Costly Credit Score Mistakes
This article is part of our Debt Relief Solutions section on credit repair.Don't make the mistake of thinking that you only have one credit report. Most people speak of having a "credit score" when in fact most people have at least three or more scores - and these scores can vary widely. There are three major credit bureaus in the country that develop credit reports and calculate credit scores. There are also a number of smaller credit bureau companies. Plus, some larger lenders calculate their own credit risk scores based on information in your credit report. When repairing your credit score, then, you should not focus on one number - at the very least, you need to contact the three major credit bureaus and work on repairing the three credit scores separately. Don't make the mistake of closing lots of credit accounts just to improve your score. This seems like a contradiction, but it really is not. Many people think that to improve their credit score, they just have to pay off some debts and close their accounts. This is not exactly accurate. There are several reasons to think carefully before closing your accounts. First, if you close an account you need (for example, if you close all your credit card accounts) then you will have to reapply for credit, and all those inquiries from lenders will cause your credit score to actually drop. Secondly, most credit bureaus give high favorable points to those who have a good long-term credit history. That means that closing the credit card account you have had since college may actually hurt you in the long run. If you have credit accounts that you don't use or if you have too many credit lines, then by all means pay off some and close them. Doing so may help your credit score - but only if you don't close long-term accounts you need. In general, close the most recent accounts first and only when you are sure you will not need that credit in the near future. Closing your accounts is a bad idea if: 1) You will be applying for a loan soon. The closing of your accounts will make your credit score drop in the short term and will not allow you to qualify for good loan rates. Don't assume that one thing will boost your credit score a specific number of points. Some debtors are lead to believe that paying off a credit card bill will boost their credit score by 50 points while closing an unused credit account will result in 20 more points. Credit scores are certainly not this clear-cut or simple. How much any one action will affect your credit score is impossible to gauge. It will depend on several factors, including your current credit score and the credit bureau calculating your credit score. In general, though, the higher your credit score, the more small factors - such as one unpaid bill - can affect you. However, when repairing your credit score, you should not be equating specific credit repair tasks with numbers. The idea is to do as many things as you can to get your credit score as close to 800 as you are able. Even if you can improve your credit score by 100 points or so, you will qualify for better interest rates. 2) Closing your accounts will make your overall debt balance too high. If you owe $10 000 now and closing some accounts would leave you with only $1000 of possible credit, you are close to maxing out your credit - which gives you a bad credit rating. In the short term, closing accounts will lower your credit score, but in the long run it can be beneficial. Don't think that having no loans or debts will improve your credit score. Some people believe that owing no money, having no credit cards, and in fact avoiding the whole world of credit will help improve their credit score. The opposite is true - lenders want to see that you can handle credit, and the only way they can tell is if you have credit that you handle responsibly. Having no credit at all can actually be worse for your credit score than having a few credit accounts that you pay off scrupulously. If you currently have no credit accounts at all, opening a low balance credit card can actually boost your credit score. Never do anything illegal to help boost your credit score. It seems pretty obvious, but plenty of people try to lie about their credit scores or even falsify their loan applications because they are ashamed of a bad score. Not only is this illegal, but it is also completely ineffective. Your credit score is easy to check and not only will you not fool lenders by lying but you may actually find yourself facing legal action as a result of your dishonesty.
This credit score improvement tip is part of our 101 credit improvement tips. Previous credit score improvement tip - Next credit score improvement tip.
