There are a lot of untruths out there about credit scores, and since our credit is so important to us, this can be pretty scary. But get the facts about credit scores here.
“I have a low credit score, so I won’t be able to get credit for a new home.”
Lenders use more than just your credit score in making their lending decision. They also take into account your income, employment history, credit history, current debt and expenses and more. Each of these factors go into deciding whether or not they will extend credit. So you’re likelihood of getting credit depends on these factors, as well as the lender’s company policies; and you could get approved for a loan with a low credit score, if all the other factors are in your favor, just like someone with a high credit score may not get approved, if all the other factors are against them.
“I made some irresponsible decisions that left me with a low credit score in my early twenties; and I’ll be paying for it for the rest of my life.”
Wrong! Your three credit scores are an assessment of your risk at a particular point in time. Your credit score changes over time, based on how you handle credit. As time passes, past credit problems impact your score less and less. Improvements to your credit can eventually outweigh past problems.
“I am a minority; credit scoring is not fair to me.”
Credit scoring takes into account only credit-related information. The Equal Credit Opportunity Act prohibits factors like gender, race, nationality and marital status from being included in credit scoring and independent research how shown that credit scoring is not unfair to minorities. Credit scoring is an unbiased, precise and dependable method to evaluate credit risk of repayment for all individuals.
“A credit score is an infringement on my privacy.”
A credit score is simply a numeric summary or representation of the information that lenders already look at when deciding whether or not to extend credit – your credit bureau report, credit application and bank file.
“All credit scores are the same – just pick one.”
There are three main credit reporting agencies – Equifax, Experian and Transunion – that can give you three different credit scores – and several other companies/organizations that can sell you a credit score. The truth is the information listed on each of your credit reports can vary and your credit scores from each will also vary. This is because the information is supplied to and gathered by each agency differently. No one credit score is better than the others.
“Looking at my score or applying for new credit will make my score drop.”
Pulling your own score is considered a soft inquiry, and does not impact your credit score. Some might worry that if it looks like they are looking for credit, they will appear to be a credit risk. But if you are a smart shopper and want to compare the best rates on a home mortgage or a new car, you’re going to have multiple inquires on your credit. So most credit scores will not be impacted by multiple inquires in a short period of time, in fact, these are treated as one single inquiry and has little to no impact on your credit score.