Do You Know What REALLY Affects Your Credit Score?

Many consumers are aware that a credit score is an important part of their finances.

In recent years, a credit score has become an indicator of your financial wellbeing and reputation. Even companies that aren't lending you money might be interested in your credit score.

As a result, it's important to keep tabs on your credit score, and understand what is likely to impact your score.

Unfortunately, there is some confusion over what is likely to affect your credit score. A recent survey from TransUnion indicates that there are some major points of confusion for many consumers when it comes to their credit score.

Are You Confused About What Affects Your Credit Score?

The TransUnion survey identified some common points of confusion for many consumers and strives to clarify some of the confusion. Here are some of the main misconceptions that consumers have when it comes to credit scoring:

Cell Phone and Rent Payments Affect Your Credit Score: According to the survey, 45 percent of respondents thought that rent directly affected their credit scores. At the same time, 47 percent thought that cell phone payments directly affect scores.

The reality is that, while some credit bureaus and even FICO are toying with the idea of including some non-traditional information in their models, right now credit scores aren't directly affected by these payments. If you miss payments, your account can be turned over to collections, and that will drag your score down, but right now positive payments aren't often reported and used to figure your credit score.

Income Matters for your Credit Score: It would be nice to think that, as your income improves, so does your credit score. In fact, 48 percent of respondents to the TransUnion survey assumed that a pay raise would help credit scores.

However, this isn't the case. Your income is not considered a factor in determining your credit score. How much debt you carry relative to your available credit matters, but your income isn't a factor. You're better off making sure that you pay on time and keep your debt low — no matter how much you make — than hoping that a pay increase will save your credit score.

Credit Inquiries and Your Credit Score: Many consumers are also confused about how credit inquiries affect their scores. About 40 percent don't understand the connection, and some believe that checking their own scores will cause a problem.

If you apply for credit, your score could be impacted. However, if you check your own credit score, nothing will change about your score. There is confusion about other inquiries as well, though. Sometimes telecom companies and others look at your score, and they way the look might have different impacts. It's best to ask before you agree to an inquiry.

In the end, understanding how your credit score is figured can be a big help to you as you plan ahead. Before making a major purchase that requires a loan, such as a home, you need to make sure that you have good credit. Staying on top of the situation can benefit you later.