A FICO score is a number that encapsulates your financial life and serves as the most vital factor that determines your creditworthiness. It is the all-important enabler that opens up credit cards, loans, rentals, and even job opportunities. It is thus interesting to ask what comprises that little three-digit number that everybody is willing to fight for. You would assume that the formula is kept classified but in reality, it is not. While FICO spares no opportunity to reiterate that the score is calculated based on certain factors and not others, the list is useful in informing consumers of what is and is not included in the score. Here are some of the moments that might warm and/or shock you.
This involves concerns that are not included in your FICO score:
No, your salary and assets do not come into play here. Likewise, the idea of having millions in the bank means that your score is not going to increase no matter how much you try. Class too does not come into play at all. FICO only considers information about how you handle the credit that you already have.
The details of your race, color, religion, national origin, sex, and marital status are deemed irrelevant. Discrimination based on credit scoring should not be condoned in the modern world. The FICO formula is unique in that it will calculate the score for every individual without discriminating against the clients in terms of age or gender.
Consequently, your age is not taken into account. It also could have indicated that younger consumers have skinnier credit reports because they have been utilizing credit for a shorter amount of time. However, the scoring model does not include age as a factor in a direct manner. They also pointed out that an 18-year-old person, if he or she has proper credit management, can have a good credit score.
No information from the public record is taken into account.
There is no direct weighting of your total debt load. However, it is important to note that having high balances can indirectly affect the score provided if your financial capacities are overstretched. However, it is the amount of money that you have borrowed that doesn't form part of FICO calculations. It values more your credit history based on the specific accounts that you have.
You do not earn your salary or wages, work history is irrelevant. Your score is also not influenced by how long you have been working for a certain company say 20 years it still doesn’t matter. It has been seen that employment is used for manually underwriting loans while FICO does not contemplate it. Its system simply takes a look at how responsibly you employ credit.
The college or educational history you had in your past is not included in your score. It is as if even if you have an MBA from Harvard or any of the prestigious Ivy League institutions, it will not count. They do not count pedigree but payment patterns, and this is well captured by the FICO formula. Therefore, it is quite logical to conclude that sensible credit utilization transcends formal education attainment.
It also excludes employer-initiated inquiries for employment purposes, cell phone service inquiries, inquiries from utilities to collect overdue bills, and insurance firm inquiries. When these companies look at your credit, the inquiries do not affect your scores. They are not new credit applications, but FICO does not consider them in its decision-making process for granting credit. Separately, only requests from the banks and other lenders matter.
Business credit or commercial credit is not part of personal credit information or records. So your business credit cards or loans or payment history on those accounts are not considered in personal credit profiles' FICO scores. Now, if you guarantee a business loan for your business, then that can be reported and scored. Still, it is not advisable to use standalone corporate accounts.
Your spouse or partner does not share the same credit file as you do, therefore, it is possible to have bad credit. The FICO formula doesn’t generalize you as a person; it rationally calculates the probability of you repaying the loan. Thus, if you saw your partner ruining his or her credit, that will not affect you or your score in any way. The accounts that you have opened together will be accessed by both of you and will affect each of you; however, checking accounts belong exclusively to each of you.
Many scoring models fail to address credit cards of retail stores. A lot of the time, your FICO score does not even take into account cards issued by department stores. However, it is essential to understand that some of the newer FICO versions are starting to include retail accounts. Nevertheless, it keeps those credit lines in check and shows one is responsible with money, after all.
There aren’t any of the factors regarding your medical history that could come into play here. HIPAA law means that medical debts cannot be reported in most cases and this has contributed to the situation. Most medical debts will not count toward your credit score, even if you have unpaid bills that you owe to the hospital. In conclusion, health histories can not influence FICO scores because that information is not reported to the credit bureaus.
Your browsing or shopping habits do not dictate the outcome. The websites and applications you use, advertisements that you tap, or products you search all do not impact your score in any way. Data brokers may gather that information but do not report it to the credit bureaus or is around FICO formulas.
Your activity on social media platforms is not monitored. Some lenders use social networks such as Facebook or Twitter to evaluate people requesting loans. Yet, you do not find that information included in your credit reports. Thus posts, friends, photos, and tweets do not count or are not included in FICO for your score.
Offenses or incidents that did not end in convictions are also omitted. Answering a question or receiving a charge can’t affect your credit rating. This simply means that the FICO formula does not take into account any delinquency that does not result in a conviction. However, as a convicted offender, one may end up being reported in case there are any unpaid fines or restitution.
Your spending patterns do not matter here. Not paying your credit card bill in full or charging costly items such as bar bills and hospices or expensive holidays will not bring down your score. But a cut-and-trim approach will not help give it a boost. It also does not seem to penalize or reward you for being a ‘credit animal,’ rather it only records how responsibly you employ the credit you possess. It does not track, let alone, scrutinize certain identified purchases.
To sum up, FICO scores stay away from the hard information that is provided in your credit reports. An individual's demographic data, shopping behavior, health information, and even other things may be deemed irrelevant in that highly calculated credit scoring system. The formula is quite limited in terms of giving details of how one has used credit accounts such as credit cards, retail accounts, student loans, Mortgages, and Auto loans that appear in the credit reports. If you pay them back in time and consistently, then your FICO score should improve in proportion to your hard work.
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