Common Credit Report Myths

Although credit reports are a vital piece of your financial information, there are a lot of myths and rumors that float around about how your credit score is determined. This bad advice can come from friends, neighbors and even financial advisors. Getting the right information about your credit report is vital in taking control of your financial picture.

Many people believe that checking your own credit report will hurt your credit score. However, looking into your credit score from time to time is considered a “soft” inquiry. It is weighted less than credit inquiries from financial institutions.

A lender or credit card company’s inquiry will take approximately 5 points off of your credit score. Make sure to limit credit score inquiries from other institutions. But feel free to check your own score as much as you feel necessary. Keep in mind that if you have multiple personal inquiries within a 14-day period, they will all be counted as one inquiry.

Another common myth deals with closing old accounts. Many people believe that doing this will improve your credit score. In fact, some lenders will even tell you to close your old and inactive accounts. However, in most cases, closing old accounts will have the opposite effect.

The current credit score rating system relies on credit history as an indicator for credit worthiness. If you cancel all of your old accounts, your credit history will be shorter. It is much smarter to reduce or cancel newer accounts.

Credit counseling, contrary to popular belief, will not damage your credit score. The current credit rating system does not take credit counseling into account. The researchers at Fair Isaac (the company that created the FICO credit rating system) has determined that people who have credit counseling don’t default on their debts any more than other people.

Take comfort in knowing that these common credit report myths will not affect your credit score.

There are a few resources where you can obtain your free online credit report.