Previous blogs have discussed why your credit scores can decrease. Unpaid bills, excessive use of credit and identity theft can significantly lower your credit scores. However, there are also factors that do not affect your credit scores. Factors that would not affect your credit score include:
- Checking your scores or reports. You can pull your free credit reports from Equifax, TransUnion and Experian once per year. In addition, many private services allow you to check your scores. Your credit scores are not affected if you are the one pulling the information. However, your scores could be minimally affected if a lender does a “hard pull” on your credit history.
- Using your debit card. Your credit scores are not affected by using a debit card. Only credit utilization is considered by your credit reports (and therefore your scores). However, your credit could be affected if you overdraft a debit card and the remaining balance is reported to the three credit bureaus. You could also be reported to ChexSystems.
- Nuisance charges. Certain FICO credit scores may not be affected by charges under $100. That means an unpaid bill for under $100 that was reported to the credit bureaus would not impact credit scores using these specific FICO scoring models. The charges could still be listed on your credit reports.
- Your personal income. Your income is not factored into how your credit scores are calculated. However, lenders do take your income into account when extending lines of credit.
- Your other personal information. Your race, level of education, marital status, gender, sexual orientation, political preferences and other personal information have no effect on how your scores are calculated.
- Government benefits. Social Security or workers’ comp payments do not affect your credit scores. Neither does Medicaid, food stamps (SNAP) or other government aid programs.
Why Credit Scores Are Complicated
Credit scores and credit reporting algorithms are complicated. There are dozens of different scoring models that are used by various lenders. Scoring models may have different rules for what gets reported or how credit scores are affected by information. For instance, many of the newer FICO scoring models do not consider unpaid bills under $100, while older models do account for these charges. Auto and credit card lenders are more likely to use these more “consumer-friendly” scores than mortgage lenders.
It is also important to remember that your credit reports do not contain your scores. Your three reports do contain information that determine how your scores are calculated. You can (and should) use the information in your report to develop a strategy for improving your credit scores.
For future blog updates on personal finance tips, follow the Kansas City bankruptcy lawyers on Facebook and Twitter. If you are struggling with debt and want to learn of options for relief, then please call our firm to speak with one of our attorneys.