Most people are ambiguous about what really matters to a credit score, and find themselves worked into a panic every time any of these supposedly “harmful” episodes occur.
Here are some of the common misconceptions about what matters to your credit score. The credit score according to FICO model involves the following:
- Past payment history – 35%
- Amount of debt outstanding – 30%
- Length of credit history – 15%
- Number of recent credit applications (does not matter whether okayed or not) – 10%
- The type of loans you avail – 10%
1. Your Income
Many feel that a higher income means a higher credit limit or purchasing power, hence a higher salary will improve the score and a low one will harm it.
Wrong! While your credit report might have your employer’s name in it, it will not state how much you are earning. Your credit standing is calculated by the amount of credit you are sanctioned in the market – credit cards, mortgages, loans, and the like.
2. Insurance payments
Insurance payments are not considered as loans. The insurance companies usually check your credit score before quoting a price. However, they do not report late payments to the credit bureaus.
3. Credit counseling
Credit counseling does not influence your credit score. In fact, the bureaus have observed that people who avail of counseling better their financial lifestyles, and therefore take it as a positive step. It however, it does not add or subtract points for this activity.
4. Your age
Your age is not part of the credit score calculation. In fact, none of your demographic data will be taken into account – such as gender, race, creed, or age. However, the length of your credit history, as mentioned above, makes up for 15%, and the advantage of which older people will get more than younger people – for obvious reasons.
5. Self-check on Credit Score
You can check your own credit score as many times as you feel necessary; there will be no impact on your credit score as long as you go through reputable sources such as annualcreditreport.com, FICO, the three credit bureaus, or any legitimate third party. The credit score will take a hit only when a lender checks you out – for this will be interpreted as a "hard enquiry" similar in weight to a new credit application.
6. Alimony and Child Support
Though these are serious financial commitments, they do not bear impact upon your credit score unless you fall so far behind that a collection agency is called in. In this case, you not only get a dip in your score, you also might get into serious trouble with the Law.
7. Utility and telephone bills
The credit bureaus do not take into consideration whether you are paying your utility bills on time or not. However, if you fall behind so much as to get a collection agency involved, that goes on your credit report and will influence your credit score negatively as well.