Your credit score: fact versus fiction Learn the truth behind four credit score myths. Will a poor credit score haunt you forever? Is your score dinged every time you apply for credit? We list some of the most common myths surrounding credit reports and scores, and separate fact from fiction. Myth: A low credit score means I can’t get a loan. Reality: Your credit score is just one factor that lenders consider when deciding whether or not to extend you credit. They’ll look at your entire credit history, not just your credit score, as well as your income and employment history. A person with a lower credit score but other favorable factors may still be approved for a loan. And someone with a high credit score but question marks in other areas might be denied. Myth: If I have a poor credit score now, I’ll always have it. Reality: Actually, your credit score may change any time new information is added to your credit report. As you pay down debt, for instance, your credit score may increase. And negatives in your credit history become less important over time, which may also improve your credit score. On the other hand, if you miss payments or your debt–to–income ratio grows, your credit score could go down. Myth: My credit score goes down whenever I submit a new credit application. Reality: There is some truth in this. When you apply for credit, it usually triggers an inquiry from the lender to the credit reporting agency. These inquiries can lower your credit score, particularly if you have multiple inquiries in a short time period. However, if the inquiries are linked to auto loans or mortgages, they usually don’t count against you. Myth: Closing accounts will help my credit score. Reality: In some cases, closing credit accounts could actually lower your credit score. That’s particularly true if you close older accounts, because doing so could lower the average age of your credit accounts — one factor considered in the credit score calculation. In addition, if you close accounts, you may also be lowering your ratio of debt to available credit, another factor linked to your credit score. However, if you’re paying fees on unused cards, consider closing them. As long as you have other active accounts and an otherwise solid credit history, the impact on your credit score should be small. But if you’re planning to apply for new credit soon, it’s probably wise to hold off on closing old accounts until you’re approved for the new one.
Posted on: Sat, 20 Jul 2013 16:53:50 +0000
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