What ISN’T In Your Credit Score?
December 20, 2013I have talked to a lot of people about their credit scores being low and their desire to increase their score. Understanding the components of the credit score is a conversation that is important, but equally important is understanding what isn’t in your credit score. I have heard a lot of statements like “I have heard that my credit score includes X,” with X being a number of things that aren’t actually a part of the credit score. So…what things aren’t included in your credit score that many people assume are included?
The thing that most people expect is included in the credit report that is NOT included is your income. Many people believe that since the credit score is an indication of your ability to make payments on time, your level of pay should matter. I can’t say I disagree. But, all 3 credit reporting agencies do! Nowhere in your Experian, Equifax or TransUnion files is income a consideration.
Another thing that surprises many people is that their employment status (or lack thereof) is not a factor in determining the credit score. I have talked with a number of people who are either retiring or who have been caught up in a job elimination/downsizing and worried that their credit score will tank because they no longer have a job. When we talk about the things that comprise their credit score and being retired or unemployed having no impact, I often see surprised faces…happily surprised!
When talking with people who are either about to get married or about to end a marriage, their marital status is frequently discussed in terms of how it will impact their credit score. The simple answer is that it has absolutely zero impact on the credit score. What WILL impact the credit score? Opening joint accounts with a new spouse and then the spouse not paying the bills on time or ending a marriage and not ending the joint credit arrangements. For these reasons, I often discuss each spouse maintaining a separate credit history and minimizing joint accounts unless there is something (like a mortgage) where it’s critical for both parties to be included for income qualifications. I have seen joint credit have a very negative impact on a previously impeccable credit report.
Something else that surprises people is that your current interest rates on your debt is not a part of your credit score. Whether you are paying 29.99% on a credit card or have a great 0% card is completely irrelevant in terms of your credit score. As long as you are making your payments on time, every time, and your balance is relatively low (under 30% of outstanding credit line is ideal), your credit score will continue to be very good or will improve if it isn’t great now.
There are a lot of misconceptions out there about what is and isn’t included in your credit score. It’s an important thing and one that comes with a whole lot of confusion and myths. If you’re looking for what is included, one of the best resources I’ve found is www.CreditKarma.com, where you can sign up for a no-cost service that tracks your credit score on a monthly basis. Along with your credit score, there is an awesome “Credit Report Card” that lists each area of your credit score, how you’re doing in that area (in an A-F score fashion) and some tips to improve your score. Being aware of your credit score can help you get preferential loan rates when you need a loan and helps reduce ongoing costs like auto insurance, and many employers now look at your credit file prior to making a job offer. Arming yourself with knowledge and dispensing with misconceptions is very easy to do and just might help you out in the long run.