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8 credit score myths: Fact vs. fiction

Have you been confused about credit and how it works? Take a look at some of the most common myths, along with simple ways to give your score a boost.

By MSN Money Partner Mar 12, 2014 11:35AM

This post comes from Allison Martin at partner site Money Talks News.

Money Talks News on MSN MoneyWant to get a handle on your credit? Well, first you'll have to learn what factors impact your credit score. Unfortunately, there are a number of myths that can cause your brain to spin like the Tasmanian Devil from information overload.

Let's take a look at those fallacies. Then we'll explain what actually affects your credit score, and what you can do to improve it.

Here are some common credit score myths:

1. My employment history will make or break my credit

Your employment history has nothing to do with your credit score, but some lenders may review it to determine if you are stable enough to repay a loan. Frequent job changes or layoffs may indicate otherwise.

2. The more money I make or save, the higher my credit score will be

It's not what you make, but how you spend it. And how much money you have in savings has nothing to do with FICO's credit scoring equation. However, some lenders may consider these factors to determine the likelihood that you will default on a loan.

3. Poor credit will keep me from getting a loan

This is false because there are a lot of greedy lenders who will be willing to lend you money -- at a very high interest rate.

4. Bad credit never goes away

With sound debt-management practices, the negative marks will eventually vanish. Late payments, bankruptcies, foreclosures and collections typically remain on your credit report for seven years. (The exceptions are Chapter 7 bankruptcies and tax liens, which remain for 10 years and indefinitely, respectively.)

And even before they drop from your credit reports, their impact diminishes over time.

5. All credit scores are created equal

Each of the three major credit bureaus produces a FICO score based on the information it has about your credit history. "That FICO score is calculated by a mathematical equation that evaluates many types of information from your credit report," myFICO says. Some things are known about how that works, but the specifics are a well-kept secret.

The credit bureaus also produce other types of credit scores, although FICO scores are the ones most widely used by lenders. MyFICO notes that "it's important to understand that not every credit score you can buy online is a true FICO score."

And, not every FICO score you buy is the one your lender will see. Check out "That $20 FICO score isn't just expensive -- it may be useless."

Credit card © Corbis6. Having too many credit cards will wreck my credit

While excessive credit card applications in a short window of time can create issues, having a variety of magic plastic in your wallet won't necessarily hurt your credit score.

However, it becomes a problem when the balances spiral out of control and your debt-to-available-credit ratio skyrockets.

7. Pulling my credit will lower my credit score

The only inquiries that impact your credit score are those that are made to obtain credit.

8. Where I live has an impact on my credit score

This couldn't be further from the truth, unless of course you can't afford to pay the mortgage or rent where you reside.

If you're interested in a comprehensive list of what’s not included in your credit score, check out this myFICO post

How your FICO score is calculated

Now that you have a better understanding of the factors that have no bearing on your FICO credit score, let's take a look at what does:

  • Payment history -- 35 percent of your credit score is determined by whether or not you make timely payments.
  • Amounts owed -- 30 percent of your credit score is based on your debt.
  • Length of credit history -- 15 percent is based on how long each of your credit accounts has been in existence. In the case of your FICO score, old age isn't always a bad thing.
  • Types of credit in use -- 10 percent is based on the types of credit accounts you have open. These include credit cards, installment loans, mortgage loans and auto loans.
  • New credit -- 10 percent is determined by the amount of inquiries recently submitted for new credit. Try to keep this number as low as possible or your credit score could take a dip.

Find your score

You can visit to pull a free copy of your three credit reports. But to view your FICO scores, you'll likely have to cough up some cash. An alternative is a site like Credit Karma, which provides non-FICO TransUnion scores for free.

And if you've recently been denied credit or gotten an unfavorable interest rate, you're also legally entitled to a free credit score. Some financial institutions also provide them to customers.

Does your credit score need a boost?

Start by examining your credit reports for errors. If you notice any, use this template  provided by the Federal Trade Commission and follow the corresponding instructions to get the dispute process started.

Spare yourself headaches by staying away from companies claiming to have some sort of magic wand that can repair your credit in a flash.

The next step is to establish a realistic budget and debt-management plan that will force you to get a handle on your spending and reduce those outstanding balances.

Need additional assistance? Check out "10 ways to boost your credit score fast."

More on Money Talks News:

Mar 15, 2014 9:39AM

An attorney once told me that credit cards are "America's biggest scam". Years later after my wife and I were trying to finance our first house, I believe our entire credit system should be rebuilt. We made the mistake of searching online for a lender. Of course we were turned down but they sold our information to other lenders and they checked our credit which DID lower our credit score! All the lender said was they were within the law. I understand the importance of a credit system but some parts of it I DON'T understand.

