A person's credit rating is an integral part of his financial life. A lot of agencies and individuals regularly look at your credit rating, from banks, credit unions, utility firms, landlords, insurers and even bosses. As reported by a recent survey, half of U.S citizens don't exactly know how their credit scores are derived, or what aspects are utilized to work out those three vital numbers. Here are five common myths about credit scores.
Myth No. 1 â€“ The Major Credit Bureaus Use Different Formulas In Computing A Credit Score
This is probably one of the most commonplace myths about credit scores. The facts are that the major credit bureaus, from Experian, Equifax to TransUnion all have a different term for the same score. TransUnion as an example, calls it the Empirica, while Experian calls it the Experian/Honest Isaac Risk Model. While these major companies have different names for the credit score, they still use the same formula for coming up with it. While the names used by the major credit businesses are critically the same, lenders often employ one credit status, to analyze your loan application.
Myth No. 2 â€“ To Repair Your Credit Score, Simply Pay-off All Your Debts
The facts are that your credit score will be influenced, and determined by your past credit history, and not by your present amount of debt. While you could be currently quickly paying-off your credit card debts, and settling any other outstanding obligations, your previous history of late or missed payments will still reflect on your score. As the credit experts often say, it requires time to repair your credit score.
Myth No. 3 â€“ Closing Old Accounts Helps Boost Your Credit Report
This myth's nothing but a common delusion. The facts are that closing old accounts won't have a bearing on your credit score, but opening these old accounts will surely hurt your score. Having to many accounts also does injury to your credit rating, because your score is normally tormented by the difference between the available credit and the credit that's being used. Shutting-off an old account only helps to make your credit report look young and fresh, but the injury has previously been done before.
Myth No. 4 â€“ Loan Shopping Hurts Your Credit Score
Whenever a creditor makes an inquiry about your credit rating, the score can drop by as much as five points. Some borrowers often fear that if they shop around for lenders, each occasion the lender makes an inquiry, their credit rating plummets again. The facts are that multiple loan inquiries are more often than not treated as a single inquiry, provided they come within a 45-day period. It would help if you do your loan rate shopping within the 45-day window.
Myth No. 5 â€“ A Loan Company Can, For A Small Fee, Fix Your Credit Score
Credit bureaus can't do anything to soften up or alter your credit score, especially if it's full of a great deal of information about you not handling your debts well. The only way to improve or enhance your credit status, is by showing that you are able to handle your debt load well in the future.
To improve your credit score, you ought to do four things: Lower your debt load, Pay your bills on time, Remove existing errors in your credit report, and apply for credit often times.