Credit Score Myths and Credit Score Truths

With so many factors involved, it is no wonder that so many people are confused about the way their credit score is determined and reported.  When it comes to important things in life, those that can have a positive or negative impact on some very important areas, your credit history is it.  For this reason, it is your right and responsibility as a consumer to learn everything possible about credit and credit scores.  Armed with information and education, you are in a position of control pertaining to your future, not just for spending, but also in the insurance and employment sectors since they are now using a person’s credit history to sell policies and hire.

In addition to your credit score being a subject with many components naturally, you now have to weed through the misconceptions and myths floating around.  We wanted to take this opportunity to clarify some of those myths to help you gain a better understanding of what is and is not true when it comes to your credit history.  After all, the last thing you want to be doing is making major decisions based on misinformation.  One of the things that make myths about your credit history so frustrating is that many of them are being created and circulated by lenders, especially mortgage lenders.

One of the myths about a person’s credit history heard most often is that a great way to improve a credit score is by closing accounts with a zero balance.  Actually, nothing could be further from the truth.  For instance, having open credit card accounts with the balance paid in full should never be closed.  In fact, these accounts help your credit score so closing them could actually cause your score to drop.

The reason is that the way credit scoring programs work is by comparing the difference between available credit and credit being used.  For this reason, if you were to close out a credit card with a zero balance, it means the amount of available credit would decline.  Therefore, the scale tips to make the amount of credit being used greater, which means your credit history would be damaged.  In addition to this, the scoring system looks at length of credit history so once an account in good standing is closed, this time would be shortened, again having a negative impact on your credit.

Another myth about a person’s credit history, which is one started by mortgage lenders, is that by running your credit history, your credit score would be damaged.  This misconception has long been confused with running inquiries for credit, which are two different things.  In other words, every time you apply for a loan or credit card, that lender or creditor orders a copy of the credit report, which is logged as an inquiry.  The problem is that multiple inquiries make it appear to the scoring system that you are desperate.  As a result, your credit history would suffer.

Running your credit history to look at your score would have no impact on your credit score whatsoever.  Regardless if you were looking at your credit history online or you had ordered a current copy of your credit report from the three credit bureaus of TransUnion, Experian, and Equifax, your credit score would not be affected at all.  Keep in mind that by law, you are entitled to one free credit report every 12 months but additional reports would cost a nominal fee.  However, you have the right to order as many reports wanted without the score changing.

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