I’m so tired of people who know absolutely nothing about credit trying to give advice to people. Come on guys! Credit scores are the most important three digit number a consumer will ever come across. Why oh why would you give advice regarding them if you didn’t know what the hell you were talking about! Look, I’m not perfect by any means. I make mistakes, I’ve been corrected in comments before, but for the most part, I know quite a bit about what I’m talking about. Also, if I’m corrected, I always change the article to address the facts. But, one thing I won’t do is come up with an idea that I think just might be right and start writing a post without research. If you do this kind of thing, stop! No one gets anything from it, and no one wants to read it! OK, rant over, let’s get back to the post!
A Quick Introduction
Throughout the past several years, I’ve been helping consumers improve bad credit scores. While helping hundreds of people, I’ve heard some ridiculous things that I’ve had to debunk as myths. So, today, I’m going to talk about some of the most believable myths. I’ll tell you the myth, the truth, and why it should be important to you. So, without further ado, let’s get right to it.
Myth #1: Adding Good Accounts To Your Credit Report Will Counteract Any Bad Accounts You Have
Beyond the fact that it’s just a myth, this one really irks me. I can’t tell you how many people waited 6 months to a year before looking for help or finding the right way to go about things because of this myth. If you’re looking to repair a bad credit score, simply slapping new good loans on top of old bad loans isn’t going to lead to good credit scores. Although, doing so may help you to realize some very minor improvements, it’s not going to bring you from 500 to 750 in 6 months or a year. It just doesn’t work that way. Before you ever get a new loan or credit account for the purpose of improving your credit score, you should do everything you can to start cleaning up old, bad accounts.
When you delve deeper into this idea, it’s easy to see why slapping new good accounts over old bad ones wont work. The simple fact is, your credit score is a gauge of what consumers can expect in your credit history. We all know that history cannot be erased. However, mistakes that were made in the past can be made better with future, positive actions associated with that particular mistake. Think of it this way. You’re a roofer. You put a bad shingle on a roof. Are you going to climb up and slap a new, good shingle over the bad one, or are you going to go on the roof and repair any damage from the bad shingle before adding a new one? You’ll repair the damaged part of the roof because you don’t want old damage causing issues with new repairs. You should work on your credit the same way. For more information on the first steps you should take to improve your credit score, read this article.
Myth #2: Every Time You Request A Credit Report, You Harm Your Credit Score
Before I can help anyone through the process of improving bad credit scores, I’ve gotta take a look at their reports to see what exactly needs fixing. It’s the basics of repairing anything. Before an auto mechanic can repair a car, they have to figure out what’s wrong with it. Well, about 10% of the times that I tell consumers that I’m going to pull their credit reports, the freak out. They are scared because they’ve heard in the past that every time someone gets a copy of their credit report, their credit score is reduced. That’s just not true!
The truth is that you can pull your credit report as much as you want without causing any damage. The only time your credit score is affected by your credit report being viewed is if you’re asking for a loan. Think of it like this….If you can’t see your credit report without damaging your credit score, how are you supposed to clear up anything bad on your report? How will you know the names of lenders, account numbers, and pay to addresses for accounts that have long been forgotten about? How would you know if there are inaccuracies in your report? How would you get any of this data without being dinged for it? The truth of the matter is, you can pull your credit report as much as you want without causing anything detrimental to happen!
Myth #3: Closing A Credit Card Will Always Cause A Reduction Of Your Credit Score
OK, now this one does have some truth to it, so I want to go over that first. One of the factors taken into account when calculating your credit score is the length of time on average that your accounts have been open. So, naturally, closing an account that’s been open for years, and years, and years may seem like a bad idea in the beginning. However, whether or not it will have a bad affect on your credit score depends on tons of other factors, which is why this one is a myth. Closing a credit card doesn’t always mean that your credit score is going to drop.
Let’s Think About Why Credit Scores Were Created In The First Place
There is a genuine need for credit scores and we all know that. They are designed to help lenders gauge the risk of lending money to new borrowers. In this case, obviously, consumers who hold long relationships with lenders will be revered as good borrowers right? Wrong! Just because you’ve had an account that’s been active for years doesn’t mean you’re automatically going to be granted a good credit score. To properly gauge the risk associated with giving a loan to a consumer, you’ve got to take a lot of different factors into account. Because credit score algorithms are kept secret to avoid the ability of people to game the system, I can’t definitively give you their equations. However, I can tell you what I believe to be the most important factors when calculating your score. Here they are….
- How Many Open Accounts You Have – Have you ever had to manage too much of anything? If so, you know that as you get more and more, the quality of how you handle different situations over those various things goes down exponentially. This is the same when it comes to credit accounts. If you’ve got too many to manage, you might fall into problems associated with making payments on time, tracking balances, ect…
- Debt To Credit Ratio – This factor is based on how much of your credit line you’ve actually utilized. As you utilize more and more of your credit line, you become less and less likely to be able to pay the debt back in full.
- Debt To Income Ratio – This is a very important number because it shows how much of your annual income is taken up by debts. As more debts are created, your debt to income ratio goes up, and the probability of you paying all of your debts goes down.
- Average Age Of Accounts – This metric is an average amount of time that your accounts have been opened. The longer the better.
Obviously, there is much more that goes into your credit score, but I’m not going to try and pretend to know the algorithms that the credit reporting agencies use. The entire point of doing this was to show you that age of accounts is not the only metric. If you’ve got too many accounts, closing one could be a good idea to help you manage your debts. That’s not the only reason closing an account would work out for you either. When thinking about closing a credit card, you shouldn’t think, “How is this going to affect my credit score?” Instead, you should be thinking, “How will this decision affect my overall financial stability?” If what you’re doing is going to have a positive affect on your overall financial stability, chances are, it will have the same affect on your credit score.
When thinking about your credit score, it’s easy to think, “I know this guy, he won’t steer me wrong.” And, that may be true. However, it’s also important to remember that it’s in our nature to be helpful. Therefore, even if we don’t have a definitive answer to a question, many of us will still try to give our best answer in an effort to help those who ask. When it comes to your credit score, trust nothing you hear and very little of what you see! Before making any drastic changes for the purpose of improving or repairing bad credit scores, it’s important to do your research and figure out exactly what that decision will do in the long run!
Obviously, widely accepted credit score myths really grind my gears! What about you, what myth gets to you the most and why?