Credit score facts & fallacies
Fallacy: A score determines whether or not I
Fact: Lenders use a number of facts to make
credit decisions, including your FICO® Scores. Lenders look at information such as
the amount of debt you can reasonably handle given your income, your employment
history, and 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
Fallacy: A poor score will haunt me forever.
Fact: Just the opposite is true. A score is a
“snapshot” of your risk at a particular point in time. It changes as new
information is added to your bank and credit bureau files. Scores change gradually
as you change the way you handle credit. For example, past credit problems impact
your scores less as time passes. Lenders request a current score when you submit a
credit application, so they have the most recent information available. Therefore
by taking the time to improve your scores, you can qualify for more favorable
See how improved scores can lead to savings.
Fallacy: Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related
information. Factors like gender, race, nationality and marital status are not
included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from
considering this type of information when issuing credit. Independent research has
been done to make sure that credit scoring is not unfair to minorities or people
with little credit history. Scoring has proven to be an accurate and consistent
measure of repayment for all people who have some credit history. In other words,
at a given score, non-minority and minority applicants are equally likely to pay
Fallacy: Credit scoring infringes on my privacy.
Fact: Credit scoring evaluates the same
information lenders already look at - the credit bureau report, credit application
and/or your bank file. A score is simply a numeric summary of that information.
Lenders using scoring sometimes ask for less information - fewer questions on the
application form, for example.
Fallacy: A score 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. Looking for new credit can equate with higher risk, but
most credit scores are not affected by multiple inquiries from auto or mortgage
lenders within a short period of time. Typically, these are treated as a single
inquiry and will have little impact on the credit score.