able to see your payment history, but not your exact credit score.

“They could want to see it if you’re going to be managing accounts for them, if you’re going to have access to a credit card, or if you’re working in the financial side of the company,” Roman said. “They want to know that you’re responsible for managing several aspects of your life, including your finances.”

3. Credit-card debt is often the result of an emergency expense, not chronic overspending

Americans’ credit-card debt hit an all-time high of $1.03 trillion in the second quarter. But that milestone isn’t the result of people splurging on tickets to Taylor Swift’s Eras Tour and other “funflation” spending.

In fact, 43% of people carrying credit-card debt said their debt was the result of emergency expenses or other unexpected costs, according to an August Bankrate survey. Those include car repairs, medical bills, home repairs and other surprise expenses, according to Bankrate.

4. It’s OK to check your credit score regularly

More than a quarter (27%) of consumers believe checking their credit score will lower it, according to a Capital One survey on misconceptions about credit. That’s not the case, Tayne said: It’s true that when you apply for a loan or a credit card, the creditor will perform a “hard” credit inquiry, and that may ding your score by a couple of points. Several hard inquiries within a short period of time can do more damage, she said.

“However, when you check your own credit, it’s known as a ‘soft’ credit inquiry and has zero impact on your credit,” she added. “You can check your credit as often as you want with no negative consequences.”

5. You can get a free credit report once a week now

It used to be that consumers could get a free credit report once a year, but the three major credit-reporting bureaus, Equifax, Experian and TransUnion
TRU,
+4.09%,
started offering free reports weekly during the pandemic, and recently said they would make that service permanent.

6. You don’t need perfect credit to feel the difference of improved credit

Some people like to brag on dating profiles about their impeccable credit scores, but when it comes to building your credit, don’t get too caught up in trying to achieve a perfect score.

“You don’t need to strive for perfection,” said Margaret Poe, head of consumer credit education at TransUnion. “Of course, credit is an important part of your financial wellbeing, but you don’t need a perfect score to benefit from good rates and terms on your loans. If you’re looking to improve or rebuild your credit, having goals is smart. Concentrate on incremental progress and shoot for a credit-score range you think is attainable.”  

So what is a good credit score? Widely used credit-scoring models generally range from 300 to 850, according to TransUnion. A “good” score is usually in the 721-to-780 range when measured by the Vantage Score 3.0 model, which is what TransUnion uses. VantageScore 3.0 classifies a “very poor” credit score as 300 to 600, and the 601-to-660 range is considered to be “poor.” A score between 661 and 720 is considered “fair,” and an “excellent” score is in the range of 781 to 850.

The labels that correspond with each score level are more like guidelines than hard-and-fast rules, TransUnion points out. 

7. Higher income doesn’t mean a higher credit score

You don’t have to make a lot of money to have a beautiful credit score.

“Your income doesn’t actually impact your score at all,” Tayne said. “What matters is how much debt you have in comparison to your income. Known as your ‘debt-to-income ratio,’ or ‘DTI’ for short, the more of your monthly gross income that goes toward debt repayment, the worse it is for your credit.”