Q&A: What DOESN'T Affect Your Credit Rating?

Question: What doesn't affect my credit rating? My company has been laying off people and I'm worried about my job security.

Answer: It must be stressful to be worried about your job. But you can relax about your credit rating. There are five factors that make up your FICO score: payment history, amounts owed, length of credit history, new credit, and types of credit used.

Your employment history will show up on your credit report, but having an "unemployed" status will not be considered by the FICO score algorithm. So the act of being unemployed will not lower your credit rating. Now, if you can't pay your bills on time because you now have cash flow issues, a late payment can lower your rating, because payment history is a factor considered by the FICO score.

There are a lot of misconceptions about what's included in your credit score, and which in turn affect your credit rating. Here are five examples of the type of information that do not impact your credit rating. And that means it neither increases nor decreases your score.

Your Level of Income

This usually surprises folks because it even seems to make sense that the score would consider your income. Now, a credit card issuer will consider your income when you apply for credit, but the FICO score doesn't care at all about how much money you make. You could make $15,000 a year and have a better score than someone who makes $250,000 a year. A great rating is all about using the card responsibly and not about your income.

Your Politics, Race, Religion, Sex, and Other Demographics

A lot of people worry that the FICO score is biased, but your demographic profile isn't included in credit score calculations. The FICO score algorithm doesn't care who you vote for or whether or not you qualify for a senior discount at your local pub. The score is objective and has no bias. However, you might find bias on the end of a creditor who is deciding whether or not to approve you for credit. But at least you can be assured that the calculation of your credit score does not consider your race, sex, age, or anything like that.

You Decide to Get Credit Counseling

This is a misconception that often keeps people from seeking debt management help on a timely basis. And it's a shame because the sooner you get help, the better off you'll be in terms of minimizing the damage. Talking to a credit counselor does not affect your credit rating. Now, if you decide to go into a debt management plan, there may be an impact to your score. But it all depends on what the terms are for your debt management plan and how your creditors choose to report your payments. But simply seeking help--or having a free phone consult--has no effect on your score. So if you feel like you're drowning in debt, take steps to talk to a credit counselor.

Seriously, no one should have to worry about reaching out for help. And many times, a credit counselor can help you find solutions that don't lower your rating. Or at the very least, minimize the drop in your score.

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