Common Credit Score Myths
There are a lot of credit score myths out there about fico score ratings. Sometimes even lenders can give you poor advice and it's hard to know what to believe. Bad information can cost you money no matter who you get it from and that can keep you from getting the best loans.Fico score ratings are used in most all mortgage lending and you need to know what will hurt and help your credit score points. So to make it clear, here are the most common credit score myths.
Checking your credit report will hurt your credit score
Ordering a copy and checking your own credit report or credit score counts as a soft inquiry and does not go against your score.
However, if a lender 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, it's better to reduce or close newer accounts instead. Applying for new credit is generally what hurts your score more than older accounts.
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. But each one gives the scores a different name.
At Equifax, the FICO score rating is called the Beacon credit score. At TransUnion, it’s called Empirica. At Experian, it's known as the Experian/Fair, Isaac Risk Model.
Each of the three major credit reporting bureaus will have three different scores because they don’t all share the same data. So when checking your credit report, 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. It's smart to fix any errors in all three reports before you shop for a loan.
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 you've 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 will charge you higher interest rates than if you had perfect credit.
Paying your bills on time and paying down credit card debt is the best way to improve your credit report score. Check your credit report regularly for any errors and make sure you don't fall for these common credit score myths.
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