3 More Myths About Credit

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Like most topics, there are a lot of fallacies online relating to your credit report and credit score. “Six Major Credit Myths, Debunked” were published on myFICO earlier this year, so here we bring you 3 additional myths consumers commonly believe.

The following information was largely collected from an expert session held at the FINCON 2013 Conference, “Everything Your Readers Need to Know About Credit,” hosted by Liz Weston. The panel that covered these common myths included John Ulzheimer, Gerry Detweiler and Maxine Sweet, all highly reputable credit experts in this industry.

Myth #1- Employers use your credit score as part of their background screening process

All 3 credit reporting agencies and their trade associations have gone on the record to say they do not provide credit scores with credit reports used for pre-employment screening. Credit reports are known to be requested and reviewed during the pre-employment, but not the credit scores. One likely cause for this issue comes from consumers using “credit score” and “credit report” interchangeably, which creates confusion because those two are not the same thing. Your credit report is a set of data and a credit score is the combination of that data put into a 3-digit number.

Myth #2 Credit bureaus are a credit rating company

Credit bureaus do not rate your credit score, they just display the facts of your credit activity using a model that calculates your score. There is never one score that’s correct because there are many variations of your score, depending on the scoring model that was used. Lenders also use different versions of scores that are tweaked for specific industries.

Consumers shouldn’t particularly focus on the number, and instead focus on where their score falls in the range of risk for that model and what factors most influence that risk. Recognizing your risk factors is important because it will bring to light what behavior you need to change to improve your credit, which will then positively influence all of your scores.

Myth #3 By law, lenders have to report your account activity

There is actually no law stating banks, lenders or any other entity must report your account activity to a credit reporting agency. The law just states that what you choose to report must be true.

Changes in the Horizon

Some proposals underway that could go into effect in the near future include the Medical Debt Responsibility Act, the Credit Access and Inclusion Act, and the inclusion of rent payments on credit reports.

The goal of the proposed Medical Debt Responsibility Act (2009 and 2010) is to remove a medical debt collection account from your credit report as soon as it’s paid off. The Medical Debt Responsibility Act hopes to require credit bureaus to remove those accounts within 45 days. Again, this is not yet a law, but FICO isn’t waiting around any longer. FICO’s newest scoring model, FICO Score 9, will not allow medical debt to weigh as heavily on your overall credit score as it has on previous FICO scoring models.

The Credit Access and Inclusion Act was first introduced in the summer of 2013, and it’s a little different because it doesn’t require any “real” actions to be taken.  Instead, the act intends to clarify the Fair Credit Reporting Act (FCRA) so nothing can be misunderstood.

One potential change that would affect a large percentage of the population is the inclusion of rental payments in credit reports. Right now Experian and TransUnion allow rent payments to be reported through RentTrack, and Experian RentBureau allows reporting from RentTrack, WIlliamPaid and ClearNow.

Rental trade lines are not currently used in the FICO scoring system, but they are included in the Vantage scoring system. Remember, just because something is put in your credit report doesn’t mean it will be counted in your score. Scoring systems are software, and software has to be written in a way so it identifies and considers new items.

Sources: Medical Debt Responsibility Act 2013,FINCON 2013 Conference “Everything Your Readers Need to Know About Credit” Session, www.ftc.gov, Forbes.com

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