Money

3 myths about what affects your credit score that FICO wants to clear up for you

A credit score is a measure of how trustworthy you are to financial institutions. Among the many perks a high credit score provides is a lower interest rate on a loan, whether that loan be for a house, a car or someone's college tuition. A credit score in the excellent range, around 780, could save you more than $10,000 in interest over the course of a 30-year mortgage compared to a score that's only 100 points lower.

Your score is calculated based on payment history, how much you owe, your length of credit history, the types of credit you have and how often you apply for new credit.

But there are a number of misconceptions about what else affects your score. Here are three of the most common, according to Ethan Dornhelm, vice president of scores and predictive analytics at FICO.

1. Carrying a balance improves your score

"One of the biggest misconceptions about FICO scores is that you have to carry a balance on your credit cards in order to build a credit history," Dornhelm tells CNBC Make It. "This is completely inaccurate."

Around 43 million Americans, or 22 percent of credit card users, have carried a balance in order to improve their credit score, according to a Creditcards.com report. Carrying a balance won't help your score, but it will cost you in interest payments. The average U.S. household with revolving credit card debt pays almost $900 in interest each year.

2. Income affects your score

"Your income is absolutely not factored into the calculation of your FICO score," Dornhelm says. In fact, income isn't even in your credit report on which the score is based.

This misconception may come from the fact that income affects your creditworthiness, a similar but distinct measure that credit card issuers use to determine your interest rates.

Your creditworthiness factors in your credit score as well as your debt-to-income ratio. Lower debt and a higher income improves your worthiness, and more worthiness gets you a lower interest rate.

3. You share a score with your spouse

A lot of consumers believe that you and your spouse share not only a credit report but a credit score as well. Neither is necessarily true.

"Each of you has your own distinct credit report, with only those credit obligations you were signed up for included in that report, including those credit obligations that you had before you met or married your special someone," says Dornhelm.

Only once you open a joint account or take out a loan together will information be shared on both of your credit reports and can the actions of one of you affect the other.

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