Mortgage Monday: Credit Myths That Won’t Die, continued

Credit Myths That Won’t Die

Myth 4.You need to carry a credit card balance to have good scores.

Your credit reports and scores do not know if you are carrying a balance or paying off the balance each month. The balance reported to the credit bureaus typically is the balance from your last statement. The bureaus do not know if or when you paid that balance. This myth encourages people to carry an unnecessary debt, putting them at the mercy of credit card issuers and eroding their financial security.

Myth 5. You should never close an account if you can help it.

The prevailing myth used to be that closing accounts could help your scores. We have learned that this is not true. Knowing that closing accounts can hurt your score has caused some people to not close accounts even when they should. If you are being charged fees that you don’t want to pay, for example, closing a card or two shouldn’t be a crisis if you have good scores.

Myth 6. How you handle credit indicates how trustworthy you are.

People get in financial trouble for all kinds of reasons. Simply getting sick is one way to get into financial trouble. Medical bills were a factor in two-thirds of the bankruptcies filed in 2007.

There is nothing to link information on credit reports and the likelihood that an employee will commit fraud. However, employers still persist in thinking there is. There is evidence to support that employers are abusing their power to review credit reports. Some states have already banned pre-employment credit checks.

Myth 7. All credit scores are pretty much the same.

There are hundreds of different credit scoring formulas. Even the scoring formula used by most lenders, the FICO, comes in several different formulas. One lender may use the most up-to-date formula while another might use an older version that gives a different result.

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