Misconception #1: Credit scores and reports are administered by the government. -False
Fact: Credit scores and credit reports are regulated by law like any other business, but they are not directly controlled or administered by the government. The 3 credit bureaus (Experian, Equifax, and Transunion) are companies that collect information about people to package and sell to other companies. FICO is basically a software company. Their software is what calculates credit scores. FICO sells this software to all 3 offices.
Misconception #2: Credit scores are just another part of the credit report. -False
Fact: Credit scores are not part of the credit report; are generated from the information in the report. It’s a subtle but important distinction. Your report is financial information about you collected by bureaus. Your score is based on this information, meaning if you improve your report, your score will improve.
Misconception #3: I have a credit report and a credit score. -False
Reality: You have three separate credit reports and three separate scores based on those reports. The 3 credit bureaus keep their own credit report on you. They all calculate your score based on your version of your report, and they all calculate your score a little differently. Your score can easily vary between 50 and 100 points from office to office.
Misconception #4: Credit reports are computerized, so they must be accurate. -False
Fact: Credit reports are not perfect. There is no central computer to which all the banks and credit cards are connected. If you owe a business money, it might report your payment history to one, all, or none of the 3 credit bureaus, and mistakes happen. According to the US Public Interest Research Group, up to 25% of credit reports contain material errors.
Misconception #5: There is no way to actively influence my credit score. -False
Fact: Credit scores are not set in stone. Since credit reports often have errors, these errors can be corrected to improve your score.
Misconception #6: My credit score is based on my occupation and other non-financial factors. -False
Fact: Although a lender will consider these things (except “g”), your credit score is not based on the following:
- Occupation
- Use
- Length of time at work
- things you have
- how much is in your bank account
- age
- Race, color, religion, national origin, marital status, or sex
Misconception #7: Getting a loan is only based on my credit score. -False
Fact: Your credit score is an important factor when you apply for a loan, but they will consider your entire financial situation, such as income and down payment. This is important because one lender may say no and another will say yes. It happens every day.
Misconception #8: The only way to correct errors on my report is to hire a company. -False
Fact: You don’t necessarily need a credit repair organization to help you dispute incorrect information. Under the Fair Credit Reporting Act, you have the right to personally dispute the information in your credit report, and the bureaus must confirm the accuracy or remove it.
Misconception #9: The only way to improve my score is to hire a company. -False
Fact: You don’t necessarily need a credit repair organization to help you improve your score. You can dispute incorrect information as mentioned above. Beyond that, the only way to improve your report and therefore your score is to make payments on time, use less than 50% of your available credit, not file for bankruptcy, etc. There are many great resources available for improving credit, but be wary of anyone who offers a quick fix.