Credit Repair

15 Unexpected Facts About Credit Scores

You know that your credit score is important. You know that lenders use that three-digit number to decide whether you qualify for loans, mortgages and other potentially life-altering financial products.

But there might be a lot more about credit scores that you don’t know. Credit scores, for instance, can affect how much you pay for your auto insurance. Paying your rent on time rarely causes your credit score to budge. And a higher income won’t nudge your score, either.

Here are some surprising facts about your credit score and how it affects your financial life.

1. Employers can’t check your credit score

You might have heard that employers can check your credit score when you are applying for a job. They can’t. But when you apply for a job, employers might check your credit reports, documents compiled by the three main credit bureaus (Experian, TransUnion and Equifax) that include information on your existing debt and payment history. In some states and cities, credit checks for employment screening are prohibited or limited.

And employers can’t check your credit without your OK. Thanks to the Fair Credit Reporting Act (FCRA), prospective employers must get your permission before checking your credit reports.

2. Closing a credit card could hurt your credit score

It’s a good idea to close a credit card that you are no longer using, right? Probably not if you want the highest possible credit score. Closing a credit card can cause your credit score to fall for two primary reasons: It could throw off your utilization rate and it could lower the average age of your credit.

Let’s start with your all-important credit utilization ratio. This ratio measures how much of your available credit you are using, and the lower it is, the better for your score.

Say you have four credit cards with a total credit limit of $10,000 and you have $2,000 in credit card debt. Your credit utilization ratio is 20%. If you close a card that has a credit limit of $2,000, you are now using $2,000 of $8,000 available credit. That comes out to a higher credit utilization ratio of 25%, which might cause your credit score to fall.

Closing a credit card could also hurt the length of your credit history, which is another significant factor in your credit score. Assuming the card has no annual fee, it’s likely better to keep the account open.

3. A higher income won’t directly help your credit score

Getting a raise can do wonders for your finances and could help you pay your bills on time. But an increase in your income won’t directly affect your credit score. Your income is not one of the factors considered when determining your credit score.

4. Your credit-based insurance score can affect your car insurance payments

Insurers might use something called a credit-based insurance score when setting your auto insurance rates. If your credit-based insurance score — which looks at factors such as your debt levels and payment history — is low, you could pay more for your car insurance.

According to the National Association of Insurance Commissioners, credit-based insurance scores do include information from your credit reports. But not all of your credit-report information is used to determine this type of score.

5. Checking your own credit won’t hurt your score

When lenders check your credit after you’ve requested a new loan or credit card, your score typically takes a small, temporary hit, usually about five points. These credit checks are known as hard inquiries.

But checking your own credit report won’t do any damage. That’s an example of a soft inquiry, and it doesn’t cause your score to budge.

6. FICO credit scores haven’t been around for as long as you may think

Your FICO credit score is the one most mortgage lenders use to determine if you qualify for a home loan. But this score isn’t all that old: The modern version of the FICO Score, based on credit files from the three major credit bureaus, was introduced in 1989.

7. Your credit scores could help predict the odds of a successful marriage

In 2015, the Federal Reserve Board published a paper called “Credit Scores and Committed Relationships.” The surprising results? Couples who had similar credit scores were more likely to stay married. Those who had big gaps in their credit scores were more likely to become separated.

The reason is that initial credit scores predict future credit usage, according to the study. Let’s say one spouse always pays bills on time (and hence has a high score). If the other spouse is accustomed to paying late (and hence has a low score), the disparity could result in discord and financial distress for the couple.

8. You have a lot of credit scores

People often talk about their credit score as if they only have one. But they actually have many. Each of the three credit bureaus generates its own credit report for you, which could result in three slightly different FICO Scores, depending on which report is used.

But that’s just the beginning of your credit scores. There are different FICO credit scores specific to certain industries. For instance, if you are applying for an auto loan, your lender might rely on a score known as your FICO Auto Score. If you are applying for a new credit card, a bank might rely on your FICO Bankcard Score.

Then there are custom credit scores. Many large lenders or financial institutions develop their own in-house credit scores to help them make lending decisions. You also have what is known as a VantageScore, a credit score developed by the three credit bureaus. There are different versions of this, too, the newest being VantageScore 4.0.

All told, you might have dozens of different credit scores. Don’t let this throw you. These scores might vary but not by much. If the FICO Score that Experian generates for you is strong, for instance, your other scores are probably solid, too.

9. Mistakes on your credit report aren’t that unusual

Credit reports aren’t always perfect. In fact, the Federal Trade Commission (FTC) in 2013 reported that one in five consumers had an error on one of their credit reports that could cause their credit score to fall. That’s why it’s so important to always check your credit reports for possible mistakes.

10. Your savings account probably isn’t factored into your score

You might think that having a healthy savings account would have a positive influence on your credit score. After all, it’s easier to pay bills when you have plenty of money socked away. But your FICO Score does not take into account the balance of your savings or checking accounts. So, no matter how much money you have saved, it’s still vital that you maintain a good credit score to keep your financial options open.

There is some change on the way, though. FICO recently introduced its UltraFICO Score, which factors in the banking activities of consumers who opt in to the program.

11. Signing up for credit counseling won’t hurt your credit score

If you need help with your finances, you might consider finding a credit counselor. The act of enrolling in a credit counseling program won’t damage your credit score. And a reputable counselor should be able to provide actionable steps you can take to help drive your score higher. If you’re looking for help, a credit repair agency could be an option, too.

12. Paying rent on time each month? It probably doesn’t help your score

Most landlords don’t report rent payments to the three credit bureaus, which means paying your rent on time usually won’t help your credit score. However, all three bureaus will include rent information if it is reported to them — and some landlords, particularly large companies, regularly do so.

If you are in the habit of paying rent on time, you might want to ask your landlord to start reporting it to the bureaus, which could help your score. You can also pay for a separate service to report your rent payments, such as RentTrack.

13. Holding down a steady job doesn’t directly affect your score

Having a steady job can certainly help with paying your bills on time. But it doesn’t directly help your credit score. Your employment status is not one of the factors that goes into determining your credit score.

14. High FICO Scores are becoming more common

In April 2018, the average FICO Score in the United States rose to an all-time high of 704. That’s up from an average of 686 in October 2009, amid the financial crisis, according to Fair Isaac Corp.

15. An exceptional credit score may be more attainable than you think

As of April 2018, nearly 22% of U.S. consumers had a FICO Score of 800 to 850 — the highest possible range. While it’s certainly not easy to achieve, it clearly can be done with some dedication and hard work. Just pay attention to the things that matter, and don’t get discouraged.


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