You are viewing the printer-friendly version of Credit Scoring MythsCredit Scoring MythsUnderstand what really affects your credit score, and then you will be able to work to improve it. Don't be misled by rumors.When you apply for a mortgage, the lender will check your credit score. Your score is a measure of your past ability to make payments on time and manage your credit. It will be somewhere between 300 and 850. The average score is 678. Most lenders consider anything under 620 to be low. Anything under 620 and you may be rejected. If they do give you a loan it will probably be at a higher interest rate. There is a lot riding on this number, so it is important to know what factors affect it. Here are some myths and facts to set you straight: Myth 1 - The credit bureaus use formulas for calculating credit scores. There are 3 major credit bureaus: Equifax, Trans Union and Experian. They all use the same formula to arrive at their numbers. Your score might vary slightly between them because each one may have different information about you in their file. Myth 2 - Closing old accounts will boost my credit score. Having a lot of accounts open can negatively affect your score, but closing them may not improve your score. The bureaus look at the amount of credit you're using compared with the total amount you have available. So, closing unused accounts reduces your untapped credit and may make you appear overextended. Closing your oldest account is not good either, because the longer the line of credit is open the more history you have accumulated. If you do close an account choose your newest one and transfer the balance to the older account. Myth 3 - Shopping around for a mortgage or car loan will hurt my score. Your score could drop about 5 points when a lender does an inquiry about your credit. This is why some borrowers don't want to do comparison shopping. The scorers treat multiple inquiries for a mortgage or car loan as a single inquiry as long as they are within 45 days. So do your shopping around for rates in the same time frame. Myth 4 - Paying off my debts will instantly repair my score. You score is a measure of your past performance, not your current one. Paying off your credit cards and making arrangements on outstanding loans will help, but if you have a history of late and missed payments then the damage won't be undone overnight. Its takes time to improve your credit score. Once you pay off your debts then pay your bills on time. Myth 5 - Companies can fix my credit score for a fee. The credit bureaus have accurate information, for the most part. There is nothing that anyone can do if you haven't managed your debts well in the past. If there are errors in your file, you can contact the bureaus yourself and work to get them fixed. You don't have to pay someone. The only way to influence your score is to start managing your debt wisely. Myth 6 - Requesting your own credit report will affect your score. The credit bureaus do not penalize you for checking your own score. The also do not deduct points for inquiries from landlords or employers that check your credit. It is a very good idea to check your credit scores with all 3 bureaus, especially if you plan to apply for a loan. This will allow you to correct any errors in your file before the lenders make their inquiries. aa |