Personal Finance: 5 Common Myths About Credit Scores

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A person’s credit score is an integral part of his financial life. A lot of agencies and individuals regularly look at your credit score, from banks, credit unions, utility firms, landlords, insurers and even employers. According to a recent survey, half of Americans don’t exactly know how their credit scores are derived, or what factors are used to compute those three vital numbers. Here are five common myths about credit scores.

Myth No. 1: The Major Credit Bureaus Use Different Formulas In Computing A Credit Score

This is one of the most common myths about credit scores. The truth is that the major credit bureaus, from Experian, Equifax to TransUnion all have a different term for the same score. TransUnion for example, calls it the Empirica, while Experian calls it the Experian / Honest Isaac Risk Model. While these major companies have different names for the credit score, they still use the same formula for coming up with it. While the names used by the major credit companies are essentially the same, lenders often use just one credit report, to analyse your loan application.

Myth No. 2: To Repair Your Credit Score, Simply Payoff All Your Debts

The truth is that your credit score will be influenced, and determined by your past credit history, and not by your current amount of debt. While you may be currently quickly paying off your credit card debts, and settling any other outstanding obligations, your previous history of late or missed payments will still reflect on your score. As the credit experts often say, it takes time to repair your credit score.

Myth No. 3: Closing Old Accounts Helps Boost Your Credit Report

This myth’s nothing but a common delusion. The truth is that closing old accounts won’t affect your credit score, but opening these old accounts will surely hurt your score. Having too many accounts also does damage to your credit score, because your score is usually 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 look young and fresh, but the damage has already been done before.

Myth No. 4: Loan Shopping Hurts Your Credit Score

Whenever a creditor makes an inquiry about your credit score, the score can drop by as much as five points. Some borrowers often fear that if they shop around for lenders, each time the lender makes an inquiry, their credit score plummets again. The truth is that multiple loan inquiries are generally treated as a single inquiry, provided they come within a 45-day period. It would help if you do your loan rate shopping within the 45-day window.

Myth No. 5: A Loan Company Can, For A Small Fee, Fix Your Credit Score

Credit bureaus can’t do anything to soften up or alter your credit score, especially if it’s filled with lots of information about you not handling your debts well. The only way to improve or enhance your credit report is by showing that you can handle your debt load well in the future.

To improve your credit score, you need to do four things:

  • Reduce your debt load,
  • Pay your bills on time,
  • Remove existing errors in your credit report,
  • and apply for credit occasionally.

To your Financial Success,

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Personal Finance: Controlling your Debt…

… How To Boost Your Credit Score

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A credit score acts much like your high school report card. It features a three-digit “grade”, which reflects a person’s creditworthiness to potential creditors, banks, insurance companies, mortgage companies and even employers. The higher your score, the greater will be your chances of availing of credit. Here’s how to control your debts, and boost your credit score.

Review Your Credit Report:

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There are three major credit reporting agencies today, and through these agencies, you can get a copy of your credit report, for you to closely evaluate it. Just like using a fine- comb to weed out tangles and loose hair, you need to review your credit report with a keen eye for incorrect data or any inconsistencies. Check out any incorrect payments, credit limits, or collection data that you strongly feel is not yours. It’s a fact that some typing errors or numerical glitches often show up on some credit reports; therefore you need to get a copy of your credit report at least once a year.

Pay Your Obligations On Time:

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Always make sure that you pay off all types of debt or bills on time. Late payments or any delinquencies will truly have a major effect on your credit score. If you forget to pay one or two of your bills on time, prepare to have some red marks or black eyes on your credit history. To steer clear of any delinquencies, try setting up your bills for automatic withdrawal from your personal current account so that you won’t have to deal with any collection agency in the future.

Balance Your Credit Card Spending:

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Regardless of whether you have one, two or three credit cards, remember to spend wisely and balance your credit card obligations. If you don’t have the money to pay an existing credit card balance at the moment, try getting a loan from a family member or relative, so that your debts can be wiped off from your card, and your credit score also gets a helpful boost.

Never Do Loan Shopping:

Whenever you continually shop for loans or submit to as many lenders within just two weeks, your credit score will surely suffer a major drop. Try to do a cluster of loan inquiries within a proper period of time, like one maybe every three months, so that your credit score remains strong, and won’t have to suffer major drops in credibility with lenders.

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According to credit experts, a credit score of 300 to 580 indicates that you’ll only get approved for loans that offer very high-interest rates. A credit score of 651 to 710 means that you’ll be able to avail of credit at moderate interest rates, while a score of 751 and up indicates that you’ll be able to get the most competitive and flexible loan packages available in the market today.

To your Financial Success,

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P.S.: Join my mailing list and be the first to know of new products loaded and the latest blogs…

  • Online Business (Start-up, Resources, Product Offerings )
  • Personal Development (#FromZero2Hero, Resources, Product Offerings and FREE downloads)
  • For an update on the product already available -> CLICK HERE 

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