There are a few common misconceptions surrounding credit scoring that credit bureaus must address on a daily basis. They have been the subject of much debate and will be highlighted in the following section in order to clear up any misunderstandings that have been perpetuated about the facts of credit scoring.

Long Term

Although information as old as seven years and bankruptcies up to 10 years old do get processed by credit scoring models, it is untrue that a bad credit score will haunt an individual for their entire life. The reasons behind a lender declining a loan may stem from poor job history or inadequate income rather than a poor credit rating. As a result, those with high credit scores may be turned down for a loan due to shortcomings in these other areas. In contrast, a person who performs well in other areas, but has a low credit score may receive a loan based on their other merits. It is important to remember that the credit scores provided to lenders by credit bureaus are only a fraction of the factors that are taken into consideration by lenders.

Minorities

Another common misconception is that credit scoring is unfair to minorities. This misconception can be cut off at the head by the shear fact that the Equal Credit Opportunity Act prohibits credit bureaus from taking any information such as race, gender, marital status, etc. into consideration when formulating an individual’s credit score. The credit scoring system has been independently tested to ensure that such discrimination has not taken place and the industry continues to be governmentally regulated.

Privacy

Some believe that credit scoring gives lenders access to information that would otherwise be kept private from a lender. However, this is not true. All the information that is used to formulate a credit score can already be accessed by prospective lenders such as credit card companies and banks. The score is simply a numerical summation of all of these factors. Therefore, allowing a lender to use a credit score is far more simple for the average individual than having to fill out more application forms for a loan.