Five Untruths About Your Credit Rating And How They Could Damage Your Financial Health

Someone's credit score is an integral part of his financial life. Many agencies and individuals regularly look at your credit score, including banks, credit unions, utility firms, your landlord, insurance companies and even employers. According to a latest survey, 50% of Americans don't exactly understand how their credit scores are derived, or what elements are included in order to compute those three vital figures. There are five common myths about credit scores.

No. 1 - The Major Credit Companies Use Different Formulae In Computing Credit Scores

Perhaps one of the most the most common myths about credit scores. The reality is that the major credit institutions, from Transunion, experian and Equifax, all have a different name for the same score. TransUnion for example, calls it the Empirica, and Experian calls it the Experian/Honest Isaac Risk Model. While the big credit bureaus have different names for the credit score, they still use an identical formula for calculating it. As the scores used by the major credit companies are basically the same, lenders frequently use just one credit report to help process your loan application.

Myth No. 2 - To Repair Your Credit Rating, Just Pay-off All Your Debts

The truth is that your credit score is heavily affected, and dictated by your past credit history, and not by your current amount of debt. While you might be as we speak quickly paying-off your credit card debts, and settling all other outstanding commitments, your past history of late or missed payments will have an effect on your score. As the credit professionals often say, it needs time to repair your credit score. For further information search for 'how do credit cards work' on the web.

Myth No. 3 - Shutting Down Old Accounts Aids In Boosting Your Credit Report

This myth's nothing, but delusional. The truth is that closing old accounts will not impact your credit score, but opening more accounts will surely hurt your credit rating. Having more than a few accounts does damage to your credit score, because the score is usually affected by the difference between the credit you have available and the credit that you are using. Shutting-off an old account just helps to make the credit report look young and fresh, but the damage has already been registered.

Myth No. 4 - Looking Around For A Loan Damages Your Credit Score

Whenever a creditor makes an inquiry concerning your credit score, the score may drop by as much as five points. Some people often fear that if they look around for new loan, each time the lender makes an inquiry, their credit rating drops again. The truth is that several loan inquiries are generally processed as just one inquiry, provided they come within a forty five day time frame. It would help if you do your loan rate shopping during that 45-day period.

No. 5 - A Loan Company Can, At A Small Cost, Fix The Credit Score

No company can do anything to improve or alter your credit score, particularly when it's filled with lots of information about you not managing your debts properly. The only way to enhance your credit report, is by demonstrating that you can manage your debt load well in the future.

To improve your credit rating, you have to do four things: Reduce your debt load, pay all bills on time, remove any errors from your credit report, and make applications for credit occasionally.

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