Before the year 2000, credit scores were virtually a big secret. E-Loan started experimenting with allowing customers to see their FICO score and although that didn’t last for long, consumers became aware of how important this system is. Their desire to learn about what influenced these ratings grew and later that year FICO revealed five categories with 22 different factors that determined the scoring system. While much information is available about this now, there are still lots of people who don’t understand it. Here are just a few things people still often get wrong…
Checking Credit Reports
Many people believe that by checking their credit scores, they’re possibly doing more harm than good. This is completely false. It doesn’t hurt anyone’s score to check reports on their own. However, if they have someone run a report for them, they might run into problems. This will only happen when an inquiry comes from someone that may appear to be a potential lender of some sort, such as a bank, realtor or car dealership. An individual going straight to the credit companies and requesting their own data won’t hurt anything. In fact, it’s imperative that people do run a check at least once a year to identify anything that’s incorrect.
Carrying a Credit Balance or Closing Accounts
Another thing people often believe is that they should always carry a credit card balance in order to have a good score. Fact is, they’re needlessly carrying around debt and paying interest fees that they don’t need to be paying.
Other people think that closing some of their accounts will help them. In actuality, closing too many could be potentially damaging to the scores assigned to them. With an open line of credit, the gap between what’s owed and what's available is larger. Credit companies like to see a fair amount of room there to play with. On the flip side though, many people do understand this and it leads to being afraid of closing accounts. Closing an account or two here or there shouldn’t cause a huge effect as long as some are left open, their scores are already pretty good and they won’t need to apply for more credit any time soon.
Credit Scores are All the Same…
Although a score provided by most any credit company can give someone a ballpark idea of how well they rank, all scores are not the same. There are many different types, with different formulas used to determine them. There are even different FICO-specific scores including some that are specialized by industry. So what’s a good credit score on one may not be so good on another.
A car dealer may be using specialized scores that apply to car finance, while a mortgage lender may be using the classic FICO alternative. It’s important people know that if the score they’re looking at does not specifically state it’s a FICO, then it’s not… and that is typically the best one to use, as that’s what most lenders will use and they want to look at the same score as their lender.
Veronica Davis - Veronica Davis is a full time freelance writer working from home. She fills her days researching, and writing original, quality content. ...
