Learn The Truth About These Credit Score Myths
Who knew that three little numbers could become such an integral component of your financial success? Your credit score affects your ability to rent or purchase a home, buy a car, or even purchase a cell phone. And yet, those three little numbers are widely misunderstood. If youre wondering how your credit score affects your financial future, start by dispelling the following mythsand gain a broader understanding of your credit and how it affects you. Here are six myths involving your credit score, and the truths not everyone hears
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1. Closing A Credit Card Account Will Hurt My Credit
While closing credit cards can negatively impact your score, its beneficial in certain situations. If you want to cease paying an annual fee, for example, closing a card will not impact your credit score significantly, as long as you have good credit and many other open accounts.
If youre considering applying for a loan in the near future, though, wait until after
youre approved to close your cards.
If there are no immediate reasons to terminate your plastic, keep them active. Fair Isaac Corporation, or FICO, the company that calculates your credit score, uses your total credit limit
to determine a credit utilization ratio. When the total available credit decreases, it raises your ratio, which decreases your number.
2. My Credit Score Will Suffer If I Check My Credit Report
By law, youre allowed one free credit report annually from each of the three credit agencies. Access them online or acquire them directly from the agencies for a small fee. This inquiry will not affect your credit.
3. Lenders Only Approve Applicants With Credit Scores Above 740
Lenders may use a credit score of 740 as a benchmark for the best pricing; however, approval is not out of reach for applicants with lower scores. Some lenders require a minimum of 680, while some FHA loans are attainable with credit scores of at least 620. Speak to your lender about their requirements, as eligibility will vary.
4. Having A Credit Balance Increases My Scores
Wrong! Carrying debt does not raise your credit score. There is actually a huge advantage to paying your balances in full youll avoid interest payments.
5. I Cant Do Anything To Help My Credit Score
Its not uncommon to uncover errors on your credit report. If any accounts look suspicious, or you notice mistakes, report it immediately to the credit reporting agencies. They will act in your favor to get the matter resolved, and return your credit back to normal.
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6. Regular Payments To Collection Agencies Will Improve My Credit Score
Your credit report only displays whether or not the collection account is paid or unpaid. It makes no reference to the payments you make to bring the account to paid status. Once an account is sent to collections, the damage has already been done.
Stay focused on the facts, and do your research before believing any assumptions. Your financial future is too important not to give it the time and attention it deserves.