We all spend a lot of time worrying about credit scores. But you know what? Many of the things you might be worried about don't even matter. Your credit score does include things like your payment history and the amount of credit you've used. But there are many things that don't impact your score at all. Here are five things you can stop worrying about.
#1: Your salary or yearly income
This usually surprises folks because it seems almost intuitive that the score would take your income into account. Now, if you apply for a credit card, the issuer will consider your annual earnings. This is because they need to know that you have the means to pay back any debt you incur. But the FICO score doesn't discriminate when it comes to income. You could make $15,000 a year and have a better score than someone who makes $500,000 a year. The key to a great score is to use your credit card responsibly.
#2: Your politics, gender, religion, and marital status
Credit scores strive to be fair and unbiased. Your score comes from the reported data on your credit reports. However, that doesn't mean a potential lender won't discriminate based on personal data that's viewed in your reports. But at least you don't have to worry about your demographics factoring into your credit score.
#3: You decide to get credit counseling
A lot of people worry about this, but you can relax. Getting counseling won't impact your score at all. If you need help, get it. However, you might make some decisions while in counseling that could lead to a score reduction. For example, if you decide to go into a debt management plan, then there could be an impact to your score. But just counseling alone has no affect on your score.
#4: You have low balances in your bank accounts
If you don't have an emergency fund or have much money in your checking account, you do not get penalized for this. Again, the score doesn't care how much you make or what your net worth might be. The score is all about responsible use.
Now, having low balances could lead to debt if you don't have a financial cushion in the event of an emergency. So it's a situation you want to rectify when you can. But in terms of credit scores, this isn't a problem.
#5: You carry a balance every month on your credit cards
Of course, it's best to not carry a balance at all. You want to pay your bill in full every month so you don't pay interest expense. But as long as the balance on each card is low, it probably won't affect your score.
Now, you have what's called a credit utilization ratio, which is the amount of credit you've used compared to the amount you have available. This ratio should always be under 30 percent. Keep in mind that the FICO score looks at your overall utilization ratio as well as your ratio on individual credit card accounts.
So if you have a balance on one credit card that exceeds 30 percent of your limit, then that could hurt your score. But if you maintain low ratios on each card and pay your bills on time, carrying a balance should not impact your score.