February 21st, 2012
3 Things You Might Not Know About Credit Scores
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If credit scores were a subject in school, we here at Credit Karma would ace every test. We spend our days reading up on new credit legislation, updating you on the new credit score rules, and obsessing over credit card rewards. When it comes to writing about credit scores on the Credit Karma Blog, we focus on clarifying credit misunderstandings.
Today, we’re going to cover three things you might not know about credit scores.
1. They’re not used by employers.
There’s a myth floating around that employers can pull your credit score to help determine whether or not to give you a job. This isn’t completely accurate. While employers can check your credit, they won’t see your score and they can’t see anything without your explicit permission. Employers will typically check your credit report when they’re also conducting a criminal background check. However, poor credit will not necessarily disqualify you as a candidate.
2. They can fluctuate a lot.
You may notice your credit score history chart on your Credit Karma account is riddled with peaks and valleys. Don’t worry, this is completely normal. Your credit score can change often due to the type of factors that make up your score. For instance, your credit card utilization rate can significantly influence your credit score and can change often, depending on how much you use your credit cards. One month, your score could be in good shape because you kept your credit card utilization rate below 30 percent of your available credit limits. But the next month, your score could dip if you make a large purchase on credit card and your utilization rate skyrockets to 70 or 80 percent.
Instead of worrying about your specific three-digit score, take a look at each individual factor of your credit score in your Credit Report Card for insight into what’s making your score fluctuate.
3. The one you buy isn’t the one your lender sees.
At Credit Karma, you can update your credit score, up to once every day, for free. Other companies will charge you upwards of $15 to see your score. And the score you purchase from them may not be the score that your lender sees. The CFPB conducted a study on this phenomenon last summer and concluded that, “The most significant adverse impact on a consumer from score differences would likely occur if the credit scores the consumer buys give a substantially different impression of his or her credit risk than credit scores that a lender would use.” In other words, as long as credit scores grade your creditworthiness the same (poor, fair, good, excellent, for instance), the actual number difference isn’t as critical.
What’s important is that you track one score for progress so that you have one metric helping you gage your overall credit health. If you do that, you should see an improvement across all credit score models.
Have a Karmic Day!
Bethy Hardeman, Social Media Maven