Mortgage Monday: Credit Myths That Won’t Die

Credit Myths That Won’t Die

In 2000 a loan company on the internet known as E-Loan let the cat out of the bag and started letting consumers see their FICO scores. It was quickly shut down, but the damage was already done. Pressure from consumer advocates and the lawmakers finally persuaded Fair Isaac, the creator of FICO, to reveal the 22 factors that go into the creation of its scoring.

Eleven years later there are still some myths that persist in keeping people from understanding the most important information of their financial lives.

Myth 1. If you handle your finances responsibly, your credit scores take care of themselves.

Fact: A credit score is not a measure of financial health. It does not allow any measure for your income, assets, and/or financial knowledge. Credit scores have one purpose and one purpose only, to assist lenders in determining the likelihood that you will default on a loan.

Myth 2. Checking your credit report hurts your score.

Fact: Checking your own credit report or scores does not hurt your score. Asking your friend who works at a bank or loan company to check you credit report can have an effect on your score. The difference is that when you “pull” your credit report, it is considered a “soft pull.” When your friend pulls your report, it is considered a hard pull and can have an effect on your score. Too many inquires will lower you credit score. Remember, you can ask for one free credit report a year. Check your local state laws concerning receiving a report each year. Then check it for accuracy.

Myth 3. Asking for lower limits will help your credit.

Fact: Having a sizable credit limit is a good thing for your scores. The gap between the credit limit and the amount you use is what lenders look at. The bigger the gap, the more they like it. Lowering that gap will actually hurt your score.

To be continued….

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