CREDIT SCORING FACTS AND FALLACIES

FALLACY: With credit scoring, computers are making the lending decisions.

FACT: Computers don't make lending decisions, lenders do. Computers analyze credit information to produce a score but individual lenders decide what scores are acceptable for different loans or credit cards. Some lenders accept higher risk applicants. Some use scores to help determine when to request more information from the applicant.

FALLACY: A poor score will haunt me forever.

FACT: Just the opposite is true. A score is a "snapshot of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available.

FALLACY: Credit scoring is unfair to minorities.

FACT: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.

FALLACY: Credit scoring infringes on my privacy.

FACT: Credit scoring evaluates the same information lenders already look at--the credit bureau report, credit application and/or your bank file A score is simply a numeric summary of that information. Lenders using scoring sometimes ask for less information--fewer questions on the application form, for example.

FALLACY: My score will drop if I apply for new credit.

FACT: Probably not much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (calIed "inquiries"} will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

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