[B316]Below 500 Credit Score

There is so much information out there on improving your credit score that it is hard to know what really works. Because most people never take a class or fully understand the credit system, a host of myths and misinformation has developed regarding the subject. Some of these misnomers may seem logical or possible, but really have no grounds for proof. Sadly, much of this information is coming directly from sources that should know what they are talking about, such as bank representatives or mortgage lenders. For this reason, it is important to be aware of the basic credit score myths to keep from wasting your time or even hurting your credit score.

Perhaps the most common piece of bad information that people receive concerns their current accounts. If a broker or other individual claims that closing accounts will improve a credit score, they are completely flawed in their logic. Yes, having too many open accounts will reflect negatively on a credit score, but closing existing accounts is another matter. Once the accounts have been opened, the damage is done, and it is best to keep them open. Shutting accounts can actually hurt your credit score. The amount of credit available to an individual is one factor affecting credit scores. When accounts are closed, the amount of available credit shrinks, making account balances seem larger by comparison. Paying down debt is an excellent idea, but in the process, leave opened accounts open.

Many people believe that checking your FICO score can actually hurt your credit. This is another common confusion due to the fact that certain inquiries can hurt your credit while others do not. Applying for new credit will often hurt your score, but ordering a copy of your credit report will not. Mass pre-approval inquiries also go unpunished. When a credit score reduction is caused by an inquiry of some kind, it will only change the score by 5 points or less, so even in this event, this is not a huge factor in your score.

Your ability to qualify for certain loans may be impacted by the use of credit counseling, however, many people think that credit counseling will scar your credit score in the same way as bankruptcy. This is simply not the case. The most current FICO formula actually ignores credit counseling all together. This was a change that occurred due to a research study conducted three years ago that supports the fact that people using credit counseling did not default on their debts any more than other people. However, take note that using credit counseling might impact your ability to qualify for certain loans. Sometimes, counseling agencies make late payments to your creditors or settle for lesser amounts, and these things will show up on your score, but the use of credit counseling in general will not negatively change your credit score.

These myths are some of the most widely accepted misnomers about the credit industry. Understanding their falsehood will help you to manage your credit more knowledgably or seek the right kind of help to repair your credit. If a broker, counselor, lender, or agent tries to feed you one of these myths, you might seriously consider how knowledgeable they really are about everything else involving your credit.