Most people understand the importance of a good credit score. They know that a low score can affect everything from the interest rate on their mortgage to the amount they pay for auto insurance. The problem is that many people don’t have the slightest idea which factors affect your credit score and which don’t. Let’s take a quick look at 5 factors which have absolutely no effect on your credit score even though many consumers believe they do.
No, we’re not talking about some new P90X workout routine…we’re talking about the number of times your credit report has been pulled. Frequent pulls can have a negative impact on your credit score because it could be a sign that you’re in financial distress and you’re trying to get new credit. But it all depends on the type of pull. Hard pulls are when you are looking for a new credit card or loan and you authorize the lender to run your credit. Soft pulls are when you pull your own credit report or when a lender pulls it for routine of pre-screening purposes. Too many hard pulls can have a definite negative impact on your credit score, but soft pulls have no affect since you aren’t actually looking for new lines of credit.
There is a common misconception that your income level can influence your credit score but it’s just not true. Sure, if you used your salary increase to help you pay down some debt and avoid using your credit cards and that would help your score. But a salary increase (or decrease) alone has no impact at all on your credit score.
Your Home’s Value
Another misconception is that your credit score rises and falls along with the value of your home. During the housing boom the value of homes skyrocketed and then they tumbled back to Earth when the bubble burst. But your home’s value is not listed on your credit report and it has no affect on your score. What does have an impact is the amount you owe on your home, so if you took out a home equity loan or refinanced and withdrew cash then your loan balance will be higher and that could affect your score.
Your Employment Status
Remember earlier when we established that income has no impact on your credit score? Well that means that your employment status has no affect either. Your score won’t drop simply because you are out of work. However, it could drop if you fall behind on your payments or run up a lot of new credit card bills because you no longer have a steady income.
Some people think that having a large balance in a savings or checking account will improve your credit score, but in reality your credit score doesn’t take your savings into account at all. In fact you might be better off taking some of that savings and putting it toward credit card payments and other debt because that really would help improve your credit score.