The financial crisis has underscored the need to maintain a good credit score and also know what factors have the most effect on the score. Since there is a variety of information about credit scoring, you have to know what information you're getting is actually coming from experts that are well educated and informed on how credit scoring works. Quite often, misinformation is circulated, just like urban legends about anything else. What's especially alarming is that much of this information is coming from people in the mortgage, finance and real estate industry who hear unknowingly hear bad information and spread these rumors. For this reason, it's important to be aware of the most common credit score myths that can actually hurt your credit score instead of improve it. Many of these false tips may actually sound like they make sense, but can actually hurt your credit score more than they will help.
After working in the mortgage and real estate industry for nearly two decades, I have firsthand knowledge and experience in dealing with credit. I've had many clients that unfortunately chose to listen to other people who were not credit experts, and the result is often a much higher interest rate, or a flat out denial on their loan.
Probably the most common misnomer is that closing long established accounts will improve your credit score. This may appear to make sense, since the lack of open credit may indicate the lack of ability to run up high amounts of debt. In reality, the length of time that accounts have been established makes up a substantial portion of the credit score, so closing these may have a negative impact. People who work for years to pay off a credit card quite often close the account as a way to have closure to the time in their life when they were overburdened with too much debt. This should be avoided if at all possible. A good alternative might be to ask the creditor to reduce the credit line if you feel uncomfortable with having a credit card with a high credit limit. This would be a much better alternative to closing the account entirely for the purposes of keeping your credit score high.
Another myth is that checking your own credit will lower your credit score. This is not true, as long as you check your credit though a service that was intended for consumers. In other words, if you have a friend who works for a company that has access to credit reports pull your credit scores, this will cause an inquiry that will affect the score. But what about other types of inquiries? Many consumers have an unfounded fear of letting multiple companies check their credit when they are shopping for a mortgage or vehicle. While inquiries from either will affect the score slowly, the credit bureaus expect people to shop for mortgages and auto loans. Therefore, all inquiries from either of these companies will only count as one total inquiry as long as they are within a 30 day period. Credit bureaus are not in the business of keeping consumers from shopping for the best deal, so they allow multiple inquiries from these entities. Now if you happen to apply for multiple credit cards within a short period, this will count as many inquiries which may seriously damage your score. Multiple credit card inquiries are viewed as a possible desperate move by a consumer to secure credit for living expenses because they can not otherwise afford to pay them. So that translates into a higher credit risk. Although many credit myths exist, these are the two most common. Always check with a professional that is well educated in how credit scores work before making claims that could possibly cause you to get a higher rate, or get denied for a loan completely.