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Laying Credit Score Myths to Rest

by on January 8, 2008

By now, you know that your credit score is based upon a number of different factors, including your payment history, amounts owed on your credit accounts, length of time your accounts have been opened, new accounts recently opened, and the different types of credit you have open.

But did you know that this information is then used to categorize you against people with similar profiles in order to determine your score? In other words, someone that might have a weaker payment history might actually have a better score simply based on the category profile under which he or she fits.  This is just one of the many things you should know about your credit report.

There are, however, a number of common myths about credit scores that need to be laid to rest, including one that your credit score can be negatively impacted by the amount of inquiries that are made in order to determine your credit worthiness. In fact, your credit score is not negatively impacted each and every time an inquiry about your credit is made. Certain inquiries are not counted against your score. In reality, FICO claims that they don’t penalize the credit scores of consumers that are doing what is referred to as “rate shopping”. If you are shopping around with different lenders, for example, to find the best interest rate for a new home loan, your score won’t be negatively impacted because of all of the recent inquiries on your credit made by these lenders. In order to make sure your score isn’t negatively impacted, however, FICO does recommend doing all of your rate shopping within a two week time frame.

If you have several credit cards, it may seem more convenient to just carry one large balance on a single card, but it’s actually better for your credit score if you spread them out over more than one card so as not to over utilize any one particular account. Credit utilization is an important factor in determining scores so the lesser that your lines of credit have been utilized, the better your score will tend to be.

In addition, transferring your balance to one with a lower rate can actually hurt your credit score, so work on paying it off instead. In the end, if you act responsibly with your cards by paying them off on time over time, keeping your balances low, and avoid opening up too many accounts, your credit score will properly reflect your credit worthiness.

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