Your Credit Score – Facts and Fiction

When it comes to credit scores, many consumers don’t know what to believe or what goes into calculating ones score. And that’s for good reason, as credit scores are derived from complex algorithms, too complex for even the most astute financial person to fully comprehend. However, there are certain facts and fiction when it comes to credit scores.

Fiction: Your Current Interest Rates Affect Your Credit Score

Fact: Credit bureaus don’t look at your interest rates when calculating your credit score.  In fact, this myth has the process absolutely reversed: banks and credit card issuers will look at your credit score before determining your rates.  It’s true that your previous credit history can affect your rates, but issuers look at your reported payment history, not your interest rates.  Credit bureaus don’t even collect this information.

Fiction: If You’re Employed, That Reflects Well On Your Credit Score

Fact: Credit bureaus don’t track your employment status, though previous and current employers could show up on your report. All they care about is your payment history and how much credit you’ve been extended in the past.  In fact, it’s impossible to track everyone’s employment history, and may be illegal, depending on the state.  It is true that bank loans will look at your current employment, but that’s a different area entirely.

Fiction: Your Age, Race, Gender, Nationality, and Ability To Speak English Will Affect Your Credit Score

Fact: Credit bureaus aren’t interested in collecting this information, as it’s irrelevant to what a credit score and credit report are supposed to do.  Furthermore, collecting this information can be illegal, and providing it to others is against federal discrimination laws.  While interested companies could probably learn this information about you and your age and gender may appear on your credit report in certain instances, it will not affect your credit score necessarily.

Fiction: Credit Bureaus Look At Your Assets

Fact: Credit bureaus have no access to that information.  Credit bureaus don’t receive any information from banks about your checking or savings accounts: only loans.  Similarly, credit card companies only report your credit line and how much you currently owe to the company.

Fact: Where You Live Affects Your Score Reality: Credit bureaus do track addresses, but this is solely to be able to properly line up the correct credit history to the correct person.  They don’t provide that information on credit reports.

In the end, when it comes to credit scores, there are still many complex factors, which make it difficult to explain all the ins and out of the scoring systems. However, there are certain facts and fiction we do know.