Top 10 Credit Score Myths
Credit score is basically a three digit number used by the lenders to decide as to what are the chances of retrieving their credits back from you on time. The credit reporting agencies maintain credit reports. These reports give information based on which the credit scores are assigned.
All of us probably know this definition by heart yet if we look at the results of the survey conducted by Consumer Federation of America CFA and Fair Isaac Corporation FICO, half of the nation's population is not aware of the purpose of the credit score or what factors go into its calculation. As per the survey, 49 percent of the respondents did not know that credit scores gauge a person's creditworthiness, while 45 percent were of the opinion that a higher income will result in a higher credit score.
This article takes a look at the host of myths and misconceptions regarding credit score. So, settle in and get an insight into some of the credit facts and fiction to know about the factors that really affect your score and also about the aspects that you don't need to worry about.
- Myth 1: There is just one score
Fact: The most common myth about credit scores is that there is only one score used by the lenders, but in reality there are literally thousands of scoring models used in the credit industry. They are prepared by independent companies, credit reporting agencies, and even by some lenders. However, the scores that are more popular with the general public are the FICO scores (created by Fair Isaac).
- Myth 2: Your score will be hampered if you check your credit report
Fact: You can check your own credit file as many times as you want, it won't impact your score. Your own credit report requests don't count toward your score; the inquiries made by businesses as a result of your application for new credit are the ones that negatively affect your credit score.
- Myth 3: Closing old accounts will boost your score
Fact: Closing old accounts will reduce your credit history and you should not forget that your length of credit history totals around 15% of your score. Though it is true that having numerous open accounts will hurt your score but the solution for it should not be winding up all of your old accounts with a positive payment history. The most viable way out to improve your score, is to pay down your balances rather than closing your accounts-especially the older ones.
- Myth 4: Your age as well as your income determines your score
Fact: Another common myth that is popular with the masses is higher salary bumps up credit score. Most of the people are unaware of the fact that the factors such as sex, income, age, and length of employment are not taken into account when the bureaus evaluate scores.
- Myth 5: Accurate negative information can be removed from your credit files to bump up your credit score
Fact: No one can legally remove negative information like bankruptcy, lien, foreclosure that is accurate and current from your report. Only the passage of time can erase these blemishes. Beware of the credit repair companies that promise to create a new credit identity for you assure you that they can remove accurate bankruptcies & judgement from your file forever.
- Myth 6: Shopping around for loans leaves a scar on your score
Fact: Many think that shopping for the best home mortgage or automobile loan rates can lower score. But what they don't know is that the inquiries for a mortgage or car loan are counted as a single request as long as they occur within 30 to 45 days of each other.
- Myth 7: Receiving credit card offers hits your score
Fact: Getting credit card offers does not have any affect on your score. However, if you are applying for a lot of credit or you have opened multiple lines of credit, then you at all probabilities are at a risk to spend more and this can surely hamper your score. The higher the balances you carry on the cards, the lower your credit score will be; and if you do not repay the minimum amount every month, then it will leave a "dinge" on your credit file.
- Myth 8: When you get married your credit information is combined with that of your spouse
Fact: Credit reports are individual. However it might be possible that there will be certain items that will be reflected on your as well as your spouse's credit reports. For instance, the info regarding the accounts that you hold with your spouse will show up on both the reports.
- Myth 9: Seeking Consumer Credit Counseling will improve score.
Fact: Don't get swayed away by the enticing offers made by the credit counseling companies. When you sign up with a credit counseling organization, one of the first things that will happen is your credit report will show a statement in relation to each of the account for which you are seeking credit counseling. This statement will be something like "payments made with the help of credit counseling", or "client is undergoing CCCS". This statement itself may not lower your score however it is looked by the lending industry as a derogatory remark. As it implies that you are overwhelmed with debt and have mismanaged your finances. In addition, most of the credit counseling programs make your payments after the due date and this will cause late-payments getting reported to your credit file, which in turn will lower down your score.
- Myth 10: Credit rating of your previous tenants affects your score
Fact: Your score is yours and it has no relation with that of your tenant. It might happen that you see the accounts opened by your tenant being included on your report then in this case it's an error on the part of the information provider or the credit reporting agency (CRA) and the way out is disputing it with both of them.
Last updated on 2013-02-27