Do you know how your credit score is calculated? Or, almost just as important, do you know what’s not included in credit score calculations? There are only a few components that the three national credit bureaus – Experian, TransUnion, and Equifax use to calculate your credit score. Fair Isaac, the fourth credit bureau and the creators of the popular FICO score that 90% of all lenders base their lending decisions on, use only five types of information when calculating your FICO score.
Fair Isaac uses the amount of your debt, payment history, your length of credit, the mix of your debt types, and the opening of new credit cards and other debt when calculating your FICO credit score. The other three credit bureaus use similar criteria also.
But, maybe the most interesting aspect of all is what the three national credit bureaus and Fair Isaac doesn’t use when computing your credit score.
Below are five of the most misunderstood metrics of your financial life that aren’t used to calculate your credit score.
1. How Much Money You Earn
The three credit bureaus in the United States and the Fair Isaac Corporation do not consider your salary, occupation, or employer when they are determining your credit score. They also do not factor in your job title, how long your company has employed you, or your overall employment history.
While it is important to know that these factors do not impact your credit score, you must keep in mind that many lenders might consider this information. Most lenders often ask about your employment history and salary when they consider you for a new loan.
2. How Employable You Are
The credit bureaus are very objective when they assign you a credit score. They are only looking at the set factors or characteristics that go into your score when they are calculating it. Another surprising factor they don’t consider is how much education you have received.
The credit bureaus don’t care where you went to college. They don’t care if you have only earned your GED or have a Ph.D. They only want to assign you a number that predicts the likelihood of you paying back a loan to a lender. Only your current borrowing and the timely repayment of previous loans factor into your credit score that the credit bureaus give you.
3. How Much Money You Have In The Bank
Anyone who has a monthly written budget that accounts for every dollar that you spend knows that your bank account will fluctuate up and down on any given day. It’s not a good indicator as to how you are doing financially. And, the credit bureaus understand this as well.
The credit bureaus do not take into consideration how much money you have in your primary checking account when they assign you a credit score. They also do not factor in how big your emergency fund is. These factors are not good representations for the likelihood that you will repay a loan. Primarily, your history of timely repayments is the best indication that you will repay a loan.
4. Showing Great Use of a Debit Card or Renting
Another factor that the bureaus don’t consider in your credit score is if you’re a renter. Renting a house does not affect your credit score. But, of course, the credit bureaus will reduce your score if you don’t pay your rent on time.
Many people also incorrectly believe that using a debit card will help you build your credit history, which in turn will increase your credit score. The credit bureaus do not use your debit card usage when factoring your scores. The same is typically true of prepaid credit cards too. You should look at the fine print and policies of any prepaid credit card to ensure that they report your positive credit usage and behavior to the credit bureaus. Without reporting to the bureaus by a lender, you’ll never see items added to your credit history and your credit score increase.
5. Whether You’ve Been In Jail or Don’t Pay Your Taxes
The credit bureaus also do not take into account if you’ve been in jail or are delinquent in paying your income taxes. Not factoring your late income tax payment, of course, assumes that the IRS doesn’t report your non-payment to the credit bureaus.
The credit bureaus only care about the timely repayment of your debts. So, if you or a loved one continues to make your minimum monthly payments (even while in jail), your incarceration will not have any adverse effect on your credit score.
Other Items That Don’t Affect Your Credit Score
There are a few other items that don’t affect your credit score that may surprise you. The credit bureaus do not take into consideration your age, race, color, religion, national origin, sexual orientation, sex, or marital status. Laws in the United States prohibit the credit bureaus from using these factors against you.
It also doesn’t matter if you receive any public assistance, whether you are receiving credit counseling, or if you have to pay or receive child support or alimony. They also don’t consider where you live in the United States when calculating your credit score. The credit bureaus do not consider the interest rate that lenders charge you for your credit cards or other loans.
Your Credit Score Represents Risk
Your credit score is a number that represents risk – pure and simple. It shows potential lenders the likelihood that you will repay your debt in a quick, easy to understand snapshot. It’s a number that also tells creditors how hard it will be for you to repay a loan.
Like insurance premiums, there are a lot of statistical math computations and proprietary algorithms that credit bureaus use to evaluate your risk. There are also other attributes that don’t correlate with risk that the credit bureaus don’t factor into credit scores.
It doesn’t matter where you went to college or if you even earned a college degree. It doesn’t matter to the credit bureaus if you have a job or how much money is in your bank account. Those aren’t factors that they use to give you a credit score.
Knowing what metrics the three credit bureaus and the Fair Isaac Corporation use to calculate your credit score can help you narrow your focus on what’s important if you’re looking for a high credit score and borrowing money soon.
Were you surprised by what is not used to calculate your credit score? Do you think the credit bureaus left out some key attributes that they should consider? Which ones did they leave out?
Bank closed my credit account which had excellent payment history bcuz I had $0 balance for 14 months my credit score was dropped 48 points as a result I paid off 2500 in debt $$600 more than than the closed Account credit limit these improve my credit usage and available credit but my score only went up 22 points. This is predatory
Credit bureaus suck
They leave an account negative even after was paid. This us not right at all.
When me and husband split he never paid the remaining balance of the electric bill which was the only bill he always paid.
I did not know till I was applying for a gas credit card that was denied. I then called to check my credit and my score has dropped tremendously because of this. I went and paid that balance immediately, but 4 years later I still show a late payment in my report, and I have disputed thus left and right fir no reason, they still have it there. yES tHey SUCK
But the fact remains, you WERE late on that payment. Paying it eventually doesn’t erase that fact. The bureaus try to predict your likelihood of paying on time in the future and even though you made good on it, you have shown you have been late in the past. Does that make sense?
In my situation, they object to the number cards and the total balance unpaid, but also the fact that 60% of the available credit has been consumed. They ignore the size of the aggregate amount available for use. In my case, it’s more than $50,000. As balances mature for payment, I utilize the some of the $50,000 availability. As the maturing balances are paid, I open fresh availability within the cards paid down. I avoid the double-digit rates which occur when cards become past due. My aggregate actual rates are about two basis points above the prime rate. What’s wrong with that for unsecured debt?
Tax delinquency is no longer reported on CRs as of July 2017. However, they will make it so you don’t have the ability to pay your bills by taking everything in your account! So, even though it is not reported, does not mean it cannot affect your situation.
Credit Bureau will never reveal to you that your info have been hacked.
What are the “mix of debt types”? I understand them to be mortgage, bank loans, credit cards. Are you hurt if you only have credit cards?
Although I DO believe everything you stated in your report, heaven forbid the credit bureaus actually live in the real world. Gee the credit bureaus would never never make a mistake and not properly safeguard our personal professional private information like loose our information to hackers. Still, we’re scrutinized as if we live in a perfect world. Things happen – a medical bill never got properly routed to me. The hospital even admitted the error was theirs. I only learned of the missing bill because it was reported to the credit bureaus as a non-paid bill for collections. My credit score was slammed and the credit bureaus never once bothered to confer with me first to confirm the validity of the bill or whether it was even valid. So, how again is this actually an aboveboard system with ANY validity or integrity whatsoever? Plainly it is not one!!