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With more and more people taking their credit score seriously these days, there’s been an increasing amount of false information floating around about how scores work. Even professionals in the financial industry get it wrong sometimes, but that doesn’t mean you have to suffer for their mistakes. Here we’ve compiled several of the most common credit score myths or misconceptions. Take a look at these myths and make sure you know how credit scores work.
Credit Score Myths
- Even though credit counseling is meant to help improve your credit score, some people believe it could cause as much damage as a bankruptcy. That’s not the case and the current FICO formula for credit scores does not take any reference to credit counseling into consideration. The only case when credit counseling may not be a smart move is when you’re getting ready to apply for a mortgage. Some mortgage companies treat credit counseling like bankruptcy, making it more difficult to get approved or get a decent rate.
- One credit score myth you hear about all the time is that closing certain accounts can increase your credit score. Some people assume that since you don’t have a good track record with an account, it’s best to close it and move on. Simply put, that is a myth and will only end up lowering your score in most cases. Two of the main factors in determining credit scores are your total available credit and the length of your credit history. By closing an account you’re likely bringing down your total available credit and shrinking your credit history, all but guaranteeing your score to drop.
- Another common credit score myth – you’re FICO score can only be found by one of the major credit bureaus. Fortunately, you can get you’re FICO credit score from each of the three credit bureaus, they all just call it by a different name. At TransUnion, it’s your “Empirica” score, it’s called “Beacon” at Equifax, and Experian calls it the “Experian/Fair, Isaac Risk Model.”
- Finally, you may have heard someone say that your credit score could take a hit every time you check your FICO. While it’s true that your credit score could take a small five point reduction when you apply for a new line of credit, just checking your FICO will have no affect on your score. If you want to minimize the amount of damage done by making new credit line inquiries, make all of your inquiries together. Your score is only docked for credit inquiries made in a 45 day period, so try to make all of them at once.
Additional Resources
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