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FICO SCORE MYTHS — DEBUNKED

May 31, 2018 by  
Filed under Blogs, Credit Score

credit facts and myths

Myth: Checking your credit will lower your credit scores
FACT: Checking your credit via credit monitoring sites like Credit Karma, Credit Sesame, etc… will not lower your credit scores. Credit monitoring sites pull your credit information via a soft inquiry which does not impact your credit scores. Applying for credit (mortgage, auto loan, credit card, etc…) causes a hard inquiry which does impact your scores.

Myth: You need to have high income to have high credit scores
FACT: Income does not play any role in determining your credit Scores.

Myth: A credit score is the same thing as a FICO score
FACT: Credit score is a general term for a number which is meant to show your creditworthiness but, credit scores are not all the same. There are dozens of different credit scoring models which offer a snapshot of your creditworthiness like VantageScores, TransRisk Scores, Plus Scores, etc… but, 90% of lending decisions are based on your FICO credit scores.
Note: Learn more about different types of credit scores.

Myth: My credit score isn’t important
FACT: Your credit scores determine your ability to qualify for a mortgage, auto loan, credit cards, student loans, and just about any other financial instrument. They also help to determine loans terms like your interest rate and down payment. People with higher credit scores end up paying a lot less than those with lower scores.

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Myth: A low score will stay low forever
FACT: Credit Scores are not static, they are dynamic and change over time as the information in your credit reports changes. Good credit habits like paying your bills on time, keeping your credit utilization low, and limiting your inquiries will have a positive impact on your credit scores and increase them over time. Working on removing the derogatory information reporting in your credit file will also help increase your credit scores.

 

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5 Credit Misconceptions

July 24, 2012 by  
Filed under Blogs, Credit Report

by: .
Credit Misconceptions

You have heard all of the rumors…from your relatives, friends, and neighbors. There are a myriad of myths about what you should and shouldn’t do to manage your credit. Credit Firm is here to provide you with the truth about credit!

  • Your score will drop if you check your own credit – False. Checking your credit report and credit score on your own is a “soft inquiry” which doesn’t impact your credit score at all. Only “hard inquiries” from a lender or bank, which are looked at as applications for an extension of credit, can impact your credit score. Multiple inquiries within a short time span (7-14 days) are all counted as one inquiry.

 

  • Closing old accounts is a good idea – Not True. Many people preach closing old and inactive accounts as gospel. But you should think twice before closing old inactive accounts. Closing old credit accounts can lower your credit score by decreasing your average length of credit, which accounts for 15% of your overall credit score.

 

  • Paid collections are automatically deleted from your credit report – Wrong again. Derogatory tradelines such as collections, charge-offs, and repossessions remain on your credit reports for 7-10 years whether they are paid or not. Paying off the account before the FCRA Compliance Date doesn’t remove it from your credit report. It is still a good idea to pay your debts, just be aware of one very important thing. Accounts active within the last 6 months carry the most impact on your credit report.  So although paying an old collection account may seem like a logical step toward improving your credit score, it may actually end up lowering your credit score because it re-activates the Date of Last Activity on the account and makes the account look fresh.

 

  • Being a co-signer doesn’t make you liable for the account – Incorrect. If you were silly enough to co-sign for someones loan, there’s something you should know. When you open a joint account or co-sign on a loan, you are taking on legal liability on the account. Any activity on these shared accounts, good, bad, or ugly will show up on both people’s credit reports. If you co-sign for a friend’s auto loan and they don’t make the payments, your credit score will be hurt by their poor payment history and vice versa. In fact, if the borrower defaults on the loan, as the co-borrower, you will be 100% liable for the debt, and responsible for paying it back. Long story short, don’t co-sign for anyone. There’s probably a reason they need a co-signer, and that’s because they can’t pay their bills on time.

 

  • Paying off a debt will add 50 points to your credit score – Your credit score is a compilation of several different factors. It is very difficult to predict how many points you can gain by changing one factor. For a person with a high credit score, just one late payment can cause a significant drop (20-120 points). If a person has a low credit score, it may not cause a large drop at all. Most importantly, pay your bills on time, reduce the amount of debt you have and work on removing erroneous, misleading inaccurate, or incomplete derogatory accounts from your credit report either by yourself or by hiring CreditFirm.net to do so on your behalf.

 

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