Are Your Credit Scores Reliable?

Unless you were born with a silver spoon in your mouth, you probably depend on your credit scores a lot to achieve your financial goals like most Arizonans.

If you are prudent enough, you might not spend your money without keeping these three-digit numbers in mind. You might continuously seek FICO’s approval in hopes of attaining excellent credit fast and qualify for the best interest rates and insurance premiums when the time comes.

While every auto insurer and mortgage company in Arizona will want to know the credit risk to do business with you, your credit reports might fail to paint an accurate picture of your creditworthiness. Credit scoring algorithms are designed to assess your ability to manage your finances and predict your likelihood of delinquency, but they are just as reliable as the quality of data feed to them.

Are your credit scores inaccurate and are fooling everyone, including you?

Your Latest Payments Are Not Included

In a perfect world, credit bureaus get real-time notifications whenever you make payments. In reality, data furnishers report occasionally. For instance, a credit card company might update the balances of its customers 30 days after it generated the bills. As a result, the punctual payment might not bear fruit credit-wise weeks past the due date.

Macro shot of old credit card

If you want to keep your credit utilization rates under 30% of your limits, you need a smart strategy to effect improvements in your FICO scores. You might consider anticipating your outstanding balance before the bill is sent to you so that you can make an adequate advance payment.

Some of Your Debts Do Not Appear

Creditors are not required to report to credit bureaus. That is why you can owe debts that never show up on your credit reports. Unreported financial obligations can increase your FICO scores since they are not taken into account. But it is not a reason to rejoice.

Missing loans or credit card balances on your credit reports create a deceitful impression of yourself. A mortgage lender might think that you are creditworthy because you might not seem as indebted as you are.

Since you might be able to force your creditors to send your information to credit bureaus, you need to be more forthcoming about all of your financial obligations. This way, your prospective lender can better evaluate your capacity to handle the repayment and take out a new debt you can afford.

Your Old Unpaid Debt Is Making a Comeback

If you have an unpaid debt that has been removed from your credit reports seven years after being written off as a loss, it can still return and haunt you via a collection agency. This forgotten debt might not reappear on your credit reports when its new owner decides not to report. 

Calculating debt and finances

To make sure you are indeed liable for the debt, exercise due diligence. Ask the collection agency for documents for your review, or speak with the original creditor directly to refresh your memory.

Derogatory Marks Are Incorrectly Present

Nothing skews credit scores worsen than credit reports with inaccurately reported items. It is imperative to monitor credit reports from Equifax, TransUnion, and Experian regularly to catch all errors and file a dispute before they severely lower your FICO scores and send you to the next credit score range down.

Creditworthiness is not overrated. However, its reliability should always be questioned to know where your credit stands and not be wrong about it.