Common Credit Score Myths
With so much depending on the credit score, it’s essential to understand what it is all about and what are the things that affect it. Unfortunately, people have a lot of misinformation and misunderstandings about their credit score. Here are five of the most common credit score myths and along with it the true facts:
MYTH #1: The major bureaus use different formulas for calculating your credit score.
FACT: The three major credit bureaus – Equifax, TransUnion, and Experian — give the score a different name. Equifax calls their score the “Beacon” credit score. While Transunion calls it “Empirica.” Meanwhile, Experian gives it the name “Experian/Fair Isaac Risk Model.” They all use different names for the credit score, but they all use the same formula to come up with it.
The credit score you receive from each bureau is different because the information in your file that they base the score on is different. For example, the records that one bureau is using may go back a long time, or a previous lender may have shared its information with only one of the bureaus and not the other two.
Usually, the scores are not too far from each other. Unless there is a big difference between what each bureau says is your credit score, many lenders will just use the one in the middle to analyze your application. So, for this reason alone, it is a good idea to correct any errors that exist in each of the three major credit bureaus.
MYTH #2: Paying off your debts is all you need to do to repair your credit score immediately.
FACT: Your credit score is mostly determined by your past performance more than your current amount of debt. It will definitely be beneficial to pay off your credit cards and settle any outstanding loans. But if yours is a history of late or missed payments, it won’t remove the damage overnight. It takes time to repair your credit score.
So definitely pay down your debts. But it is equally important to consistently get in the habit of paying your bills on time.
MYTH #3: Closing old accounts will boost my credit score.
FACT: This is a common misconception. It’s not closing accounts that affect your credit score. It’s actually opening them. Closing accounts can never help your credit score and may actually hurt it. Yes, having too many open accounts does hurt your score. But once the accounts have been opened, the damage has already been done. Shutting the account doesn’t repair it, and it may make things worse.
MYTH #4: Shopping around for a loan will hurt my credit score.
FACT: When a lender inquires about your credit, your score could drop up to five points. Some borrowers think that if they shop around by going to several different lenders, each time a lender makes an inquiry, it will reduce the credit score. This isn’t true. For credit score purposes, multiple inquiries for a loan are treated as a single inquiry, as long as they all come within 45 days. So it is best to do your rate shopping within this 45-day window.
MYTH #5: Companies can fix my credit score for a fee.
FACT: If the credit bureaus have accurate information, there’s nothing you can do to quickly improve your score if in fact, you have a history of not handling your debts well. The only way to affect your credit score is to show that you can manage your debts in the future.
Also, if there are errors in your file, you can contact the bureau yourself. You don’t need to pay someone else to do it. Each of the major credit bureaus has a website that clearly explains what you need to do to correct an error.
What’s the Fact?
So, the best ways to improve your credit score are: pay down the debt, pay your bills on time, correct existing errors on your credit reports in each of the three bureaus, and apply for credit infrequently. Let’s end these credit score myths today and do what you must to improve your credit score. Let Credit Repair Monster help you!