CHARLOTTE, N.C., August 21, 2007 – Your credit score has a huge impact on your life. It can affect how much money – if any – a lender will allow you to borrow and at what interest rate, it can impact your employment, and it can even play a role in determining your car insurance rates. With the veil that exists around credit scores and how they’re determined, it’s no wonder some common misperceptions have materialized. LendingTree.com takes a look at five credit score misperceptions and sets the record straight.
Myth #1: Closing old accounts will boost my credit score. - Canceling accounts can actually do more harm than good given that credit bureaus look at the amount of credit you’re using in relation to the total amount you are able to access. If you close accounts, it reduces your total available credit, which actually increases the percentage of credit you’re using.
Myth #2: The major bureaus use different formulas for calculating credit scores. - While the three major credit bureaus sell their services under different names, they all use the same formula to arrive at their numbers. If your score varies between bureaus, it’s probably because of the information they have on file for you. This is why it’s important to request your credit report from time to time and correct any inaccuracies, particularly prior to applying for a mortgage.
Myth #3: Paying off my debts will instantly repair my credit score. - Not so, given that your credit score analyzes your past performance, not what you’re currently doing. Damage to your credit score can be improved, but not overnight. It takes months of consistent, on-time payments to improve your score.
Myth #4: Companies can fix my credit score if I pay them to. - There are companies that offer to do this, but no one can fix your bad credit score except you, and that’s done through consistent, on-time payment of your debt. No one can simply “wipe clean” your past debt history, whether they promise to or not.
Myth #5: Shopping around for a mortgage or car loan will hurt my score. - When a lender makes an inquiry about your credit, your score has the potential to drop up to five points. For this reason, some borrowers are afraid that comparison-shopping for a mortgage or auto loan will result in multiple deductions. This isn’t the case. The score is set up to take into account that even though you are only looking for one loan, multiple lenders may request your credit report (i.e. make an "inquiry").The length of the "shopping period" varies depending on the version of the FICO scoring formula used by your lender and can be either 14 days (older versions of the scoring formula) or 45 days (newer versions of the scoring formula).
About LendingTree, LLC
LendingTree, LLC is the nation’s number one online lending exchange, providing a marketplace that connects consumers with multiple lenders that compete for their business. Since inception, LendingTree has facilitated more than 20 million loan requests and $152 billion in closed loan transactions. LendingTree provides access to mortgages and refinance loans, home equity loans/lines of credit, auto loans, personal loans, credit cards and high-yield savings accounts via www.lendingtree.com and 800-555-TREE.
Launched in 1998 with headquarters in Charlotte, North Carolina, LendingTree, LLC also owns and operates LendingTree Loans sm, LendingTree Settlement Services, LLC, GetSmart®, and HomeLoanCenter.com. LendingTree, LLC is an operating company of IAC.