Getting Out of Debt Fast

Credit Score - Myth versus Fact

Myth: Closing a credit card I don't use will improve my credit score.

Fact: Closing a credit card account will not necessarily boost your credit score; in fact it could potentially hurt your overall score. If you've had a credit card account for several years, think twice before you close the account. Your credit rating is determined by the length of time you've had an account as well as the balance in relation to the account's limit. Instead of closing the account, only use the credit card once every three to six months. This will keep the account active.

Myth: My credit score will be lowered if I check my credit report.

Fact: When your credit report is examined for a new credit card or mortgage, it is considered a "hard credit pull" and will stay on your credit report for six months and will also lower your credit score. However, checking your own credit report will not hurt your score and can be an excellent tool for you to use when making big purchases. The higher your credit score, the more likely you are to negotiate lower interest rates, which gives you more control over your personal finances.

Myth: My credit score can be affected by my age, race, gender, marital status, religion, income or location.

Fact: This is absolutely not true. Federal law prohibits credit scoring from taking any of those factors into account. The only personal demographic information that is maintained by the reporting agencies is your birthdate.

Myth: Negotiating with my credit card or mortgage company will make my credit score go down.

Fact: If you are up to date with your credit card or mortgage payments then negotiating with your credit card of mortgage company should not affect your score. However, to protect your score, try extending the term of your loan or negotiate a lower interest rate instead of trying to get the principal reduced.

Myth: If I pay cash for everything and never use a credit card or buy anything on credit, my credit score should be excellent.

Fact: If you don't have a credit history and you never use credit than you can actually hurt your overall credit score. Companies that issue credit card will actually view customers with neither debt nor credit cards as a higher risk than someone who does have credit cards and manages their debt responsibly. The agencies that report your credit like to see a history of paying credit obligations on time.

Myth: A fine on an over due library book won't show up on my credit report.

Fact: Wrong. Even a small library fine that has been turned over to a collection agency can lower your credit score by as much as 50 to 100 points. This also applies to unpaid parking tickets and utility bills. If you pay the debt before it reaches a collection agency than you should be okay.

Myth: My credit score will immediately be cleared if I pay off a collection account.

Fact: This is not true. A collection account remains on your credit report for seven years even if it has been paid. However, if you are current on your mortgage and credit card payment, than the collection account probably won't drastically damage your overall credit score.

Myth: All the different credit cards such as Visa, American Express, Discover or a department store card are all the same when it comes to my credit rating.

Fact: You will want to stay away from store-brand credit cards. Approximately 10 percent of your credit score is based on the institutions from which the money is borrowed. Finance companies, often used by retailers who offer their own credit cards, are considered higher risk than banks. A large amount of credit cards that are backed by finance companies could negatively impact your credit rating.

Myth: It is okay if my credit card issuer lowers my credit limit because I never max out my credit limit; I always try and keep my balance around 75 percent of what's available.

Fact: It can make a huge difference to you if your credit card issuer decides to lower your credit limit. Most people will keep their credit card balance right under their available credit limit. Thirty percent of your credit score is based on how much credit your use in relation to how much credit you have available. Try to keep your balance on your credit cards below 35 percent of your available limit.

Myth: I don't make enough money to have a really good credit score.

Fact: Your income has no effect on your credit score. Paying your debt in a timely manner, monitoring your credit report to track how often you're applying for credit cards and loans and making sure you keep your oldest credit card open so it remains in your credit history are the ways to establishing a good credit score.