Fact Versus Fiction About Credit Scores

There is a lot of mis-information on the web about what does and does not impact a credit score. I hope this article helps debunk a few of those myths.

FICTION: If I check my credit report often, all those “inquiries” will lower my credit score.

FACT: Your personal inquiries are called “soft” inquiries and do not impact your credit score at all. You can check your credit as much as you like with no negative impact, as long as you do it through a credit bureau or a company such as FICO authorized to issue credit reports.

EXPLANATION: Even though you may see all kinds of inquiries in your credit file, many have no bearing on your FICO score. For instance, your score does not count your own inquiries as well as those from existing creditors who are reviewing your account or lenders who are trying to offer you “pre-approved” credit.

FICTION: I pay cash for everything and don’t buy on credit or use credit cards, so my credit score should be excellent.

FACT: Having no credit history or never using credit can have a negative impact on your credit score.

EXPLANATION: It helps your FICO score to have some history of paying credit obligations on time. FICO reports that people with no credit cards tend to be higher-risk than those who have credit cards, use them periodically, and manage their debt responsibly.

FICTION: Closing my old accounts since I’m not using them any more will improve my credit score.

FACT: Depending on your overall credit profile, you can actually hurt your credit score by closing older accounts.

EXPLANATION: Generally speaking, it works in your favor to have older accounts in your credit file because it shows that you have a longer credit history.

FICTION: The most important factor in my credit score is whether or not I am “maxed out” on my credit cards.

FACT: The biggest determinant of your credit score is how well you’ve paid your bills on time in the past.

EXPLANATION: Your FICO score takes into account whether you’ve had late or missed payments, how far past due your bills were, how long ago the late payments occurred, and whether you have any collection items such as a repossession, foreclosure, or judgment against you.

FICTION: My age, race, gender, marital status, income, or place of residence can impact my credit score.

FACT: None of those factors are taken into consideration when your FICO credit score is determined.

EXPLANATION: Under U.S. law it is illegal to for credit-scoring to take into account race, age, nationality, religion, sex, or marital status.

Excerpted from Perfect Credit: 7 Steps to a Great Credit Rating

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