Lauren Gensler, Forbes Staff —
There is a lot that goes onto your credit report — it’s a veritable report card on your financial life, if you will.
Your history of paying loans, whether or not you max out your credit card and how long you’ve had different accounts, plus a myriad of other details relating to your financial history are on your report and can affect your credit score and access to credit.
But there are a lot of other things that have traditionally not made their way onto your credit report, even though you might have assumed (or hoped) they did. Responsible practices like always paying your rent on time basically go unrecognized. On the flip side, there’s some negative information that you might think could harm your credit but actually has no bearing on it.
There’s a push right now to consider more types of information (such as utility and cable bill payments) when calculating credit scores as a way to bring into the fold more people who have little to no traditional credit history. For instance, Fair Isaac Co, which calculates the FICO score that is used in some 90% of consumer lending decisions, is currently testing an alternative score that would make millions more people creditworthy.
Alternative lenders (like Earnest, Upstart and Pave) are also proliferating, which take tons more information into consideration when evaluating a potential borrower.
So what’s left out of the traditional credit score equation? Here are some of the more surprising things:
1. How much money you make. Nowhere on your credit report will you find your salary. Nor does a high salary mean you have a good credit score or a low salary mean your credit score is in the toilet.
Still, your income can indirectly impact your access to credit and your credit score.
For instance, a credit card provider will ask you for your income. Then they’ll use it in conjunction with your credit report to decide whether or not to give you a card and what the terms are going to be. A higher income in relation to your debts might get you a higher credit limit, since the bank figures you’re more likely to be able to repay what you spend.
With a higher income, you’re also more likely to have an easier time keeping your financial house in order. By having sufficient income to always pay your credit cards and loans on time, for instance, you’re helping your credit score.
2. Your net worth. It doesn’t matter if you have an outsized savings account and investment portfolio, the keys to a million-dollar mansion in the country and a 50-foot yacht. It does matter if you took out loans to bankroll a lavish lifestyle and had a spotty track record of making payments.
3. An Ivy League degree (or lack thereof). There is no place on your credit report where you’ll find your alma mater, no matter how prestigious. You will find your employer’s name, but that doesn’t get factored into your credit score, either. (These things do, however, matter to some of those alternative lenders.)
4. Your debit card. When you use a debit card or prepaid card, your activity is not reported to the credit bureaus and therefore is not helping to build your credit. Checks and cash don’t count, either. Only by signing up for a credit card and proving that you can use it responsibly will you improve your credit score simply by paying for things.
Debit cards “may look and feel like a credit card and you can use it in a similar way, but that’s where the similarities end,” says Bruce McClary at the National Foundation for Credit Counseling. This is because you’re using money you already have. For some, this is intentional and a means to keep spending in check and avoid falling into debt. Still, to build your credit score, you need to demonstrate you can responsibly handle credit that is extended to you, for example, through a credit card.
5. Paying rent and other bills on time. If you’re paying your landlord on time every month and long ago automated your cellphone, utilities, and cable/internet bills to ensure on-time payments, congratulations. You’re being financially responsible. However, it’s not helping your credit.
“The biggest assumption I think people make in what benefits their credit is rent and utilities, although neither one of them shows up on their credit report,” says Ken Chaplin, an executive at credit bureau TransUnion.
“The reality is that these accounts are invisible while you’re doing the right thing and paying on time each month,” says McClary. “It’s when things go off the rails, suddenly you’re going to see the impact.”
When you stop making payments, what happens is that the unpaid bills go into collections. This information then gets routed onto your credit report. Don’t be fooled into thinking the moment you pay off the collections the blemish will disappear from your report, either. Collections cases typically remain on your report for seven years, lowering your score and acting as a red flag to future lenders.
6. Receiving welfare. Getting government assistance — like receiving food stamps or being on disability — has no bearing on your credit and won’t show up on your report.
7. Not paying Uncle Sam on time. Paying your taxes late won’t immediately result in any damage to your credit.
But once the IRS reports you as delinquent and imposes a tax lien, you’re in trouble. “That can be devastating…that’s debt you can’t get away from. They’re going to follow you until you pay it off,” says McClary, who says a tax lien can take a “serious toll” on your credit score.
8. Going to jail. If you get sent to the slammer, your credit score will remain intact.
Still, while your criminal record is typically ignored, civil judgments can and do appear on your credit report. This includes everything from bankruptcies and tax liens to monetary judgments and overdue child support payments in some states.
“If you shoot somebody and go to prison, the fact you committed murder and were found guilty won’t show up,” says McClary. “But if the family of that person turned around and sued you for damages, that would show up.”
His best advice: Pay off these debts quickly. Even if you cough up the cash the very day you’re in court, it will still show up on your report. But generally this type of information is removed after seven years if it’s paid. If it’s not paid, it could linger for much longer. Plus, in some states, your wages could be garnished if you don’t come forward with what you owe.
9. Checking your credit report. Repeat after me: Checking your credit report has no impact on your credit score whatsoever.
An inquiry made by you (known as a “soft inquiry”) doesn’t get factored into your credit score. Neither do other soft inquiries, like those that generate the ”pre-approved” credit card offers you get in the mail.
It’s a common misconception that they do. The truth is, your score is impacted only when a lender checks up on you at your direction, making what is called a “hard inquiry.” This happens when you apply for credit, like a mortgage, a car loan or a credit card. Even so, the damage is “very, very minor,” says Chaplin, and will disappear off your reports altogether after three months or so.
What’s important to remember about your credit score is the very purpose of it, which is to give potential lenders a sense of your risk level as a potential borrower. For this reason, your credit report deals only with scenarios in which you owe money and your track record of paying that money back.
The information that lands on your credit reports — you have one from each of the three big credit bureaus, TransUnion, Experian and Equifax is used to calculate your all-important credit score. This is the three digit number that determines not only your ability to take out credit cards and loans, but also the interest rates you’re offered. It can even impact whether you get a job or an apartment.