1) Why can others check my credit score for free but it costs me money to check my own?

2) Why is it necessary to  have three different Credit Bureaus (Equifax,Experian,and Transunion)?

3) Why does good credit disappear if its not constantly used?

I think ALL personal information about you should be available to you at no cost with no restrictions, things like credit history and score, driving record and criminal record, marriage and divorce records. Am I wrong?

Mar 15, 2014 6:50PM

I HAVE EXCELLENT CREDIT, yet my FICO continues to take hits. Check-out my last three (3) HITS:

(1). US Bank “CLOSED” my loan account because, duh - I finished paying off the loan! Apparently the words “ACCOUNT CLOSED” triggered an automatic decrease to FICO score;


(2). A credit card company (FIA) was acquired by the BofA. The BofA DID NOT alter my Line of Credit or APR. The problem: FIA notified the Credit Bureau(s) that my account with them was not transferred - but “CLOSED.” That dinged my FICO score a few points, and -


(3). I have two (2) charge cards (Sony & Care Credit) owned by GE. Both lowered my line of credit due to “IN-ACTIVITY.” I guess they expect me to purchase electronic equipment, and to seek dental or other medical services, respectively every year.


Bottom line: You just can't win w/ these people.

Mar 15, 2014 12:52PM
Doamino41 & foo 2u --    Both hit the nail right on the head. I wrote into this blog on 3/12/14 and it disappeared off my computer within within a hour and now it reappears on 3/15/12.  FICO scores are a man made up scam to make them money. Period. At the time I'm writing this, only 3 (?) people have responded on a national article?  Have you ever heard of a site called; I was stunned finding out there are companies that hire out and monitor sites like this one and delete negative comments or hit the thumbs down or up button depending what the favor for the customer.  GMC requires that all their dealers subscribe to these companies to prevent people from writing in with a complaints or a negative comment. OMG! WTF! 
Mar 15, 2014 5:16PM
My FICO score was lowered because I did not have an installment loan and had too many credit cards with balances??? I pay in full each month, never carried a balance on any card. Last loan I had was a 0% on my lawn tractor that was paid off 2 years ago. I use the cards with the best cash back promotion and pay in full. One thing the article had right is it does not take in consideration for your score is your assets, stocks, bonds, IRA, savings and land or property holdings you own debt free.  I do not have mortgage either and get a discount on my homeowner insurance for being mortgage free.  Quite frankly I could care less what FICO thinks since I really do not need a loan for anything unless it is 0%interest.
Mar 15, 2014 4:07PM
The entire areas of credit abuse in employment and hiring, chronic mistakes in credit reports and the complete inability of the citizen to remedy the situation regarding inaccurate credit reports makes abuse of the law another failing of Congress.
Mar 15, 2014 1:05PM
Another "cut and paste and change the subject " article. I give MSN reporting a score of 6 (being nice) out of 800.
Mar 15, 2014 3:35PM
Another myth that I hear a lot is that it affects your car insurance.  This is only somewhat true.  The big companies like GEICO, State Farm, etc. all use your credit score as a factor in determining your insurance rates.
Other smaller companies see that your credit score doesn't really prove one way or another how good of a driver you are, so they don't use it in calculating their rates (see - Insurance Panda or 4AutoInsuranceQuote).
But, as a rule of thumb, I think you should avoid debt at all costs. Cut up your credit cards and pay everything off ASAP.
Mar 12, 2014 6:58PM
I found a total "WOW" in that I have a FICO score over 800!!  I didn't have a clue.  But when I went to my S&L to refinance my home mortgage and get enough extra to pay off a credit card they could care less what my FICO score was.  I just wanted my two remaining significant debts combined into one with a fixed interest rate so if something happened to me, like death, my wife would have one fixed and simple payment to concern her.  The S&L wasn't interested.  Why?  The DEBT WASN'T BIG ENOUGH!!  So much for a FICO score.
Mar 12, 2014 3:23PM
There is no such thing as a credit score other then in the minds of the for profit companies. They made something up (let's call it a credit score!) and made it sound like something real. These scum companies are not the government, my SS number is none of their business. Go sell flowers on the local corner if you want to make some money. Get out of the American peoples faces with your crap. The answer is simple - "Go away"
Mar 16, 2014 12:51AM
I am a deadbeat, loser.  Is that why my credit scores are so low?
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