Published On: Sat, Mar 15th, 2014

4 Things That Do Not Affect Your Credit Score

credit score diceThere are so many myths out there about what goes into a credit score, how you can improve your credit score, and even how to check your credit report.

The reason why so much information exists regarding your credit score is because it is an extremely important piece of financial information. Even if you don’t plan to borrow, your score is still very important.

We often hear about what affects a credit score (late payments, inquiries, balance-to-limit ratio, etc), but we often don’t think about what doesn’t affect our score. Here are 4 facts which may impact your ability to repay a loan, but are not factored into your credit score.

4 Things That Do Not Affect Your Credit Score:

The Interest Rates You Are Currently Paying

Having low interest rates on your credit cards, student loan repayments, mortgages, and car loans is great – not as wonderful as having no debt, but it’s still a good feeling.

However, that wonderful standing does nothing to improve your credit score. This works both ways – if you have terrible interest rates, they will not hurt your score one bit.

This is great news for many of us, who borrow out of desperation, and take whatever rates we can get! But for those who can “afford” to shop around for the best loans or take advantage of various credit card benefits, they will see no rise in their score after securing a low rate.

Your Age

There are many benefits to getting older, unfortunately, a higher credit score isn’t one of them. When your score is calculated, your age isn’t taken into consideration.

However, this is one of those factors that shows up outside of your credit score. Many times, your age is used by the issuer of the loan to determine your credit worthiness; but it is not a component in your score.

Pulling Your Credit Report

When a bank, landlord, car dealership, or any other entity pulls your credit report, it counts as a “inquiry”, which lowers your credit score. You can understand the logic behind this – if you have been applying for credit with a lot of banks recently, it may indicate that you are in some kind of financial desperation.

Well, what if you want to check your credit to ensure that there are no errors, or you’re just curious? Does this mean that you have to lower your score just to take a look at your report?

Fortunately, the credit reporting agencies have developed a system by which they categorize any inquiries on your report. When you take a look at your credit report, it is categorized as a “soft” inquiry. When a creditor does it, it’s known as a “hard” inquiry.

While hard inquiries show up on your credit report and reduce your score; a soft inquiry has no affect.

Your Income

Even though your income plays a large part in your ability to repay a loan, it is not one of the factors of your credit score.

Of course, by having a higher salary, you “may” be in a better position to pay your bills on time, and take care of other matters that will boost your credit score – but there’s no guarantee. Keep in mind that your income is almost always taken into consideration, alongside your credit score, when a lender is determining your credit worthiness.

A Final Warning

Remember that even though these items aren’t included in your credit score calculation, they do say a lot about your financial health. Keep in mind that when you apply for a loan, they may ask you about these things separately – so don’t think you’ll be able to hide from your poor financial situation!

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Khaleef Crumbley

Khaleef Crumbley is the founder of KNS Financial, LLC, a company that is focused on improving financial literacy among low-income families. He has a special desire to teach Christians to have a biblical view of finances. He currently has a Master's degree in Economics and plans to return to school for a Ph.D. in Theology.
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About the Author

- Khaleef Crumbley is the founder of KNS Financial, LLC, a company that is focused on improving financial literacy among low-income families. He has a special desire to teach Christians to have a biblical view of finances. He currently has a Master's degree in Economics and plans to return to school for a Ph.D. in Theology.

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Did you know?

African Americans are significantly more likely to have some type of debt (94%) compared with the general population (82%). Credit card debt, student loan debt, and personal loans are all significantly higher in the African American community.

Source: Prudential’s 2013 "African American Financial Experience" study