8 Credit Score Myths: Why Do Credit Scores Vary?

Not all credit scores are the same. Under most scoring models, credit scores (also known as a FICO scores) range from 300 to 850. Anyone taking advantage of the increased access to free credit scores will soon realize that credit scores vary depending on the source. In September 2013 FICO changed its policy and began allowing lenders to share credit scoring data with consumers under their Open Access Program. Previously, credit score information was considered confidential.

With all of this new information available to you, you should be mindful of the following many myths that people tend to believe about their scores.

Myth 1: The Credit Bureaus Decide Whether I Get a Loan

The three credit bureaus, Experian, Equifax, and TransUnion generate credit reports – but they don’t evaluate your credit score or advise lenders whether to approve or deny a loan. The bureaus simply lay out the facts about your credit history – like whether you pay your debts on time.

FICO and VantageScore Solutions calculate your actual credit score. The credit bureaus assess your credit risk level based on your report.

The score company assigns a weight to each data piece to determine your score. It evaluates the risk of taking on more debt and your likelihood of repaying it. The higher your score, the lower the risk to the lender, resulting in better terms for you.

Myth 2: There’s Only One Type of Credit Score

It is common for consumers to see one score from the credit card company and then a different score when applying for credit. There are actually many different scores. For example, FICO has several models with varying score ranges that a lender can use. Thus, the FICO score attained by one lender may not be the same score received by another. If a lender declines your application or charges you a higher interest rate because of your score, determine what in your credit history may be negatively impacting your score and work towards resolving those issues. You can request a free copy of your credit report every 12 months from each of the three credit bureaus.

Myth 3: Closing a Credit Card Removes its Age from Your Credit Score

If your card has always been in good standing, it’s best to leave it open. As long as it appears on your credit report, the scoring system will continue to factor it in, regardless of its age or status.

Even after closing an account, the credit card will still affect your credit score. A closed account remains on your report for up to 10 years if it was in good standing, or 7 years if it had a negative history.

Myth 4: I Need to Carry Debt to Build Credit

Not necessarily. It’s all about balance. Making minimum payments and maxing out your credit cards is detrimental to your credit score. It’s also a fast track to needing credit card help. You’re better off having credit cards that are no more than 30% full to show that you can have credit without using it.

Myth 5: Medical Debt is Treated Differently on Credit Reports

Medical bills typically aren’t reported to a bureau unless sent to a collection agency. If reported, bureaus treat them like other debts. The more recent they are, the more they can affect your credit score.

Myth 6: A Credit Repair Company can only Remove Inaccuracies on my Credit Report

Credit Repair Companies can help provide advice and assistance in reporting inaccurate information on a person’s credit report. If the information on a credit report is negative, but accurate, it’ll take at least 7 years to be removed, no matter how good the Credit Repair company is.

Myth 7: My (Credit) Utilization Ratio Doesn’t Matter

Simply put, your credit utilization is the percentage of your available credit that you’ve actually borrowed.

For example, if your credit card has a $1,000 limit and you charge $250, your utilization ratio is 25%.

This ratio plays a crucial role in the credit scoring system and can impact your credit score quickly—either positively or negatively.

 The credit score tracking website CreditKarma.comCreditKarma.com recommends that consumers shouldn’t exceed utilizing 30% of their available credit. If all your cards are maxed out, you should look into how to pay off credit cards immediately.

Myth 8: I Should Avoid Getting Store Credit Cards Because They’ll Hurt My Score

If you use a store credit card responsibly, it can raise your credit limit, improve your utilization rate, and boost your credit score. It may also be a great option for people who might not qualify for other types of cards.

Credit Score Myths Debunked With Clear Coast Debt Relief

Due to variations in credit scoring, you should use one source to track your score over time. Monitor your score when you take out new credit, pay down debt or apply for a loan. Each of these actions will be reflected by changes in your credit score.

Credit scores are used by lenders, insurance companies, utility providers, cell phone and satellite companies, and even employers. Although credit scoring may seem unfair, it is crucial for consumers to understand, as it influences many decision-making processes. Call Clear Coast Debt Relief today for more information!