I’ve often been accused of spending too much time writing about credit reports and credit scores. Some people have called it “obsessive”, while others have called it “unhealthy.”
I always respond the same way, which is the minute stuff is free and lenders, insurance companies, employers, landlords, and utility providers stop caring about our credit reports and credit scores (employers don’t use credit scores, just reports) then I’ll start writing about something else, like knitting. Plus it’s really all I know, so I kind of have to write about it.
The reaction to my first FICO Mythbusters article was, well, somewhat angry. It seems as if some people don’t want to be told that what they think is true is actually not true. Others are telling me that I’m contradicting what other people have written on Mint and other reputable sites. My response is, “There are too many people writing about credit that, frankly, shouldn’t.” So, in my ongoing mission to set the record straight I give you episode 2 of FICO Score Myths, Busted.
1. FICO scores are designed to get you into debt
Oh boy, how in the world do I tackle this one? That was a comment to my previous mythbuster article. Clearly this is incorrect. All things being equal, your FICO score is going to be better if you have less debt than if you have more debt. Having said that, you don’t have to (and you shouldn’t) avoid debt just because you want a great score. You can easily have a great score with debt, just not the excessive credit card variety.
2. FICO penalizes you for being too young, or too old
No, that’s incorrect. The FICO scoring system doesn’t take into account your age when scoring your credit file. Now, your age can be determined because your date of birth is on your credit reports. And while age is not illegal to consider (think about insurance underwriting standards) there are other ways to measure your risk without looking at your age.
What IS considered is the age of your credit report (determined by your oldest account’s opening date) and the average age of the accounts on your credit report (determined by averaging the age of all of your accounts, open or closed). This is the primary reason it’s never a good idea to try and get old accounts removed from your credit reports simply because they’re paid. When they’re gone you lose the “age” benefit.
3. FICO considers your monthly payment amounts
Again, that’s incorrect. While there is a field on your credit reports reserved for “monthly payment amount”, that’s not considered by the scoring system. What FICO does consider are the balances on accounts, aggregate balances across all accounts, the fact that an account has a balance, past due balances, and the relationship of the balances with the credit limits or original loan amounts.
4. FICO penalizes you for having too many former addresses
Incorrect. Credit reports do maintain current and former addresses so it’s not a surprise that someone somewhere is spreading the rumor that having too many addresses will lower your FICO scores. The assumption is that transient people are riskier borrowers than folks who are more residentially stable, which may very well be true, but that’s not a FICO score consideration.
Opting out of preapproved credit card offers will increase your FICO score. No, that’s incorrect. You can have your name excluded from preapproved credit card solicitations that are based on a credit report screening. You can do this for free at https://www.optoutprescreen.com/. For some reason there’s a myth that your FICO scores will be slightly higher because you won’t have all of the pre-approval inquiries on your credit report. The problem with that assumption is pre-approval (or promotional) inquiries are “soft” inquiries and have no influence on your FICO scores in the first place. I talked about that in another Mint article here.
So there you have it, Episode 2. Let the anger begin.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.