Top 5 Credit Misconceptions
We have all heard the rumors…from neighbors,
relatives or friends. There are a wide variety of myths floating around
about what you should and shouldn’t do to improve your
scores. The buck stops here!
has exposed these urban legends to provide you and your informers with
the truth about credit:
- Your score will drop if you check your credit-
Fortunately, this one is definitely not true. Checking your own report
and score is counted as a
"soft inquiry" and doesn't harm your credit at all. Only "hard
inquiries" from a lender or creditor, made when you apply for credit,
can bring your credit score down a few points. Worried about damaging
your credit while shopping around for a loan? Multiple inquiries for
the same purpose within a short amount of time (a few weeks) are
grouped together into a less damaging period of inquiry.
- Closing old accounts will improve your credit score- To
close or not to close, that is the question. Many people advocate
closing old and inactive accounts as a way for improving your credit.
In most cases, closing accounts will actually have the opposite effect.
Canceling old credit accounts can lower your credit score by making
your credit history appear
shorter. Think twice before closing the oldest account on your credit
report. If you want to reduce your levels of available credit, ask for
your credit limits to be reduced or close newer accounts instead.
- Once you pay off a negative record, it is removed from your
credit report- Negative records such as collection accounts,
bankruptcies and charge-offs will remain on your credit report for 7-10
years after they are first posted. Paying off the account before the
end of the set term doesn’t remove it from your credit report, but will
cause the account to be marked as “paid.” It is still a good idea to
pay your debts, it can improve your credit score, but the major
improvement will come
when the record expires.
- Being a co-signer doesn’t make you responsible for the account-
When you open a joint account, co-sign on a loan or become an
authorized user on someone’s credit card, you are taking on legal
responsibility for the account. Any activity on these shared accounts,
good or bad, will show up on both people’s credit reports. If you
co-sign for a friend’s auto loan and they don’t make the payments, your
credit profile will be hurt by their actions and visa versa. The only
way to stop this double reporting is to refinance the loan or to have
the creditor officially remove you from the account.
- Paying off a debt will add 50 points to your credit score-
Your credit score is calculated using a complex algorithm
that takes into account hundreds of factors and values. It is very hard
to predict how many points you can gain by changing one factor. For a
person with a high credit
score, just one late payment can cause a significant drop. If a
person has a low credit score, it may not cause a large drop at all.
There is no magical way to improve your credit score, just keep paying
your bills on time, reducing your debts and removing negative
inaccuracies from your credit
report. Good financial behavior and time are the two most important
factors on your credit score.
Get your credit report and score NOW!