Do Interest Rates Impact my FICO Scores?

This is going to be a good one.  I’ve long been asked if things like interest rates and monthly payments have any sort of direct impact on your FICO credit scores.  In fact, I just did an interview with the San Francisco Chronicle on the same topic.  You can read it here if you like.

The million dollar question is whether or not the following items count in your credit scores… …Interest rates, monthly payment amounts, whether you pay in full or you “revolve” a balance from one month to the next, if you pay early or just by the due date, how your account was acquired, how much your annual is, how much you pay in other fees, and historical balances.

First things first…if something is not on your credit reports then it has no direct impact on your FICO scores, or any of your other credit bureau based credit scores.  Credit bureau scores only take into account items that are actually on your credit reports.  So, things like interest rates, whether you pay in full or you “revolve” a balance from one month to the next, if you pay early or just by the due date, how your account was acquired, how much your annual is, and how much you pay in other fees are not going to have any direct impact on your scores.

Historical balances is an interesting one because you’d think that they would, in fact, be considered by credit scoring systems.  You’d be wrong though.  The credit reporting agencies do not maintain what’s called “time series data” in such a way that it can be fed into a credit score.  So, regardless of what your balances were 2 months ago…what counts is only what’s on your credit file as of today.

Conversely, the monthly payment amount is on your credit reports (unless the lender chooses to not report is).  But, despite the fact that your monthly payment amount is on your credit reports it is not considered in your FICO score.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

 

 

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