Getting Out of Debt Fast

Credit Score - Myths and Facts

Myth: Closing credit cards I don't use will increase my credit score.

Fact: If you've had your credit card for a number of years then closing the account could potentially hurt your credit score. Your score is based on the length of time you've had that account available to you and the balance in relationship to the available credit limit. Instead of closing the account only use the card once every 3 to 6 months, just enough to keep the account active.

Myth: Checking my credit report will lower my overall credit score.

Fact: Checking your own credit report is an excellent tool, especially if you are planning on making big ticket type purchases. The higher your score, the better your chances are of negotiating a good interest rate. Checking your own report will give you more control over your own personal finances.

Myth: My race, gender, age, marital status, income, or religion can affect my credit score.

Fact: Federal law prohibits credit scoring to take into account any of these factors. The only personal information that should be on your credit report is your birth date.

Myth: If I pay cash for everything and don't buy on credit or use credit cards then my credit score should be excellent.

Fact: Having no credit history will actually hurt your overall score. Credit card issuers will view people who pay cash for everything as a higher risk than someone who does use credit cards or has had debt and manages it responsibly. A portion of your credit score is based on paying your credit obligations on time.

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

Fact: A collection account will remain on your credit report for 7 years. However, the collection account is only one part of your credit score and if you are paying your other bills and are up to date with them, then the collection account probably won't drastically damage your score.

Myth: It's okay if my card issuer lowers my available credit because I never max out my card. I always keep it about 75 percent of what's available so I'll be fine.

Fact: You want to keep the balance on your credit card at no more than 50 percent of the available credit limit and preferably no more than 30 percent of available credit. Remember that 30 percent of your overall credit score is based on how much credit you use of the total credit available to you.