Common Credit Score Misconceptions

In numerous previous posts, I have discussed both the definition
and the 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:

• What
  Qualifies as a “Good” Credit Score
• 
  Fixing Your Credit Score After Disaster Strikes 
• 
  New Credit Scoring Model Could Help Millions

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.