5 Things That Do NOT Affect Your Credit Score

Eric Volkman, The Motley Fool

Updated Wed, Nov 14, 2018, 5:05 PM

It’s time to bust a few myths about the factors determining that all-important credit score number.

Image: Getty Images

Understandably, many Americans are anxious about their credit score. This foundational number is the root of a person’s creditworthiness, and it is a key determinant in whether they’ll be able to take out a loan or obtain a credit card.

As a result, there are many urban legends about what you should and shouldn’t do to get and maintain a good credit score. Yes, there are plenty of factors that are critical and need to be monitored, but there are also quite a few that don’t. The following 5 factors do not affect your credit score, according to FICO (of the FICO® Score).

1. Assets

Because they’re lending you money, creditors are laser-focused on the debt you hold and how you manage it. Assets are irrelevant.

A millionaire with a yacht and a mansion can be an impulsive spendthrift on his or her credit cards, missing payments on a regular basis. The person who drives their limousine, meanwhile, might be a prudent and careful user of his or her debt instruments. The millionaire is an irresponsible borrower; the limo driver a safe credit risk.

No prizes for guessing which one almost certainly has the better credit score.

2. Income

Similarly, your credit score doesn’t consider how much money you make. This one might be surprising -- after all, one of the most important items on a credit card application is your income.

Income is useful to lenders because they want to get a sense of your budget and means. This helps them determine the suitability for the credit they’re extending you. In the case of credit card issuers, it can assist in determining whether you’re a good fit for the card you’re applying for, and in setting your APR and credit limit.

But again, credit bureaus are locked in to debt and how effectively you manage it. Solid practices like timely payments and low credit utilization are what matters to them, not the number on your paycheck.

3. Rate shopping

In the hunt for the most advantageous mortgage or vehicle loan possible, it’s good to apply for several facilities to get the lowest rate you can. Many of us have engaged in rate shopping; it’s a healthy and normal part of the loan acquisition process.

Each application, however, generates what’s called a “hard inquiry” into your credit history. This is where a potential lender does a deep dive to determine your suitability for the instrument you’re applying for. Your consent is always required for a hard inquiry.

Hard inquiries reduce your credit score -- in the case of your FICO® Score, you’ll take a hit of up to 5 points for every one hard inquiry. This, of course, is a particular concern with the multiple inquiries that come with rate shopping.

Fortunately, credit raters like FICO and VantageScore account for this; in the case of the former, multiple hard inquiries within a 45-day period are treated as a single inquiry for scoring purposes.

4. Checking your own credit

On the subject of inquiries, a “soft” one is where some person or entity effectively takes a glance at your score without the due diligence of a hard inquiry.

Soft inquiries do not ding your score at all, so even if 4,000 parties suddenly become interested in your credit profile and softly inquire, your number won’t be affected in the slightest.

Luckily, self-checking is always considered to be a soft inquiry. It makes no difference whether you, like those 4,000 curious entities, are merely glancing at your score, or grabbing the latest copy of your full credit report.

This, by the way, is something you can and should do. Regular credit monitoring is a good habit to establish, as you can see what effect your actions are having on your score. Additionally, you can catch errors from the credit bureaus before they affect the number too negatively. Finally, many reports go into detail about how you can improve certain aspects of your profile.

5. Debit card use

You might be a whiz with a set of credit cards, nimbly taking advantages of promotions and perks, while spending far below your limit and paying each bill on time. But perhaps you’re not so careful with your debit card, whipping it out of your wallet at every pricey impulse-buy opportunity.

As with credit cards, that kind of profligate spending can harm your score, right?

Wrong. A debit card is not a credit instrument, as it draws only from the actual funds you have in your bank account. Since this money is yours, rather than a loan from a third party (as with credit cards and other types of loan facilities), spending it is not considered an indicator of how you manage debt. So with your debit card, feel free to spend it if you got it!

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