I have received thousands of
questions and comments about credit scores in my 20+ years
of working in the credit scoring business—and I realize
there are a lot of misconceptions about credit scores and
lending practices. Here are several common credit score
myths that I see repeatedly surface.
Myth #1: Every inquiry
for credit costs 5 points.
There is no fixed set number of points that an inquiry will
cost. Generally speaking, inquires have a relatively minor
contribution to the overall score.
Myth #2: Part of my
credit score is calculated based on where I live.
Credit score calculations do not factor in where you live
(city or zip code, for example). Effectively managing your
credit, on the other hand, will result in a higher
score—regardless of whether you live in Beverly Hills,
Calif. or Zanesville, Ohio.
Myth #3: A bankruptcy
will haunt my score forever.
While most negative information must be removed from your
credit report after seven years, the Fair Credit Reporting
Act allows bankruptcy to be listed on your credit report for
up to ten years. It’s true a bankruptcy will negatively
affect your score, though the impact on your score lessens
over time as the bankruptcy ages.
Myth #4: A short sale
has less of an impact on a score than a foreclosure.
The presence of either a foreclosure or short sale
information on a credit bureau report is considered negative
by credit scores, as it is predictive of future credit risk.
Generally speaking, both will have a similar impact on a
Myth #5: Making a lot
of money results in a higher score.
Your income does not have a direct impact on credit bureau
scores, as your income information is not recorded on your
credit report. The score focuses on how you manage your
credit—not on how you could manage your credit given your
Myth #6: Going to a
credit counseling agency will hurt my score.
Not true. An indication that you are working with a
professional credit counselor will not, in and of itself,
hurt the score. However, negotiated settlements on balances
owed with your creditors may affect your score if the lender
reports it as such.
Myth #7: Carrying
smaller balances on several credit cards is better than
having a large balance on just one card.
Not always. A credit score will often consider the number of
accounts or credit cards you carry that have a balance, in
addition to your overall utilization of available credit.
Thus, you may lose points for having a higher number of
accounts with balances.
Myth #8: 850 is the
While 850 may be the highest FICO score, it is not a
“perfect” score. The “perfect score” is what a lender
requires to approve you for the credit & credit terms you
About the Author
Consumer Credit Expert, Tom Quinn shares invaluable insight
to navigating the often complicated world of credit scoring,
credit reporting and credit granting industry practices.
Formerly with FICO (Fair Isaac), MDS (now Experian) and
Citibank, Tom has more than 20 years of experience in the
credit industry and is currently Vice President of Scoring
at Nomis Solutions.