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Common Credit Score Misconceptions

In numerous previous posts, I have discussed both the definition and Past _due _imgthe importance of your credit score.  Your score, specific to you as a consumer, is a number that defines your credit worthiness and is used by companies to evaluate the potential risk in making the decision to lend you money and at what interest rate.  Below is a list of common misconceptions that may be detrimental to maintaining a good score or rebuilding an ailing one.

Closing My Open Accounts Will Help Raise My Score
This is the most common piece of mistaken information that consumers hear and the reality is closing accounts may harm your score further.  A closed account, even if it is in good standing will fall off your report sooner than an open one.  One factor that goes into determining your credit score is the length of time you have maintained accounts.  In other words, the longer your credit history the better your score, so those open accounts are driving up your score and closing them will not help you.    

Missing an Occasional Payment Will Not Harm My Credit Score
Missing payments is detrimental to your score and it does not take a credit expert to understand how damaging this is can be.  Your credit score is a compilation of factors that go into to calculating your number.  Your score looks at your past and present credit history to determine your creditworthiness.  Numerous late payments will reduce your score and can also act as a warning sign to potential creditors notifying them that you may be a risk and will make late payments in the future.  Your score does however, take into account how recent, how often, and how severe your late payments are, so the good news is a few late payments a few years back are not too damaging. 

Applying for the Best Credit Available Will Not Hurt My Score
The fact is the more you apply for credit the more you damage your score.  Each time you apply for credit your score is affected.  Also, lenders look into why others may have decided against extending you credit and can decide to follow suit. 

Making the Minimum Monthly Payment on Time Won't Affect My Score
While your credit history as far as making timely payments will remain intact, your credit score also consists of your debt to available credit ratio.  In other words, how much of your credit line on credit cards and loans that is used up matters.  High credit card balances relative to how much of a credit line you have will decrease your credit score .  You are better off using your credit lines in moderation if you find your balances are nearing or exceeding your maximum credit limit. 

Read some of our other blogs on credit scores:

The most important lesson for consumers to understand is that you have rights under the Fair Credit Reporting Act ("FCRA") that will protect you from inaccurate credit reporting.  If you are in need of assistance with your credit report or need help interpreting the FCRA, contact SmithMarco P.C. for a free case review.

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