The Truth about Your Credit Scores
There are any number of misconceptions out there when it comes to credit scores and how they are calculated. We've compiled a list of the most common credit myths, along with the actual facts that pertain to each issue. If you have questions about your credit score, or want to improve your bad credit, don't rely on myths - you could be doing more harm to your credit, unknowingly. Contact us today and we'll set up an appointment to discuss your credit issues, and what can be done to get you back on track financially.
Myth: My score determines whether or not I will qualify for credit.
Fact: Lenders use several different factors to determine whether or not to approve you for credit, including your FICO® score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, as well as your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.
Myth: Once my credit score drops, there's nothing I can do to improve it.
Fact: Just the opposite is true. Your credit score is, in essence, a "snapshot" of your creditworthiness at a particular point in time. Your credit score changes as new information is added to your bank and credit bureau files, and as such, can rise or fall depending upon your own actions. Your credit scores change gradually as you change the way you handle credit. And it gets even better: past credit problems impact your score less as time passes, so you aren't penalized forever for past mistakes.
Myth: Credit scoring is prejudiced against minorities.
Fact: Credit scoring only considers credit-related information, and not demographics. Your credit score cannot be influenced by your gender, race, nationality, or marital status. There are laws in place, such as the Equal Credit Opportunity Act (ECOA) that prohibit lenders from considering demographic information when it comes to extending credit. Credit scoring has proven to provide an accurate and consistent measure of the likelihood of repayment for all people who have some credit history, regardless of their demographics. This means that non-minority and minority applicants are equally likely to pay as agreed, given the same credit score.
Myth: Credit scoring infringes on my personal privacy.
Fact: Credit scoring only evaluates and quantifies the information lenders already look at when they are considering you for credit: your credit bureau report, the information on your credit application and/or your bank file. Your credit score is just a numerical value that represents the sum of that information.
Myth: My scores will drop if I apply for new credit.
Fact: If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called "inquiries") will appear on your report. If you already have problem credit, looking for new credit can be linked with higher risk. However, most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time, because the credit bureaus tend to treat these requests as a single inquiry.