Your credit score plays an important part in your financial life. So it is important to know, what it is about. Lenders, homeowners, insurance brokers, utility companies, and employers look at your credit score. It is based on what is in your credit report and ranges from 300 to 850.
However, according to a recent study, almost half of all Americans do not know how these figures are obtained or what factors are used to come up with them.
For example, if your credit score is 580 you will probably pay about three times more interest on a loan than a person with 720 points. Or another way to look at it is if you had a $ 150,000 30-year loan rate and your credit score was good enough to qualify for the best rate, your monthly payments would be $ 890. This is according to Fair Isaac, the company that created the FICO points and the number named after (Fair Isaac Corporation). If your debt is low, however, you are more likely to pay over $ 1,200 a month for that loan. Depending on the nature of the debt, it is important to understand what it is about and what factors affect it.
Unfortunately, people often have misinformation and misunderstandings about their credit scores. Here are the most common myths and facts about credit scores:-
MYTH # 1: Larger institutions use different formulas to calculate your credit score.
FACT # 1: The three major credit bureaus - Equifax, TransUnion, and Experian - give points a different name. Equifax calls their school "Beacon" school, Transunion calls it "Empirica" and Experian names it "Experian / Fair Isaac Risk Model." They all use different names to get credit points, but they all use the same formula to come up with it.
The reason the credit points you get from each bureau are different is that the information in your file on which they base points is different. For example, the records used by one bureau may go back in time, or the former lender may share its information with only one institution and not the two.
The points are usually not too far away from one another. Unless there is a significant difference between what each bureau says about your credit score, most lenders will simply use this medium to analyze your application. So for this reason alone, it is a good idea to correct any shortcomings in each of the three major debt centers.
MYTH # 2: Paying off your debts is all you need to do to get your credit score fast.
FACT # 2: Your credit score is usually determined by your previous performance over your current loan amount. It will be very helpful to pay off your credit cards and pay off any remaining debts, but if yours is a history of late or missed payments, it will not take away overnight damage. It takes time to adjust your credit score. So definitely pay your bills. But it is equally important that you stay in the habit of paying your bills on time.
MYTH # 3: Closing old accounts will improve my credit score.
FACT# 3: This is a common misconception. It does not close the accounts that affect your credit score, it opens them. Closing accounts will never help your credit score, and it may hurt you. Yes, having too many open accounts hurts your score. But once the accounts are open, the damage has already been done. Closing an account does not fix it and may make things worse.
Credit points are affected by the difference between the credit available and the credit used. Closing accounts reduces the total amount of credit available and compared to how much debt you can use your real credit balances are made bigger. This damages your credit score.
The credit school also looks at the length of your credit history. Closing old accounts remove old history and can make your credit history look younger than you are. This can also damage your score.
You usually do not have to close the accounts unless the lender directly asks you to do so as a condition that he will give you a loan. Instead, the best thing you can do is simply pay off your existing credit card debt. That is something that can improve your credit outcome.
Myth # 4: Buying on credit will damage my credit score.
FACT: If a lender asks about your debt, your score may be reduced by five points. Some lenders think that when they buy based on many different lenders each time the lender conducts an investigation it will cause further reduction in credit points. This is not true. For credit purposes, most loan inquiries are considered as one question, provided that all come within 45 days. So it is best to buy your rate within this 45-day window.Myth # 5: Companies can fix my score for a fee.
FACT: If credit bureaus have accurate information, nothing can be done to improve your score as soon as possible if you have a history of misconduct. The only way to improve your credit rating is to show that you can manage your debt in the future.Also, if there are any errors in your file, you can contact the office yourself. You do not have to pay someone else to do it. Each major credit bureau has a website that clearly explains what you should do to correct the mistake.
Therefore, the best ways to improve your credit score are: pay off debt, pay your bills on time, correct any mistakes in your credit reports at each of the three bureaux and apply for credit regularly.
Keywords:-#Common myths and factual facts about #credit score and #Credit cards.
