San Diego, CA - Your credit score is one of the most important
numbers in your life and one of the most misunderstood. So many
people don't understand how the credit scoring system works because
Fair Isaac Corporation, the designers of the FICO credit score,
gives only vague hints as to how they calculate it. It's specially
designed to be difficult to understand and impossible to guess.
As a result, there are plenty of myths and misunderstandings
floating around the score. In this article, we will take a look
at the six most egregious of those myths and put them to rest.
1. You are Your Score
Most people don't think about or see their score until they're applying
for a loan, be it a car loan or a mortgage. If the score is high,
they feel great. If the score is bad, they feel terrible. Your credit
score is only a measure of how risky you are as a borrower. It is
not an indicator of who you are as a person, what you are capable
of doing, or whether or not you'll actually default on a loan. It's
merely a numbers game and to the lender's risk department, you're
only a risk that needs to be assessed and addressed based solely
on the numbers.
Unlike you as a person, your credit score can and will change. Your
credit score can be wrong. Your credit score might be good in one
scenario but not as good in another. What is a good credit score?
It depends on the loan!). So don't feel bad if your score is low,
just change your behavior so that it can improve. Check your report
for inaccuracies and errors. Do the right thing, starting today,
to improve your score or maintain it's good standing.
2. Build Credit With a Balance
One of the most popular credit score myths is that you need to carry
a balance in order to build credit. Fortunately, that's not true.
In reality, 35% of your credit score is based on your payment history
and creditors don't care whether you carry a balance or not. In
fact, your credit cards will report your statement balance each
month with no other information. No one knows, or cares, whether
you've carried a balance from month to month or just racked up the
charges on the statement in the last month.
You are building credit, based on your payment history and your
balance, regardless of whether or not you pay interest to the credit
card companies. The effect on your credit remains the same.
3. Checking Your Score Hurt
There are two types of credit inquiries, a hard inquiry and a soft
inquiry. A hard inquiry is any inquiry made in conjunction with
a lending decision, such as from a credit card company, mortgage
lender, or similar financial institution. A soft inquiry is every
other inquiry to include information inquiries as well as your own
personal inquiries. Hard inquiries hurt your credit score because
it represents a risk. Someone applying for credit is seen as riskier
than someone who hasn't applied for credit in quite some time. The
more often this happens, the riskier you are and that lowers your
When you make a request for your credit report or credit score,
it has no impact on your credit score.
4. Your Demographics Affect Your Score
The credit score system is all business and has no prejudices or
preconceived notions. Your age, gender, immigration status or citizenship,
and income have no effect on your credit score. If you've pulled
your credit report lately, you may notice that your report doesn't
even list your citizenship or gender. My Experian report doesn't
list my birthday, Transunion only has month and year, and neither
know my salary (though they do list placesof employment).
Your age does play an indirect role in your score. The length of
your credit history is a factor because the bureaus need enough
data to make a determination of your credit risk. If you're only
21, you haven't had many years to build a credit history. However,
just because you're 50 doesn't mean you have enough either, if you
only applied for credit when you were 49.
5. Boost Your Score, Dispute Negatives on Your Report
One of the most popular "improve your credit score quick!" tactics
is to dispute every negative item on your credit report. If the
reporting company doesn't respond in 30 days, the negative mark
will be removed and your score will likely increase. While this
sounds like a good idea, this usually doesn't work as effectively
as the credit boosters claim. If you see anything incorrect, by
all means dispute it. If you see correct but negative information
on your report, you can try this tactic but don't get your hopes
6. A Marriage Merges Credit
When two people are wed, they share a lot of things but they don't
share a credit report. What happens is a lot of their credit lines
may merge, thus reporting to both reports, but the report itself
is not merged. Each person retains their own report. When a couple
applies for a joint mortgage, that mortgage will appear on both
credit reports. When they apply for a joint credit card, the inquiry
and the account, if they are approved, will both appear on the reports.
If they separate, they will still have their own individual credit
Before today, which of these myths did you believe? Which of
these did you already know but can't seem to convince your family
and friends that you are right? Are there bigger myths than these
out there that need tackling?
SOURCE: US News, as quoted in YahooFinance, 9/17/20, Jim Wang.
Jim Wang writes about personal finance at
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' Jim Garnett
AskMrG Financial Library
2216 SW 35th Street
Ankeny, IA 50023
Paul S. Richard
President - Executive Director
Institute of Consumer
Financial Education (ICFE)
About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.