Yet Another FICO Credit-Scoring Myth
Have you ever heard about how you can unlock your car by having someone transmit a signal from a spare remote key via your cell phone? Pretty cool, huh? Well, it doesn't work. Keyless remotes and cell phones operate on completely different frequencies, so don't plan on this trick ever saving the day the next time you lock your keys in the trunk. Regardless, I've heard this urban myth so many times over the past few months that I even started to believe it might work. That is, until I saw it busted with my own eyes on perhaps the greatest show known to mankind—Mythbusters. Seriously, I can't get enough of the Discovery Channel.
Similarly, we all know there are plenty of credit-scoring myths out there that spread like wildfire. Who knows where they start, but they too tend to gain incredible momentum as they spread via email forwards and conversations around the water cooler.
Here's another one I've received several emails about lately. It has to do with the ridiculous notion that FICO credit scores only change once a month, and it generally goes something like this. Imagine you're planning to buy a house this month so you pull your FICO credit scores, marked with official seal seen above, to gauge where you stand. You then march into your bank several weeks later to apply for a mortgage fully expecting that the FICO scores they pull will be the same.
Unfortunately, you're in for a big surprise when the scores they pull are quite a bit lower than the ones you pulled earlier in the month. Now you can't even qualify for the best rates and terms on your loan! "But these are my FICO scores", you proclaim, presenting the old print outs. "Don't FICO scores only change once a month?" Wrong.
The truth is FICO credit-scoring models are dynamic, which means every time something changes on your credit reports your FICO scores change as well. You can basically count on having a different FICO score every time your score is pulled. What's the lesson here? If you're preparing to finance a big purchase like a home or vehicle, avoid doing anything that could potentially mess with your credit score in the months leading up to the big day. You really just want to keep things as normal as possible until the loan is finalized.
For example, don't go on a shopping spree right before closing and buy all that new furniture you'll need on your credit cards. Increased credit utilization is often the worst culprit when it comes to FICO score surprises, since your credit utilization ratio accounts for about 30 percent of your overall FICO score. Instead, keep your credit card spending the same, utilization low, and avoid unnecessary applications for other types of credit. The less change, the better, and your credit scores should stay right where you want them.