Want to take control of your credit? First of all, you will need to educate yourself on the factors that affect your credit score. Unfortunately, there are a number of myths that can spin your brain over information overload.
Here are some common credit score myths:
1. My work history will make or break my credit
Your work history has nothing to do with your credit rating, but some lenders may look at it to determine if you are stable enough to pay off a loan. Frequent job changes or layoffs can be a cause for concern.
2. The more money I earn or save, the higher my credit score will be.
It’s not what you do, it’s how you spend it. And how much money you have in savings has nothing to do with the FICO credit scoring equation. However, some lenders may take these factors into account when determining how likely you are to default on a loan.
3. Bad credit will prevent me from getting a loan
This is wrong because there are a lot of greedy lenders out there who will be willing to lend you money – at a very high interest rate, of course.
4. Bad credit never goes away
With good debt management practices, the negative marks will eventually disappear. Late payments, bankruptcies, foreclosures, and collections usually stay on your credit report for seven years. The exception is Chapter 7 bankruptcies, which last for 10 years.
Even before they disappear from your credit reports, the impact of these imperfections fades over time.
5. All credit scores are created equal
Each of the three major credit bureaus produces a FICO score based on the information they have about your credit history.
Some things are known about how it works, but the details are a well-kept secret.
Credit bureaus also produce other types of credit scores, although FICO scores are the most widely used by lenders.
6. Having too many credit cards will ruin my credit
While too many credit card applications in a short period of time can create problems, having a variety of magic plastics in your wallet won’t necessarily hurt your credit score.
However, it becomes a problem when balances get out of hand and your debt to available credit ratio skyrockets.
7. Examining my credit report will reduce my credit rating
Examining your own credit report will not hurt your credit. However, a lender’s requests for information when you apply for credit can affect your credit score.
How your FICO score is calculated
Now that you have a better understanding of the factors that don’t affect your FICO credit score, let’s take a look at what does:
- Payment history – 35 percent of your credit score is determined by whether or not you make timely payments.
- Amounts due – 30 percent of your credit score is based on your debt.
- Length of credit history – 15% is based on the length of time each of your credit accounts have been in existence. In the case of your FICO score, old age isn’t always a bad thing.
- Types of credit used – 10 percent is based on the types of credit accounts you have opened. These include credit cards, installment loans, mortgages, and auto loans.
- New credit – 10 percent is determined by the amount of recently submitted inquiries for new credit. Try to keep this number as low as possible or your credit score could drop.
Find your score
You can visit AnnualCreditReport.com to get a free copy of your three credit reports. But to view your FICO scores, you may need to fork out some cash.
However, this is not always true. There are ways to get your score for free. For more information, see “6 companies that give free credit scores to the general public. “
Does your credit score need a boost?
Start by reviewing your credit reports for errors. If you notice any, use this model provided by the Federal Trade Commission and follow the corresponding instructions to initiate the dispute process.
Save yourself the headaches by avoiding companies claiming to have some sort of magic wand that can fix your credit in a flash.
The next step is to establish a realistic budget and a debt management plan that will put you in control of your spending and reduce those outstanding balances.
Need more help? Check “Boost Your Credit Score Fast With These 7 Moves. “
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