Do you know lots of myths related around Credit that may be hurting you?
Your score is an integral part of your financial life. You must understand what it’s all about. Lenders, landlords, insurers, utility companies, and even employers look at your scores. It is derived from what’s in your reports, and it ranges between 300 and 850 on FICO.
There’s so much dependent on your score it’s important to understand what’s all involved and the things affecting it. Unfortunately, people commonly have a lot of misinformation and misunderstandings about their scores. Here are three of the most common score myths and along with with it the facts:
MYTH #1: The major bureaus use different formulas for calculating your score.
FACT: There are too many platforms to calculating your score. However, they use different formulas. In the U.S., most credit scores are created either by FICO or VantageScore.
FICO stands for Fair, Issac and company, was founded in 1956 and it’s used when calculating mortgage and lending rates. In contrast, VantageScore was established in 2006, owned by the 3 main bureaus: TransUnion, Experian, and Equifax.
Particularly, if you’re using VantageScore to calculating your score, it can be 30 – 80 points lower when applying for mortgage and loans, compared to FICO Score.
MYTH #2: Paying off your debts is all you need to do to immediately repair your score.
FACT: Your score is mostly determined by your past performance more than your current amount of debt. It will be very helpful to pay off your cards and settle any outstanding loans, but if yours is a history of late or missed payments, it won’t remove the damage overnight. It takes time to repair your score.
MYTH #3: Closing old accounts will boost your score.
FACT: This is a common misconception. It’s not closing accounts that affect your score, it’s opening them. Closing accounts can never help your score and may hurt it. Yes, having too many open accounts does hurt your score. But once the accounts have been opened, the damage has already been done. Shutting the account doesn’t repair it and it may make things worse.
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