Business Guide, Money Management, Insurance, Saving and more
Credit Myths You Don’t Want To Fall Victim to
#1: You Can Remove Less Favorable Accounts to Boost Your Credit Score
This is based on the idea that the credit score formula takes into account all a consumer’s accounts and their payment history for the last seven years. The myth states if the account is closed it doesn’t exist any more and therefore will not be on your credit report. This is far from the truth. If you do close an account it just doesn’t disappear it stays on your credit report for a long time along with it’s payment history. This means if you paid this closed account late last month, this late payment will be on your credit report for the next 7 years and will be included in your credit score.
#2: If You Get More Credit You Will Improve Your Credit Score
Actually, Fair Isaac, the creators of the FICO score, state that it will not improve your credit score. There are several other pieces to your credit score that will be affected by getting new credit. First is the average account age. Having a new account will drop your average account age which is another major part of your score. Second is the act of applying for new credit will be seen as a hard inquiry which the credit score formula also counts. So depending on your credit situation this might even hurt your score so be wary before doing so. If you don’t need credit don’t apply for it. More than likely there is a reason why a consumer is carrying a large amount of debt and having more available only increases their risk to have more. It would be better to figure out a method to pay down the existing debt to improve your debt to credit ratio.
#3 Shopping for Credit Will Hurt Your Score
The myth is based of the idea that every time a consumer applies for credit it will count as a hard inquiry and go against their score. This credit myth is both true and false. It really depends on the type of credit the consumer is shopping for. An example of this is consumers are allowed to shop of loans that are large purchase such as a mortgage or auto loan. These are large purchases that consumers need the availability to shop so they get the best deals. Credit Cards are different. Consumers should not shop for credit cards. The terms and conditions are stated up front and there is no negotiation. Therefore, every time a consumer applies for a credit card it will be considered a hard inquiry and this should be avoided.
#4 If You Are Well-Off You Have a Good Credit Score
It is commonly believed if you have a lot of money you have a good credit score. Well, this actually might not be the case. Many individuals that seem to have money have a lot of debt. The persona of having expensive cars can houses is held up by huge amounts of debt that will eventually kill a credit score. Many of individuals like this live beyond their means. It always baffles people when they hear a celebrity or a sport figure go bankrupt but it will happen if there is terrible management of cash flow and debt.
to be continued….
| Print article | This entry was posted by admin on January 14, 2010 at 4:41 pm, and is filed under Credit Card and Debt Management, Finance & Money Management. Follow any responses to this post through RSS 2.0. You can leave a response or trackback from your own site. |


