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Credit scores: What matters, what doesn't

Some people believe everything from where they live to the color of their skin affects their credit score. Here's what influences scores, what doesn't, and what you can do to improve yours.

By Stacy Johnson Nov 9, 2011 2:28PM

This post comes from Brandon Ballenger at partner site Money Talks News


Money Talks News on MSN MoneyNearly one in six people believe race and gender affect their credit score, according to a study published recently.


The study by Visa reveals a lot of mistaken assumptions people have about their credit scores. For something that affects our ability to get everything from a home or car loan to a job, life insurance, and a decent credit card, it literally pays to understand what’s going on. But 42% of Americans don’t even regularly check their score, the study says.


In the video below, Money Talks News founder Stacy Johnson takes on some of the biggest myths about credit scores. Check it out, and then read on to find out how they really work – and what you can do to raise yours. Post continues after video.

Stacy didn't cover the whole list of myths in the survey. Here's what folks believe about their credit scores, at least according to Visa. Those surveyed think scores are affected by...

  • Employment history: 59.9%
  • Interest rates on debt: 58.7%
  • Assets / savings: 53.1%
  • Age: 38.6%
  • Where you live: 25.3%
  • National origin: 21.6%
  • Ability to speak English: 21.6%
  • Gender: 17.2%
  • Race: 15.7%

But none of these factors has the slightest effect on your credit score. It would be illegal for Fair Isaac (the company that calculates FICO scores, by far the nation's most popular) to consider some of these factors — things such as race, religion, birthplace, gender, and marital status. If you'd like to see a complete list of things they explicitly ignore when calculating your credit score, you can check it out here.

That's not to say nobody cares about such things as your income and work history. A landlord or loan officer will likely want to know about your salary and employment history. But as a component of your credit score? Not relevant.


What does count

Raising your credit score may not be easy, but the factors behind it are no secret. In fact, Fair Isaac explains exactly what factors influence your credit score. They even weigh each factor for you...

  • Payment history (35%) – This is your track record of paying back what you borrowed. Accounts in collection, late payments, and bankruptcy are bad; paying on time for a long period is good.
  • Amounts owed (30%) – This is based on the total amounts you owe, and the ratio of what you're allowed to borrow to what you currently owe, called your "utilization ratio." Maxing out your credit hurts it; keeping a lot of unused credit available helps it. Ideally, you want to keep your utilization ratio below 30 percent. So if you have a credit card with a $1,000 limit, you'd want to keep your balance below $300.
  • Length of credit history (15%) – This considers the length of time each credit account has been open, and when each account was last updated with payment or usage info. As you might imagine, the longer your history, the better. This is why if you're going to cancel a credit card, all things being equal, ditch the newest and keep the oldest.
  • New credit (10%) – This includes recent inquiries and requests for credit. Regularly applying for new credit cards or other loans will cost you.
  • Types of credit used (10%) – There's all kinds of credit out there, from revolving (credit cards) to installment (car and home loans.) Fair Isaac likes you to be well-rounded and sample them all. In short, diversity helps.
Finding out your score

You can get a free copy of your credit report from A report from each of the three major reporting agencies -- TransUnion, Experian, and Equifax -- can be accessed once a year, so stagger them four months apart and you can stay on top of your credit all year long for free. But these reports won’t give you your score, just the background information agencies like Fair Isaac use to calculate it.


Since your credit score is of vital importance, you'd expect to able to get a free look at it now and then. But you can't -- at least not Fair Isaac's. They charge you $19.95 to see it. Why can't you see your score without cost? I'll let Stacy explain from this post he did last year:

Since your credit score is obviously super-important, and is derived from your personal credit history, you may feel justifiably confused by why you should have to pay 20 bucks to see it. The explanation for that I can summarize with one word: lobbying. The financial services lobby in this country is one of our democracy’s most powerful. To get a fair shake for consumers in virtually anything has always been an up-hill battle. In the case of getting a free look at your credit report, for example, it took years. In the case of being able to see your credit score, it hasn’t happened yet.

Fair Isaac's isn't the only credit score around -- there are sites like Credit Karma that will hook you up with a free score, but it's not Fair Isaac's FICO score. You can sometimes get a free FICO score if you're turned down for credit, which obviously isn't your best option. You might also try to get one gratis by applying for a free Fair Isaac credit monitoring trial and canceling within the 10-day trial period.


Raising your score

The path to a good credit score is obviously paying your bills on time, all the time, for long periods of time. That being said, however, there are a few steps you can take to try to get faster results.


  1. Fix errors. Get your free credit reports and look for errors - they're more common than you might think. If you find mistakes, challenge them. This page of the FTC website tells you exactly what to do.
  2. Try to get bad marks removed. You can also try to have negative remarks removed from your credit history, even if they're accurate. It's not easy, but it's been done. Stacy explains what to do, and offers a sample letter, in this post.
  3. Lower your utilization ratio. As mentioned above, maxing out your credit lines raises your utilization ratio and lowers your credit score. Bring your ratio down by paying down debt, increasing credit lines, or shifting balances. Learn more in 3 Tips to Raise Your Credit Score - Fast.

More on Money Talks News and MSN Money

Nov 9, 2011 4:21PM

15.7% thought race affected their score....hmm I wonder who they is.

Nov 9, 2011 10:19PM
Well I have a credit score over 800 and I still think FICO is one of the biggest scams out there. If a company is going to hold our credit hostage by a magical number that was created by the software fairies, the methodology should be transparent to the consumers. If FICO didn't have anything to hide, we would be able to see their formula. Like I said earlier, my husband and I should have identical numbers, mine even higher, there is something else going on. The FICO score should be abolished until they make it accessible to the public.
Dec 4, 2011 5:13PM
I find the "utilization ratio" complete crap. At the same time I'm paying off my balance, the maximum of open credit changes. I used to have $50,000 of open credit and while I've not charged anything in the past 5 years and have only paid off my balances, my utilization ratio has been affected. So my credit score has gone down even though I've paid off $10,000 in debt, regularly paid my student loans, and keep zero balances on revolving cards. The system is mercurial and unreliable.
Nov 9, 2011 7:53PM
Hmmm, I don't know. My husband and I just got a loan, we should have identical credit scores because we both put our names on everything, but my FICO is 21 points lower. It's not significant because we have great credit but our scores should match. If anything, I have a longer better credit history(before we got married). So something else is in play with the credit scores not just the info you covered. I check them annually, so there's no mistakes. I was trying to figure out who I should complain to.
Nov 9, 2011 9:38PM

After having one credit card for 6 years and no other debts, I had a 700 + credit score built up by just paying this and my utility bills on time. I never had an overdraft on the checking account because the bank required $500 minimum balance for free checking. I paid off the credit card in full monthly and never paid interest ever. I lived at a comfortable level for three months to guage my expenses then changed my direct deposit to transfer over the excess monthly automatically. There were times when I had to move money from savings to cover bills due to an extra expense or bill but most of the time, I just watched my savings grow then started investing.


I had a solid work history with only one gap in employment after being laid off. 

Nov 13, 2011 11:37PM

The article forgot to mention that some banks give you a free copy of your credit score when they approve your credit card application.  I've gotten this from Fifth Third Bank and Bank of America.  My score started out at 800, but I've found that with each new credit card I apply for, it goes down by 2 points.  I keep applying for them, though, because some of the sign-up bonuses these companies are giving out right now are just too good to pass up. 

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