| Fallacy: My score determines whether
or not I get credit.
Fact: Lenders use a number of facts to make credit decisions, including
your FICO score. Lenders look at information such as the amount
of debt you can reasonably handle given your income, your employment
history, and your credit history. Based on their perception of this
information, as well as their specific underwriting policies, lenders
may extend credit to you although your score is low, or decline
your request for credit although your score is high.
Fallacy: A poor score will haunt me forever.
Fact: Just the opposite is true. A score is a "snapshot"
of your risk at a particular point in time. It changes as new information
is added to your bank and credit bureau files. Scores change gradually
as you change the way you handle credit. For example, past credit
problems impact your score less as time passes. Lenders request
a current score when you submit a credit application, so they have
the most recent information available. Therefore by taking the time
to improve your score, you can qualify for more favorable interest
rates. See how improved scores can lead to savings.
Fallacy: Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related information. Factors
like gender, race, nationality and marital status are not included.
In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders
from considering this type of information when issuing credit. Independent
research has been done to make sure that credit scoring is not unfair
to minorities or people with little credit history. Scoring has
proven to be an accurate and consistent measure of repayment for
all people who have some credit history. In other words, at a given
score, non-minority and minority applicants are equally likely to
pay as agreed.
Fallacy: Credit scoring infringes on my privacy.
Fact: Credit scoring evaluates the same information lenders already
look at - the credit bureau report, credit application and/or your
bank file. A score is simply a numeric summary of that information.
Lenders using scoring sometimes ask for less information - fewer
questions on the application form, for example.
Fallacy: My score will drop if I apply for new credit.
Fact: If it does, it probably won't drop much. If you apply for
several credit cards within a short period of time, multiple requests
for your credit report information (called "inquiries")
will appear on your report. Looking for new credit can equate with
higher risk, but most credit scores are not affected by multiple
inquiries from auto or mortgage lenders within a short period of
time. Typically, these are treated as a single inquiry and will
have little impact on the credit score.
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