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Facts
& Fallacies
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.
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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