Many borrowers are operating under credit myths.
Myth #1: The less credit I have the better my score will be.
- Not true. Credit bureaus want to see you can handle credit responsibly.
Myth #2: If I close some of my credit card accounts, I will have a better score.
- Closing them will help your score, and it might actually hurt your score by lowering your overall utilization rate and shortening the average age of your active accounts.
Myth #3: I have to keep a balance to have a good credit score.
- The truth of the matter is credit bureaus have no way of knowing whether you pay your balance in full each month or whether you make monthly payments.
Myth #4: If I request my credit report, I will hurt my credit score.
- It is true that having too many inquiries by lenders hurts your credit report, but how frequently you pull your own credit report has no negative impact on your score. The inquiry will show up on your credit report but will not affect your score.
Myth #5: I cannot get credit because I have had bankruptcy, a foreclosure, a tax lien, or a bill turned over fir collection.
- If you have poor credit, you can, and should, apply for a credit card immediately. You need to start rebuilding your credit now.
Myth #6: Consumer credit counseling will hurt my credit score.
- Consumer credit counseling can indirectly hurt your credit score. Consumer credit counseling companies are hired to handle your accounts. This means that creditors will not notify you about the status of your account; they will notify the consumer credit counseling service. Some lenders will not approve loans for people with consumer counseling regardless how good their credit score is. In other words, you would be wise to stay far, far away from consumer credit counseling services, even though the act of hiring one will not hurt your score.
Myth #7: I can increase my credit score by paying my collection accounts.
- You will more likely hurt your credit score by paying accounts in collection. But for now you should know that paying a debt in collection not only will damage your score further but also will extend the amount of time a negative item stays on your credit report. The best approach is to negotiate the DEBT before making the payments.
Myth #8: I can get my credit score for free online.
- You will always have to pay for your credit score (unless it is pulled by a lender). Some companies will provide your credit report for free, but they will not include your credit score. To view your credit score, you will need to pay a fee (usually $15 per credit score). Also mote that not all credit scores are equal. Different companies use different methods of collecting data. For instance, automobile companies are interested in the species of your credit history as they pertain to installment loans. Most companies that offer credit scores to consumers (e.g., www.annualcreditreport.com) use a different system than the one used by mortgage planners and credit card companies, who use the FICO system.