Make us your home page

Facts and fiction about credit scores

By now, you're probably aware of the wide use of credit scores and how this three-digit number can determine whether you get credit and under what terms. But there is a lot of misinformation about scores, and what you don't know can hurt you. You could end up unnecessarily paying interest on credit cards or lowering your score in attempts to improve it. Here are some of the myths:

Myth: You must carry a credit card balance for a good score.

This fallacy is prevalent. To generate a FICO score, the most widely used score, you must have at least one account older than six months that appears on your credit report and you must have had some activity in that account within the past six months. It doesn't have to be a credit card. FICO looks at student loans, mortgages, auto loans and other consumer loans, too.

Carrying balances on cards doesn't raise your score. Creditors ideally want to see that you pay your bills on time and in full each month.

Myth: Closing cards improves a score.

Canceling a credit card could lower your score by raising your "utilization rate," or how much debt you carry on plastic compared with your total credit limit.

Say you have three cards with a $5,000 credit limit on each, or $15,000 total. Your total balance is $7,500, so you're using half your total credit limit. But if you close one card, suddenly you're using 75 percent even though the balance didn't change. Your score will drop.

Your amount of debt, including the utilization rate, makes up 30 percent of your FICO score. The lower the utilization rate, the better. Aim to keep it under 10 percent, says John Ulzheimer, president of consumer education for

Also, closed accounts will stay on your credit report for years, so you will still reap any benefit from that account's history for a long time.

Myth: Shopping for loans lowers your score.

When you're looking to get a loan for a major purchase — car, house or college education — the scoring system assumes you'll shop around for the best terms. So if multiple prospective lenders make inquiries into your credit report within a short period of time, the scoring system won't penalize you, Ulzheimer says.

For example, when you look for a mortgage, the FICO scoring system ignores the first 30 days of inquiries from mortgage lenders. After that, the system will treat all loan inquiries within a 45-day period as a single loan inquiry.

Myth: A mortgage modification damages a score.

Not necessarily. At the request of the Treasury Department, all three credit bureaus in November began offering a new code lenders can use to report that a customer is in the government's mortgage loan modification program. If the lender uses this new code, the FICO system will ignore the information and there's no negative impact on your score, Ulzheimer says.

But this might only be temporary. When FICO updates its scoring formula in a year or two, it could decide to knock off points for those in the government's mortgage modification program.

Myth: Employers use credit scores.

Employers can't even get your score, Ulzheimer says.

This misunderstanding may arise because consumers often think of "credit reports" and "credit scores" as interchangeable, but they are not the same thing.

A credit report contains information reported by your creditors. Information in the report is used to develop a score that tries to predict the chances of your not paying your bills.

An employer might look at your credit report to measure how responsible you are or to determine if, say, putting you in a position of dealing with money is a good idea, Ulzheimer says.

Myth: A credit score is everything.

What's more important is that you make sure the information in your credit report is accurate, says Roslyn Whitehurst, a spokeswoman with Experian, one of the three major credit bureaus. "The score is only as important as the data that drives the score."

Fixing errors on a report can help a score. Federal law permits you to order a free copy of your report annually from the three major credit bureaus at

Myth: Paying on time guarantees a good score.

Payment history makes up 35 percent — the largest portion — of the FICO score.

"But 65 percent of the score has nothing to do with making payments on time," Ulzheimer says.

You can have a horrific score for other reasons, such as maxing out credit cards, opening lots of new credit lines in a short period and having credit for only a brief time, he says.

Facts and fiction about credit scores 12/19/09 [Last modified: Saturday, December 19, 2009 3:31am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Baltimore Sun.

Join the discussion: Click to view comments, add yours

  1. City Council approves $5 million for Clearwater Marine Aquarium expansion


    CLEARWATER — The City Council on Thursday approved contributing $5 million to the Clearwater Marine Aquarium for its massive expansion project.

    Clearwater has agreed to contributed $5 million to the Clearwater Marine Aquarium 
's $66 million expansion project.. [ Clearwater Marine Aquarium] 

  2. Trigaux: Florida, Tampa Bay lagging in growth of their startups

    Economic Development

    The annual assessment of how entrepreneurs are doing across the country is out from the Kauffman Foundation — among the best watchers of the nation's startup scene. How do Florida and Tampa Bay fare?

    Lured by financial incentives, startup GeniusCentral relocated from Manatee County in 2015 to St. Petersburg, promising to creatye 40 new jobs. It took downtown space in an appropriately creative workpace for entrepreneurs. It did not last there, later moving back to less expensive space in Manatee. A new Kauffman Index report on entrepreneurship found that Florida is a good place to launch startups but a tougher place to grow them.
  3. Pleasant dreams: sleep travel site gives high marks to Tampa airport


    TAMPA — Traveling might be considered closer to a nightmare than a dream for many. But that might be different for those who travel through Tampa International Airport. It was ranked the No. 3 overall best airport in North America by Sleeping in Airports, a travel site that tracks the best airports to catch some …

    Tampa International Airport was ranked as the No. 3 best overall airport by travel site Sleeping in Airports. | [Times file photo]
  4. Google parent leads $1B Lyft investment, deepening Uber rift


    SAN FRANCISCO — Google's parent company is throwing its financial support behind ride-hailing service Lyft, deepening its rift with market leader Uber.

    This  file photo shows a smartphone displaying the Lyft app.Google's parent company, Alphabet Inc., is throwing its financial support behind ride-hailing service Lyft, deepening its rift with market leader Uber. [Associated Press, 2016]
  5. ReliaQuest opens storefront in mock city of JA Biztown

    Economic Development

    TAMPA — ReliaQuest, a Tampa-based cybersecurity company, opened a "storefront" Wednesday at JA Biztown. The storefront is part of a mock city where students learn economic concepts and run businesses. About 20 real-life Tampa Bay companies sponsor storefronts that local students get to run for a day as part of a …

    ReliaQuest, a Tampa-based cybersecurity company, opened a "storefront" Wednesday at JA Biztown, a mock city where students learn to run businesses. | [MALENA CAROLLO, Times]