5 Myths About Fico Scores

There are many Do’s and Don’ts circulating about credit scores, and in your quest to improve your own score you read them all. Many times it’s confusing because some of them contradict each other. Here’s the lowdown on what really affects your score.

Myth 1. Paying interest on your purchases will help you achieve a higher score.

While you do need to have a good mix of credit types in order to get a higher credit score, you don’t have to pay interest. In fact, credit agencies will look at you more favorably if you’re able to purchase on credit and pay your amount due in full, because this shows that you’re able to manage your money wisely and avoid paying interest if you don’t need to. Interest jacks up the price of the item you purchased, and the longer you pay interest on it the more expensive it will be.

Myth 2. If you have an unresolved dispute with a lender, all you have to do is a 100-word explanation to your credit report and your FICO score will be fine.

If you have an unresolved dispute and you add an explanation statement to your report but fail to pay that obligation off, your credit score will still be in trouble because that credit obligation is considered unpaid.

Myth 3. If you chose to close your account, your credit report should state “Closed by Consumer” so as not to hurt your FICO score.

Actually, whether it was you or the credit card company that closed the account is immaterial to lenders because what they will look at more closely is your credit score rather than your credit report. When lenders do review your credit report, the reason for the account closure will be documented especially if you defaulted on your payments. Therefore, a “Closed by Consumer” notation isn’t really necessary.

Myth 4. If you’re having problems with credit payments, it’s better to face bankruptcy rather than seek credit counseling.

Credit counselors are too often maligned and misunderstood by many. There are good counselors and bad ones. One of the worst things you can have in your credit report is bankruptcy, seeking credit counseling isn’t as bad as it sounds. If you’re having problems managing your money and paying off debts, seeing a credit counselor may actually help.

Myth 5. If you had to file for bankruptcy you lose any chances of getting credit for the rest of your life.

While bankruptcy does shatter your credit image, you still have many more chances to get credit starting with a few months after your bankruptcy is discharged. What is more important is how you pay your credit obligations after the bankruptcy. You’ll need to show that you can pay on time and will not run up big balances on your credit card that you cannot afford to pay.

Knowing what affects your credit score and how to avoid these will help you achieve a good score if you work at it. The key is not to do something that will ding your score. Commonsense, diligence, and good money management will get you there. You can read more about your FICO score and how to improve your credit report and score at our website.

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