If you don’t work in the financial industry, it’s likely you are confused about at least one or two items that affect your credit. There are so many myths floating around about credit scores, credit reports, and the factors that contribute to a high score, that even the most educated consumers are still confused on certain items. We’re here to help debunk some of the popular myths and help set the record straight.
- Closing your oldest account immediately improves your credit. Since the length of your accounts determines fifteen percent of your credit score, many people believe that closing their oldest account will immediately affect their credit. However, the truth is, that account will remain on your report for several years and will still be taken into consideration when determining your score. Closing your oldest account will lower your average length of credit history; therefore, it will actually end up lowering your credit score.
- Medical debt has a different effect on your score. Many people believe that medical debt that has gone to collections does not affect your credit score. However, all debt reported to collections, including medical debt, is generally reported. In general, debt that is in collections will have a negative impact on your FICO score.
- Carrying debt is necessary to build credit. Many consumers believe that they must carry a certain amount of debt in order to continue to build their credit. But, it isn’t necessary to overload yourself. What is important is demonstrating responsible use of credit rather than not using credit at all. In addition, it’s important to ensure that you limit your credit use to keep your credit utilization ratio down.
- Short sales are better than foreclosures. Despite popular belief, short sales and foreclosures have the same impact on your FICO score. The reason is that both are considered to be defaults on your obligations.
- Lenders are required by law to report your account activity. There are actually no laws that require lenders to report your activity to credit reporting agencies. The only law surrounding this subject is that what lenders report must be accurate.
The most important thing consumers need to understand and realize is that if it’s in your credit report, it will be used to calculate your score. Your credit score is calculated by software systems. The software must be written in a way to identify and consider new items. Calculating your credit score is actually a science and not subject to human interpretation or error. Knowing and understanding your credit score is intimidating, but crucial for your financial success.
If after learning your credit score, you determine that you are not in a good position for financial success, you may be a good candidate for credit repair solutions. At Ovation, we are here to help. Our credit repair plans are customized to meet your unique needs.
Contact us today to see how we can help.