Common Myth on Credit Score

Credit score is one of the integral parts to evaluate your financial position. To access a person’s financial stability credit score is one of the easiest ways. Everyone like insurer, lender, and landlord all enquire about your credit score. Credit score of a person ranges from 300 to 850. Thus it is necessary to know how this score is derived.

But according to latest American survey it is predicted that half of the American are not aware of how these credit score is derived and what factor are taken into account when calculating our score. Since our entire existence depend on this score, thus it is necessary to know what the credit score actually is and what are the things that affect it are.

But unfortunately people have lot of misconception about the credit score. So here is some common myth along with their true facts about credit score.

MYTH # 1

Different formulas are used by major bureaus to calculate your credit score.

FACT

There are 3 major bureaus i.e. Equifax, TransUnion, and Experian. Credit score derived from these bureaus have different name, but they use the same formulas to come up with.

The reason to have different score by different bureaus is because the information in your file they use to base your report varies differently.

MYTH # 2

To immediately repair my credit score I should pay off your debt.

FACT

Paying off your immediate debt cannot improve your credit score, if your credit history is not good. Your credit score largely depends on the past performance than on current amount of debt. You should pay off your credit card debt on time to maintain your credit score. Instant payment of credit card debt cannot remove your previous damages.

MYTH # 3

Pulling my credit report may hurt my credit score.

FACT

Credit report is pulled off for different purposes. When pull their credit report for educational purposes it is considered as “soft enquire” and it will not affect you credit score. But when creditor or lender pull off your credit report for the purpose of granting loan it is considered as “hard enquire” can negatively hurt your credit score.

MYTH # 4

Income is the factor that affects the credit score.

FACT

Income is nothing to do with your credit score or credit report. It may happen that the person who make solid living but have poor credit score, but at times the person with lower salary could have good credit report.

MYTH # 5

Closing my accounts will boost my credit score

FACT

This is one of the common misconceptions. Every one of us thing that closing down our account would help in increment of credit score. In fact opening such accounts negatively affects our credit report and closing account can never help your credit score. Once the account has been opened the damages has already been made. In fact closing down your account makes the situation worse.

The credit score is affected by the difference between the credit that is available and the credit that is being used. Shutting down accounts reduces the amount of total credit available and when compared with how much credit you can use your actual credit balances are made to seem larger. This hurts your credit score.

So the best way to improve your credit score is to pay off your bill on time, pay down your debt, correct the existing errors on your credit report