As I have discussed before in a previous post about credit scores, your credit score is made up of numerous pieces of credit data from your credit report. It considers both positive and negative information compiled on you and is the driving force behind what type of credit you are granted. Consumers nationwide have a hard time understanding the basic principles of a credit score and as a result believe the myths that are circulating. Below is a list of five common credit score myths with an explanation of the real facts to set you on the straight and narrow.
Myth 1: A low credit score will follow you indefinitely In fact, the contrary is true. Your credit score is a temporary picture of how you fairing financially at one particular point in time. Your score is constantly changing based on the balances of your accounts, your payment history, your credit applications, etc. While improving your score will not happen overnight, the more time spent making timely payments and paying down balances, the faster your score will rise. Older negative information is less detrimental to your score, so as you continue to keep abreast of your finances, your previous mistakes won’t hurt you.
Myth 2: Your credit score alone determines whether or not you are granted credit Your credit score is one of several pieces of information used to make the decision whether or not to extend you credit. In addition to your credit score, potential lenders look at your employment history, your income and your credit history. It is the compilation of all of your information that is utilized to make a decision on whether or not to grant you credit and at what interest rate.
Myth 3: Applying for new credit will hurt my credit score Applying for new credit won’t harm your score unless you go to the extreme in shopping around for credit. You are correct that every time you apply for credit it affects your score, but nothing too drastic if you are reasonable in submitting applications. A credit inquiry will affect your score only a minimal amount. Multiple inquiries piling up with begin to have an affect.
Myth 4: Checking your credit report hurts your score Fact is, checking your credit score is actually a good thing. While your score may be affected from having a third party review your credit report, you are entitled to review your report at any time or as many times as you wish without a penalty. Checking your report regularly is a good idea so you are aware of what is reporting and can clear up any mistakes before it is too late.
Myth 5: Cancelling your credit cards will boost your score Experts agree that creditors want to see open active accounts to show you are financially responsible. The reality is that paying your bills on time every month and not being overextended is more important for your score than having an available and unused credit line.