Morsa Images / DigitalVision / Getty Images

You’re a great credit risk, but your score says otherwise

When credit scores don't tell the whole story


Credit scores give lenders the hard facts about credit applicants. But what if your credit scores don’t reflect your true creditworthiness?

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Credit scores give lenders the cold, hard facts about credit applicants. Instead of reviewing a consumer credit report and making assumptions, lenders can look at a number created by a scoring company and make an objective assessment – in an instant.

It’s pretty simple. If your score is low, the lender may presume you’re likely to default. If it’s high, you appear better able to manage the account.

But what happens when your credit scores don’t reflect what you believe to be your true creditworthiness? Here’s when that can occur and what you can do about it.

Why a person can have a false negative

Traditional credit scoring companies such as Fair Isaac Corporation, which developed the commonly used FICO scores, apply highly refined algorithms to data that appears on your file. The data comes from the three credit reporting agencies – TransUnion, Experian, and Equifax – and the algorithms turn it into a number ranging from 300 to 850. Higher numbers are preferable since they predict lower credit risk.

From a mathematical sense, these credit scores are never wrong, says John Ulzheimer, a credit expert formerly of FICO. Everything that appears on your credit report is calculated consistently and correctly. Therefore, says Ulzheimer, “if your report contains information that indicates you’re a poor credit risk, you’re going to score poorly.”

Inaccurate information listed on the reports will be factored in, though, and drive your score down. According to a 2021 study conducted by Consumer Reports, 34% of the participants found at least one error on their credit reports. Such incorrect activity may include evidence of:

  • Identity theft. If a person has used your credit accounts without your authorization and maxed them out, or has opened new loans or credit lines in your name and defaulted, your credit scores will be impacted. File a dispute with the credit reporting agency immediately. The agency has 30 days to verify the information, and if they can’t, the item will be removed. The next time your score is calculated, it will only include true information, so your scores will also be accurate.
  • Creditor mistakes. Occasionally businesses that furnish information to the credit reporting agencies make mistakes. A creditor may report that you owe a high balance when you’ve paid the debt down months ago, or report you as delinquent when you’ve made your payments on time. If so, your credit scores will be lower than they should be. Contact the business to explain what’s happening, and tell them they need to update your file. If they resist or you can’t get in touch with them, use the credit reporting dispute process and provide supporting documentation.

There are a couple of circumstances where your credit report is housing negative information that’s accurate but you don’t believe it’s an indication of irresponsibility. For example:

  • Using credit as leverage. If you needed capital for your business and maxed out your credit cards, your high credit utilization ratio (the amount of revolving debt you owe as compared to your credit limits) will hurt your scores. Assuming you send payments on time and satisfy the debt, using credit cards as leverage can be a smart decision, especially when you get a 0% APR business card so no interest is added to the debt during the introductory period. Nonetheless, the amount of credit you used up can make you look like a bad credit risk.
  • A one-off problem. There may have been a time when you paid your bills late and they went into collections or you accumulated a large amount of debt but it was triggered by an anomaly. The unforeseen event was entirely out of your control, such as a natural disaster that forced you to borrow for home repairs, or you had to take time off work to deal with a child’s severe illness. Whatever the case, the debt wasn’t due to negligence, and the same event is highly unlikely to reoccur. You can and will handle the problem, but neither your good reason nor your intention will be on your credit reports.

Factors that can make you a good credit risk, even when your scores are low

There is much more to you and your finances than your credit scores, which are based entirely on the credit information listed on your credit reports. These reports don’t show:

  • Assets. Cash that you have set aside in checking, savings and investment accounts are not included in your credit scores. Neither is real property or anything else of value that you own. Yet these assets can be liquidated to repay a debt.
  • Current income. The amount of money you earn is not factored into your credit scores. Although a robust salary won’t offset a failure to handle your credit products in the recent past, it is still pertinent information to a lender.
  • Future wealth. You may have a guaranteed source of funds coming in from an inheritance or a new job that pays twice your former salary. With that money you can pay off your debt, making you a good credit risk. It’s just that the lender doesn’t know that detail because it’s not reflected in your reports or scores.
  • Attitude. You may be absolutely certain that whatever happened in the past is in the past. Now you are more than ready to borrow money responsibly. This internal knowledge is important but is absent from your credit reports.
  • Ability. You may have thin credit, meaning you don’t have enough on your credit report to generate a score. However, you are paying such bills as rent, utilities, cell phone account, school tuition and family loans on time, so you’re sure that you can handle a credit card or bank loan equally well. But that’s not what the credit report and credit scores indicate.

How to overcome a ‘false’ bad credit score

In addition to disputing fraud and correcting errors, you can change the way you manage credit products so your scores do match what you believe is your real creditworthiness.

Feed your credit reports positive activity

The best way to improve your score is to hit the marks FICO values most. Here’s how that breaks down:

  • FICO scores rank payment history as the most important factor at 35%, and credit utilization at 30%. You can make a significant improvement by paying your bills on time and reducing balances that are close to your credit limits.
  • Length of credit history is 15% of your score, so the longer you use credit accounts responsibly, the better.
  • Ten percent of your score concerns the different credit products you use, and a good mix is preferable.
  • The final 10% is new credit. Apply for what you need, since an overabundance of credit applications in a short span of time will lower your score.

Appeal to the financial institution

Joy Bing, vice president of consumer lending and mortgages for Jax Federal Credit Union, says people express their frustration about credit score misrepresentation every day, but the right lender will hear you out.

“It’s a very common scenario,” says Bing. “We want to paint a picture about the person, so we review other factors such as how much time was the person off of work, was it just a bump in the road? What was their credit score like before their scores deteriorated? Bad things can happen to good people.”

Credit unions can be an excellent place to take your case because they were established on the assumption of people helping people, says Bing.

“We look past the score,” she says. “Bring a record of your on-time rent payments from your landlord. Come to us with the offer from your new employer showing your new income. If you used your personal credit cards to open a business, tell us.

“We want to know what’s going on and will understand if it’s not an overspending issue but for the betterment of yourself. From a lender’s perspective, we want to know if it’s a blip or if you really can repay the loan.”

Keep an eye out for new credit scoring models

Models that take alternative factors into consideration are being created. For example, Experian Boost allows consumers to have their utility payments factored into their Experian scores, and the UltraFICO scoring model considers checking and savings accounts. Additionally, the credit score created by Happy Money uses proprietary data and machine learning to better predict a consumer’s ability and willingness to pay.

“Millions of Americans are struggling with creditworthiness for reasons they are unable to control, be it their immigration status, age or lack of access to lending,” says Ibo Dusi, Happy Money’s chief risk and revenue officer.

“Credit models have not been built to take into consideration one’s income, savings, retirement or past and future spending patterns. So new credit modeling will democratize access to credit.”

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Credit management

Charge card vs. credit card: What’s the difference?

Though charge cards and credit cards share many of the same characteristics, the two operate differently when it comes to payments and credit reporting. Here’s what you need to know.

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more