The Truth About Your Credit Score

Surprisingly, many people don’t know how a credit score is calculated or what impact it has on their buying power.  Here are some common truths and myths about consumer credit.  Test your knowledge by trying to guess which ones are facts and which are fiction.

“A high score means you will always be approved for credit, and a low score means you will be declined.”
False – Your credit score is rarely the sole determining factor for whether or not you are approved or denied for credit.  Lenders take several factors into account when deciding to extend credit to you, one of which is your credit score.  Your payment history, debt load, and employment history are also considered.  A consumer with a high credit score that has an unsteady job history or high debt load can be denied for credit.  Comparably, a consumer with a low credit score that has no credit history might be approved.

“Credit scores do not take into account factors such as gender, race, marital status, or nationality.”
True – Under the Equal Credit Opportunity Act, creditors cannot use this kind of information in determining your credit risk.  Credit scoring only uses information pertinent to credit to determine your credit score.  The types of factors listed above are not used to calculate your credit score.

“Creditors are required to tell you why you were denied for credit.”
True – By law, a creditor must inform you, in writing, of the reason(s) that you were turned down for credit within 30 days.  Not only that, but you are also entitled to a free copy of the credit report that was used to assess your credit.

“Closing old accounts will certainly improve your credit score.”
False – Closing out your old credit accounts is not guaranteed to improve your credit score.  In fact, it could lower your score, especially if the account still has a balance.  The history attached with an account does not go away just because you close it.

“Inaccurate information can be removed from your credit report.”
True – You can dispute inaccurate information by notifying the credit reporting agency reporting the information.  Once the credit reporting agency receives this notification, they must investigate and give you a response within 30 days.  After that time, the credit reporting agency will either remove the information from your credit report – provided it was indeed incorrect – or inform you why it will not be removed.

Understanding how the credit reporting agencies work and what rights you have as a credit consumer are vital for getting the most out of your credit potential.

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