Here are 5 interesting facts about credit scores that may surprise you:

1. Income: Your income level has no bearing on your credit score, but it will determine the amount of your home mortgage. A person earning below minimum wage could easily have a great score while a millionaire earning six-figures per year could have a really low credit score. The basis behind the scoring system is to determine how responsible a person is with their money, not how much they make.

2. Old Accounts: When the credit bureaus calculate your score, they look at the types of credit you have and how old your accounts are. Older, active accounts show a lender that you haven’t consolidated or negotiated your debts, but that you maintained them with a level of financial responsibility. If you intend to pay off some debts, pay off the newer ones first and leave the older ones open.

3. Don’t Pay Collection Agencies: Did you know that paying off collection agencies or debts that are older than two years won’t help your credit score? The Credit Bureaus calculate your score based on the most recent activity on the account. If the last activity is more than two years old, any derogatory entry in your credit loses its negative power.

Be aware though, that if you negotiate a payment plan with a collection agency verbally, this is considered an agreement. It may reset the activity date to the day of the conversation and you end up with a recent entry in your report. So don’t reactivate old collections!

4. Debt/Limit Ratio: Credit bureaus reward people who demonstrate that they control their spending habits and don’t max out their credit balance or even overdraw their credit limit. It’s critical you keep your balances way below your actual credit limit. If your card balances are below 30% of your credit limit you will definitely improve your score.

One important thing to remember: banks make their profits by keeping you in debt. It does not hurt to increase your credit limits as long as you act responsibly. Borrow only what you can handle based on your income.

5. Frequency of Credit Applications: Did you know 10% of your credit score is based on the number of times you’ve applied for credit? Every time someone pulls your credit, the enquiry is listed on your credit report. The more enquiries you have, the lower your score will go.

If you applied for many credit cards recently, you should wait a few months, pay down your balances and build a history, before you apply for new ones. Not applying for new credit will increase your score, as older applications fall away.

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