Surprise! Your Credit Score Isn’t Affected by These 5 Factors
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Whether you realize it or not, your credit report and credit score can have a big impact in your life.
Most consumers are fully aware that their credit score and credit report have a lot to do with whether or not they can get a mortgage loan, a new line of credit, and an attractive interest rate. However, there are other influences your credit score or credit report have that go beyond just your ability to get a loan.
For example, if you’re looking to rent a home, condo, or apartment, your landlord will likely request access to your credit report. Since your credit report is a road map of your financial trustworthiness, a collection, repossession, eviction, or a history of late payments could cause your rental application to be denied.
Prospective employers may also request access to your credit report before hiring you. Your ability to responsibly manage your credit and pay your bills on time can sometimes speak volumes to prospective employers.
Even insurance companies and utilities may take your credit report into consideration. It’s been statistically shown that people with higher credit scores cost insurers less, while the opposite is also true (low credit score customers cost insurers the most). Thus, it’s not somewhat common for insurers to charge consumers more if their credit report is littered with bad news. As for utilities, your credit report, no matter how bad, isn’t enough to get your service denied. But, the utility or utilities in question can request a sizable deposit to offset what could be a poor credit history.
There are, however, a number of factors that won’t impact your credit score, despite the popular belief that they will. Here are five of them.
1. Checking your credit report
Perhaps the greatest misconception of them all is that checking your credit report will negatively impact your credit score. There are actually two types of credit checks: soft inquiries and hard inquiries. Soft inquiries are surface-scratching reviews that don’t impact your credit score. Examples may include a getting a pre-approved credit card offer, a background check from an employer, and yes, you checking your credit report for free once annually. Hard inquiries, such as when you apply for a loan or credit card, do negatively impact your credit score over the short term.
I believe it’s worth mentioning as well here that far too few Americans are taking advantage of the fact that they can check their credit reports from all three reporting credit bureaus (Experian, TransUnion, Equifax) for free once annually. It’s not uncommon to find errors on your credit report from time to time, and clearing up errors can lead to an instant boost in your credit score. To check your credit report for free, go to AnnualCreditReport.com.
2. Credit counseling
People make mistakes and sometimes need guidance to get out of debt. However, that doesn’t mean that meeting with a credit counselor is necessarily going to impact your credit score. That’s according to Fair Isaac, the company responsible for the FICO score that most lenders use when deciding whether to give you a loan:
Using a credit counseling service and having this situation reported in your credit report should not have any negative impact to your FICO score. However, the actions you take based on the recommendations of a credit counselor may sometimes affect your score. For example, choosing to make partial payments or agreeing to settle for less than the full amount on accounts may be regarded negatively by the FICO scoring model. Additionally, any late payments occurring either before or after you began the plan may also be regarded negatively.
In other words, if your credit counselor works out a debt management program that has you paying back far less than you owed, it’s possible your score could be negatively impacted based on FICO’s model. Generally, though, working out a multiyear repayment plan with a debt counselor that has you repaying every cent of what you owe won’t impact your credit score, though it’ll probably show up on your credit report.
3. Your age
Credit agencies could really care less about your age, although there can certainly be some semblance of correlation between average credit scores and age.
Fair Isaac takes five factors into account when devising your credit score. The number in parentheses represents its relative importance in determining your score.
- Payment history (35%)
- Credit utilization (30%)
- Length of credit history (15%)
- New credit accounts (10%)
- Credit mix (10%)
If you’re younger, you’ll naturally have a shorter length of credit history, perhaps a less desirable credit mix, and of course a shorter payment history than someone who’s in their 50s or 60s. However, that doesn’t mean you can’t have a good or excellent credit score in your 20s or 30s. If you’re making your payments on time, using less than 30% of your available credit, keeping good-standing accounts open, only opening new accounts when it makes sense to do so, and you have a nice mix of installment and revolving loans, you’ll probably have a good or excellent credit score regardless of your age.
4. Your income
Your income has no effect on your score, either. Your credit score is a personal representation of your ability to repay your debts on time, and it assesses the use of the aggregate credit available to you. Having a high income doesn’t mean you’ll necessarily use your available credit or make your payments on time.
5. Insurance payments
Finally, as was noted above, insurance companies will often check your credit report and decide whether to insure you, and what to charge you, based on your credit history. What they usually won’t do is send an uncollected bill to a collection agency, which would hurt your credit score.
If you fail to make a timely payment to an insurance company, and your grace period has passed, it’s just easier for the insurance company to drop your coverage than it is to send you bill to a collection agency. Since insurers don’t report timely payments to the three credit bureaus, they have no impact on your credit score.