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Credit Facts & Fallacies

Myth: My score determines whether or not I get credit.
Truth: Lenders use a number of facts to make credit decisions, including your score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.


Myth: A poor score will haunt me forever.
Truth: Just the opposite is true. A score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates.


Myth: Credit scoring is unfair to minorities.
Truth: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.


Myth: Credit scoring infringes on my privacy.
Truth: Credit scoring evaluates the same information lenders already look at - the credit bureau report, credit application and/or your bank file. A score is simply a numeric summary of that information. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.


Myth: My score will drop if I apply for new credit.
Truth: If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called “inquiries”) will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

Tips for Improving Credit Score

  • Keep balances low on credit cards and other "revolving credit."
    High outstanding debt can affect a score.
  • Pay off debt rather than moving it around.
    The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
  • Don't close unused credit cards as a short-term strategy to raise your score.
  • Don't open a number of new credit cards that you don't need, just to increase your available credit.
    This approach could backfire and actually lower your score.
  • If you have been managing credit for a short time, don't open a lot of new accounts too rapidly.
    New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.
  • Do your rate shopping for a given loan within a focused period of time.
    FICO® scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
  • Re-establish your credit history if you have had problems.
    Opening new accounts responsibly and paying them off on time will raise your score in the long term.
  • Note that it's OK to request and check your own credit report.
    This won't affect your score, as long as you order your credit report directly from the credit-reporting agency or through an organization authorized to provide credit reports to consumers.
  • Pay your bills on time.
    Delinquent payments and collections can have a major negative impact on your score.
  • If you have missed payments, get current and stay current.
    The longer you pay your bills on time, the better your score.
  • Be aware that paying off a collection account will not remove it from your credit report.
    It will stay on your report for seven years.
  • If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
    This won't improve your score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.
  • Apply for and open new credit accounts only as needed.
    Don't open accounts just to have a better credit mix — it probably won't raise your score.
  • Have credit cards — but manage them responsibly.
    In general, having credit cards and installment loans (and paying timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
  • Note that closing an account doesn't make it go away.
    A closed account will still show up on your credit report, and may be considered by the score.
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