Five Things That Don’t Impact Your Credit Score

Photo Credit: Figuring Money Out

Credit scores can be rather difficult to understand. Fortunately, we know the five major factors which determine your credit score: Your payment history, the amount of debt you owe, your length of credit history, your credit mix, and lastly, new credit inquiries.

However, there is quite a bit of misinformation out there, with many people believing that certain pieces of information count towards one’s credit scores, when they in fact do not. Let’s take a look at some of the things which don’t impact your credit score.

1. Your Income, Savings & Investments

Credit reports do not contain information regarding how much money you earn, or what you have saved in the bank. Whether you are earning millions of dollars each year, or are receiving public assistance, credit bureaus don’t actually know where you stand in terms of income. Therefore, having a high income does not directly help your credit score, nor does a low income reduce your score. 

Of course, the more money you have, it is typically easier to pay your bills on time. Since payment history is the most important factor in deciding your credit scores, the better your credit scores, the easier it typically is to pay your bills on time. 

Yet plenty of people with high incomes take on ruinous amounts of debt, and ultimately end up with poor credit. So, having a high income is hardly a guarantee of a strong credit score. 

A higher income also allows you to qualify for mortgages or auto loans, as well as multiple credit cards. If used wisely, all of this helps you build a stronger credit score faster. 

However, it is possible to enjoy great credit without a high income. Let’s say you have a single credit card, with a limit of just a few hundred dollars. Let’s also assume you make no more than one small purchase on the card each month, and always pay the card on time. 

By doing so, you’ll be able to build a strong credit score (over 700) in a short amount of time. Wherever you fall on the income scale, earning a strong credit score is absolutely possible.

2. Where You Live

Your credit reports contain previous addresses where you’ve lived. Credit bureaus obtain this information from your creditors, as well as from public records. 

However, where you live does not actually impact your credit score. Whether you live in an apartment complex or a mansion, or your zip code is very affluent or extremely poor, doesn’t actually matter.

In some cases, removing old addresses from your credit reports can help your credit score. If you have a negative account, such as a collection or charge off or auto repossession, removing the address where the account was opened could help remove it from your credit reports (but not always). However, other than that, your address really does not improve your credit score.

3. Your Race, Ethnicity, National Origin, Religion or Gender

This one might appear obvious, but since there are lots of rumors going around, we thought we should clarify. Neither your racial, ethnic nor religious background, nor your gender, are listed on your credit score. 

Also, according to federal civil rights laws, lenders, apartment landlords, and others are not allowed to take these factors into account, when making credit, lending or real estate decisions. Your credit score is not a product of your personal background. 

4. Your Occupation

The Wall Street Journal recently published an article about people who are obsessed with achieving a credit score of 800 or higher. Amongst those interviewed for the article was an employee for the credit scoring giant FICO (which produces the credit scores used in most consumer lending decisions). 

This employee had recieved a phone call from an annoyed consumer, who claimed that he was a very succesful lawyer, and wondered why his FICO score was not higher. The FICO employee informed the consumer that occupation (however prestigious) was not a part of his FICO score.

Whether you are a carpenter, doctor, or social media marketer, your credit score does not depend on your job. It is true that in some cases, your occupation is listed on your credit reports. 

It is also a fact that a high-paying job might make it easier to pay one’s bills, and to afford more types of credit. However, FICO does not directly take your occupation into consideration.

5. Which Lenders You Choose

Contrary to what you might been told, which company you choose to borrow from, does not actually impact your credit score. If you open a credit card with American Express instead of Capital One, or Quicken Loans instead of your local mortgage lender, it doesn’t make a difference. Your FICO score does not consider which company you chose to borrow from.

We should note, however, that the type of loan does often matter. For example, if you only have credit cards, then adding a mortgage or auto loan to your credit reports, could help your score, since FICO looks favorably upon having a mix of different types of credit accounts. However, which lender you choose, for a particular type of credit account, does not really matter.

The Final Word

We’ve talked a lot about what does not count towards your credit score. However, it is important that we also review what does impact your score. 

Your payment history, the amount of credit card debt you carry, how long you’ve had credit accounts open for, your mix of credit accounts, and how often you apply for credit, all decide your credit score. By understanding those five credit factors, you can get your credit score into the best position possible.