Credit Score Mythology

Credit Score Mythology
There is so much information out there on improving your
credit score that it is hard to know what really works.
Because most people never take a class or fully understand
the credit system, a host of myths and misinformation has
developed regarding the subject. Some of these misnomers
may seem logical or possible, but really have no grounds
for proof. Sadly, much of this information is coming
directly from sources that should know what they are
talking about, such as bank representatives or mortgage
lenders. For this reason, it is important to be aware of
the basic credit score myths to keep from wasting your time
or even hurting your credit score.

Perhaps the most common piece of bad information that
people receive concerns their current accounts. If a broker
or other individual claims that closing accounts will
improve a credit score, they are completely flawed in their
logic. Yes, having too many open accounts will reflect
negatively on a credit score, but closing existing accounts
is another matter. Once the accounts have been opened, the
damage is done, and it is best to keep them open. Shutting
accounts can actually hurt your credit score. The amount of
credit available to an individual is one factor affecting
credit scores. When accounts are closed, the amount of
available credit shrinks, making account balances seem
larger by comparison. Paying down debt is an excellent
idea, but in the process, leave opened accounts open.

Many people believe that checking your FICO score can
actually hurt your credit. This is another common confusion
due to the fact that certain inquiries can hurt your credit
while others do not. Applying for new credit will often
hurt your score, but ordering a copy of your credit report
will not. Mass pre-approval inquiries also go unpunished.
When a credit score reduction is caused by an inquiry of
some kind, it will only change the score by 5 points or
less, so even in this event, this is not a huge factor in
your score.

Your ability to qualify for certain loans may be impacted
by the use of credit counseling, however, many people think
that credit counseling will scar your credit score in the
same way as bankruptcy. This is simply not the case. The
most current FICO formula actually ignores credit
counseling all together. This was a change that occurred
due to a research study conducted three years ago that
supports the fact that people using credit counseling did
not default on their debts any more than other people.
However, take note that using credit counseling might
impact your ability to qualify for certain loans.
Sometimes, counseling agencies make late payments to your
creditors or settle for lesser amounts, and these things
will show up on your score, but the use of credit
counseling in general will not negatively change your
credit score.

These myths are some of the most widely accepted misnomers
about the credit industry. Understanding their falsehood
will help you to manage your credit more knowledgably or
seek the right kind of help to repair your credit. If a
broker, counselor, lender, or agent tries to feed you one
of these myths, you might seriously consider how
knowledgeable they really are about everything else
involving your credit.

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