5 Common Myths About Credit Scores
Myth No. 1 – The Big Credit Bureaus Use Different Formulae In Computing Credit Scores
This is one of the most common myths about credit scores. The truth is that the major credit bureaus, from Transunion, experian and Equifax, each have a different term for the same thing. TransUnion for example, calls it the Empirica, while Experian gives it the label Experian/Honest Isaac Risk Model. While the big companies have different names for the credit rating, they still apply an identical formula for calculating it. As the scores used by the major credit bureaus are basically the identical, lenders frequently use just one credit report to analyze your loan application.
No.2 – To Rebuild Your Credit Rating, Simply Pay-off All Your Debts
The truth is that your credit score is heavily influenced, and dictated by your past credit payment history, and not by the amount of debt you have at the moment. While you may be currently quickly paying-off your credit card debts, and settling all other outstanding obligations, your past history of late or missed payments will have an effect on on your score. As the credit professionals frequently tell us, it needs time to rebuild your credit score.
No.3 – Closing Old Accounts Helps Boost Your Credit Score
This myth’s nothing, but a common delusion. The truth is that closing old accounts will not impact your credit score, but opening more accounts will surely hurt your credit rating. Having more than a few accounts damages your credit score, because your score is generally affected by the difference between the available credit and the credit that’s being used. Shutting-off an old account only helps to make your credit report appear young and fresh, but the damage has already been done before.
Myth No. 4 – Looking Around For A Loan Hurts Your Credit Score
If someone makes an inquiry about your credit score, the score may go down by as much as 5 points. Some people frequently fear that if they look around for lenders, each time the lender launches an inquiry, their credit rating drops once more. The fact is that several loan inquiries are by and large treated as just one inquiry, provided they come within a 45-day period. It would help if you do your loan comparisons during that 45-day window.
Myth No. 5 – A Lender Can, For A Small Fee, Fix The Credit Score
No company can take action to soften up or change your credit score, particularly when it’s filled with detail about you not handling your debts well. The one way to improve your credit rating, is by demonstrating that you can handle your debt load well in the future.
To enhance your credit score, you have to do four things: Cut down your debt load, Pay all bills on time, Remove existing errors from your credit report, and apply for credit once in a while.
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