The road to credit repair is full of questions and misconceptions. Earning a better score means fixing past problems, enforcing good habits and separating fact from fiction. Consider the following credit score myths along the way. Their clarifications will help you avoid choosing the wrong path.
1. The government controls the credit bureaus.
This is the most common misconception about credit scoring. Credit bureaus are actually private companies that collect information about consumers from banks, creditors, and legal records in order to create a consumer credit report for use by lenders and other financial institutions (more on that here). The three major bureaus in the U.S. are Experian, TransUnion and Equifax. The Federal Trade Commission is responsible for regulating credit bureau practices and ensuring that your consumer rights are upheld. The bottom line: You shouldn’t be worried about fighting the government for a better credit score. On the contrary, the FTC was created to help you.
2. I need to earn lots of money.
Income level is not a factor when it comes to credit scoring. Although you won’t be judged based on salary, it’s still important to establish an emergency savings account. Money in the bank it crucial when it comes to protecting yourself against unforeseen expenses and other factors that could affect your credit.
3. I need to eliminate all my debt.
You credit score is like a grade in school. You are judged based on past performance, homework and test results. Without this information, no teacher could deliver an accurate grade, and the same is true for credit scoring. Credit bureaus provide scores based on account history, length, diversity, inquiries and total debt. Breathe some life into your score by keeping your accounts active and up-to-date.
4. The more credit I have, the better my score will be.
While it’s true that you need credit accounts to keep your report active, more is not always better. Achieving a good credit score requires a perfect five factor balance. Adding too many credit accounts could affect your score in a negative way. If you aren’t sure how to proceed, talk to a professional for advice on how to maintain and improve your credit standing.
5. There is only one FICO score.
Many people are shocked to find that the FICO score they bought online is different from the three-digit number used by their creditors, mortgage broker or car dealer. Although all claim to use the FICO score exclusively, there are hundreds of mathematical variations that could affect your overall score and ability to secure a fair deal. Unfortunately, consumers have little control over which formula lenders use. Your best bet is to keep your credit report free of errors, negative marks and excessive debt. This strategy will help you earn the best possible score.