It’s not uncommon when I find myself in a group of friends or peers that the topic of credit scores comes up. And it’s also not uncommon that the prevailing assumptions about credit scores are generally correct, but not always. There always seem to be a few stubborn credit score myths that will not go away. Two of the more common myths are:
Myth: Credit scores have a memory. There are those who believe credit scoring models or the national credit reporting companies store your credit scores and update them as they change, but that’s not the way the process works.
Imagine that you checked your VantageScore® 3.0 credit score from Equifax and were surprised to see that it had dropped to 600. So you obtained a copy of your Equifax credit report from annualcreditreport.com and spotted a collections account that didn’t belong there. You challenged the validity of the information, Equifax confirmed that the item was reported in error and it removed the collections entry from your file. You thereafter check your VantageScore from Equifax and see that your score has increased to 700.
The myth would have you believe that the VantageScore scoring model updated the 600 score to 700, but that is not how models work. The scoring model doesn’t know what was on your credit report 30, 60 or 90 days ago, or whenever anyone last checked your score. The model starts fresh every time your score is determined, and considers only what’s in your credit report at that specific moment in time. The brand-new score generated in that instant reflects the information stored in your file at that moment. Scoring models have no memory of scores they generated in the past.
Myth: Lenders can influence your scores when they pull your credit reports. This is a less common myth, but I do hear it from time to time. And because it is so grossly inaccurate, it’s prudent to address it before it spreads.
Imagine this scenario: You apply for a loan at your bank or credit union, so the institution buys your credit report and a credit score based on it from one of the national credit reporting companies (CRCs—Equifax, Experian and TransUnion), to evaluate the risk of doing business with you. If your score is high enough to meet the institution’s lending criteria, and all your other financials meet their requirements, you get the loan and move on with your life.
But what if your credit score is close to meeting, but not quite high enough to actually meet, the lender’s minimum requirement? Some myth-makers suggest that a lender can “tweak” the credit score to make it higher than the one reported by the CRC—or, in another questionable scenario, lower a score to justify the denial of a loan to the applicant.
That’s utterly false. A bank is unable to alter that three-digit score for a variety of reasons.
For example, lenders have no access to the scoring model and no direct involvement in the scoring process. The scoring model resides at the CRC. When the lender requests a score, the CRC runs the model and delivers to the lender only the credit score in its final, three-digit form. Thus if you ever hear someone say something like “I had a 750 credit score but when the bank pulled it they changed it to a 680,” you can be sure the speaker is mistaken.
Note that it’s possible for a lender to issue you a loan even if your credit score falls below their minimum lending criteria, via a process called manual underwriting. In such a case, a lender might determine that your income, personal assets, or other factors that don’t appear in your credit report outweigh the risk indicated by a low credit score. Although the lender might choose to look past a low score, it would not and cannot change that score into a higher one.