A lot of credit score myths about fico score ratings get spread around and
some of them are just outdated information. Sometimes even lenders can give you
the wrong advice and it can get confusing. But the bottom line is bad
information can cost you money no matter who you get it from.
Fico score ratings are used for most mortgage lending, which means, you need
to know what will hurt or help your credit score points. To make it clear, here
are some of the most common credit score myths.
* Checking your credit report will hurt your credit score
Checking your own credit report and credit score counts as a soft inquiry and
does not go against your score. However, if anyone else like a lender or credit
card company is checking your credit report, this is considered a hard inquiry
and will generally knock off about 5 credit score points.
The credit score rating system treats multiple inquiries in a 14-day period
as just one inquiry. The system ignores all inquiries made within 30 days prior
to the day the credit score is computed. So if you want to minimize the damage
from credit inquiries, shop for a loan in that short period of time.
* Closing old accounts will improve your credit report score
Sometimes even lenders will tell you to close your old and inactive accounts
as a way for improving your credit report score. In most cases, closing old
accounts will actually have the opposite effect with the current credit score
rating system.
Canceling old credit accounts can actually lower your credit score because it
makes your credit history appear shorter. If you want to reduce your levels of
available credit, its better to reduce or close new accounts instead. Applying
for new credit is more likely to lower your score.
* You need to check more than just FICO score rating
If you ever hear this from anyone, consider it a red flag. All of the three
major credit reporting bureaus offer FICO credit score ratings using the formula
developed by Fair, Isaac. Even though each one gives the scores a different name
you only need a fico score rating from the three major credit reporting
bureaus.
At Equifax, the FICO score rating is called the Beacon credit score. At
TransUnion, it’s called Empirica. At Experian, its known as the Experian/Fair,
Isaac Risk Model.
The reason each of the three major credit reporting bureaus will have three
different scores is because they don’t all share the same data. So when checking
your credit report, just make sure it comes from the three major credit
reporting bureaus: Experian, Trans Union and Equifax.
Examine your credit reports from all three major credit reporting bureaus
before you apply for a big loan like a mortgage. Fix any errors in all three
reports before you shop for a loan because it takes time to correct your credit
report.
* Credit counseling will hurt your score
The current FICO credit score rating system ignores any reference to credit
counseling that may be in your file. The researchers at Fair, Isaac, the company
that created the FICO credit scoring rating system, found that people getting
credit counseling didn’t default on their debts any more often than anyone
else.
However, any late payments youve had with creditors will hurt your credit
score. Credit counseling can hurt your ability to get a loan because you
probably have had trouble paying creditors.
Some lenders will back away if you are in credit counseling. Others may see
it differently, but usually will charge you higher interest rates than if you
had perfect credit.
The best way to improve your credit report score is paying your bills on time
and paying down credit card debt. Check your credit report regularly for any
errors and make sure you dont fall for these common credit score myths.
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