Updated: 7/31/2013 9:55 PM ET|
7 nasty credit myths that won't die
Myth No. 5: "You should never close an account if you can help it."
Fact: The prevailing myth used to be that closing accounts could help your scores, which, we've learned, isn't true. But the knowledge that shutting accounts can hurt your scores has caused some people to balk at closing credit accounts, even when they probably should.
If your issuer is charging you a fee you don't want to pay, for example, closing a card or two shouldn't be a crisis if you have good scores, other open accounts and no plans to apply for credit in the immediate future. If you do plan to apply for a mortgage, car loan or new credit card, though, you should hold off on closing any accounts until after you've been approved.
Myth No. 6: "How you handle credit indicates how trustworthy you are."
Fact: People get in financial trouble for all kinds of reasons, including simply getting sick (medical bills were a factor in nearly two-thirds of consumer bankruptcies in 2007, according to Harvard University researchers).
There's no evidence of a link between information on credit reports and the likelihood an employee will commit fraud, but employers persist in thinking there is. (By the way, employers typically use credit reports to evaluate applicants, not credit scores.)
Furthermore, there is evidence that employers are abusing their power to review credit reports Some states have already banned or limited pre-employment credit checks, and a bill was introduced in 2009-2010 session of Congress to do the same, although the legislation didn't go anywhere.
Myth No. 7: "All credit scores are pretty much the same."
Fact: There are hundreds of different credit scoring formulas. Even the scoring formula used by most lenders, the FICO, comes in different iterations. One lender may use the most up-to-date formula while another might use an older version that gives a different result. There are FICOs tweaked to accommodate car lenders, credit card lenders and finance companies, in addition to the "classic" FICO used by most mortgage lenders.
Some purveyors of other scoring formulas point to these different versions to try to convince people that it doesn't matter which score you get, since there are so many variations. Indeed, if you're simply looking for a guidepost as you try to shore up your finances, any of them can give you an idea of your credit's relative strength.
But if there's real money at stake, you want to get a score that's at least in the same ballpark as the one your lender will be using, and that's typically a FICO. If you're buying a credit score that doesn't say it's a FICO, it's not a FICO -- and it could be dozens or even hundreds of points different from the one your lender sees.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
VIDEO ON MSN MONEY
Funny just a few weeks ago I read an article right here on this web page that contradicts a few "myths" this article tells you. I look at it this way: I will NOT be kept on the hamster wheel. I got off paid off my credit cards & will NEVER have them again. I now have over $10,000 in my savings account. WOW! And to think all this $$ was going to credit cards & interest!
As far as buying a house or car huge down payments talk everything else walks.
I have to agree with Shalyse.
Since the average consumer has little protection against credit card companies and our own credit scores,,I believe the best way to stay out of financial trouble is to try to AVOID using credit when possible. Some parts of this article may be true but not ALL. I remember years ago one attorney told me "Credit card companies represents America's biggest scam"
Its so unfortunate that good credit is required for so many applications that shouldn't be,,,like jobs and apartment dwelling. Our entire credit system needs an overhaul
I'm dept free and already have all the "Stuff" I need.
Cash is my friend.
What others think be damned.
I was told I should utilize my credit cards more to build credit...but....so far I have had no trouble getting by.
I travel for fun which is pretty much the only time I use them and life is good.
I invision evil little trolls in a dark cavern, somewhere, just cursing my ability to function outside of the credit system.
It makes me smile.
Think about it, credit scores are only important to the lender or the people attempting to get the lender to lend to them.
Those scores are little more than a rating of what you have done credit wise.
It is not a reflection of your worth, you could have had NO REASON to borrow, in which case your score would have been lower than someone who did borrow and paid back late or never, probably a "0"!
You may have been TOO QUICK at paying back, (nothing less than a two year period is any score at all)!
The score is only important......................IF YOU WANT OR NEED TO BORROW.............OR, MORE IMPORTANTLY...............DO NOT HAVE ANY COLATERAL (AN OLD AND SELDOM USED TERM SINCE THE MODERN CREDIT DAYS OF "NOTHING DOWN, FOREVER TO PAY")!
It took me almost a month to get a loan on my present house because I always paid debt off ASAP..................YET THE 30YR MORTGAGE ON THIS HOUSE WAS PAID OFF IN 3YR, 3MOS, so tell me............how well does the score represent what the lender needs?
In this case, very well, ..............because they didn't want to make a small interest return that came from early retirement of the loan, but due to law were still forced to do the loan.
Thier (the lenders) job is to make (or get my money) and my job is to attempt to keep my money............and I give a crap about any credit score until, or more clearly..........IF, I ever HAVE to borrow again!
For instance, on Experian and TransUnion my score is 730 and I am deemed "very low risk"; however, on Equifax I am 655 and deemed "medium risk". Same info on all 3. Sadly, Equifax is the Bureau most credit companies check.
I was recently turned down for a Bestbuy Card despite good income because they check Equifax. The odd thing is that their online response came back within a second of submission. Hard to imagine how it could have been checked that quickly considering that Bestbuy claims to look at much more than just the score.
My experience is that unless you already have credit cards, you can't get a credit card. I have also heard that Equifax scores this aspect very highly and the reason why their score is so much lower than everyone elses.
Face it, the banks are in league with the credit bureaus. The are holding your credit hostage until you agree to use their wildly overpriced credit cards. I only wanted to apply for the Bestbuy card because they give you 18 months interest free if you pay off the balance, not a bad deal.
Why is that? It seems utilities and cell phone companies only report if you DON'T pay but not if you are a great customer.
you see my point, I was checked by ATT 2 times and passed, I am afraid now that all of these credit checks will effect my score and maybe the third time they will check I wont be approved?
No one seems to know what is going on as Equifax swears there is no block but the credit card company swears there is. Apparently since no one has any idea why this is happening there is nothing I can do about it.
It should be a crime to charge higher interest to those with lesser credit ratings or credit scores.
Higher interest rate does not reduce the risk.
The risk of lending money (or credit) remains the same whether the interest rate is 1% or 1000%. This is just a ploy to squeeze money out of those; who are young, who would prefer to use money, who made poor choices, or who are victims of circumstances, beyond their control.
I say, use cash and let them steal someone else’s money.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
RECENT ARTICLES ON CREDIT SCORES
If you worry about money after the streetlights come on, these actions may help you rest easier.