There are many common myths about consumer credit scores.  While many are intuitively correct, however, in actually they just aren’t true.  The most common credit myths are:

1.  Closing credit accounts will raise your score, right? Not true.  Closing credit accounts can actually hurt your credit score for two reasons:  1. One of the factors reviewed by FICO and other credit scorers is how long you have had the accounts open.  The longer the age of your credit accounts, the better your score.   Thus closing an old account will hurt your score.  2.  Closing an account reduces your overall available credit.  This has the inverse affect of increasing your overall credit utilization.   If you already have an excellent credit score, closing old accounts you are not using is probably not a bad idea; but if your credit score is something less, leave the account alone.

2.  You can boost your credit score by asking your lenders to lower your credit limit.  Just like closing accounts, this has the effect of increasing your overall utilization of credit.  The credit scores do not distinguish between lower credit given by the creditor and that is imposed pursuant to your request.

3.  Checking your credit report often can hurt your credit score.  This all depends on who is pulling your credit report.  When a lender pulls your credit report, it leaves a footprint on the bottom of your credit report telling anyone else who looks at it that you have, presumably, applied for credit.  This is what is called a “hard pull.”  This does affect your credit score.  If you have your credit pulled through proper channels (such as credit reporting agencies) then this is what is called “soft pulls” and leaves no footprint.

4.  You can HURT your credit score by Shopping Around for the best rates.  FICO knows that consumers want to shop around for the best rates, particularly for cars and homes.  The FICO score ignores all mortgage and auto related inquiries made within a 30 day period.  If, for example, your credit gets pulled by several auto dealers/lenders within that time frame, they assume you are shopping for a car at the best rates, and not repeatedly being turned down.

5.  Live Credit Free is the best way to develop the best possible credit score. If you can prove you do not need credit to live, it is the best way to game your credit score.  For you to have a credit score, you have to have a credit track record. In fact this can hurt you more than help you when it comes to buying a car or home on credit.

6.  You have to pay interest to have a good credit score.  You don’t need to carry a balance and pay interest in order to develop a good credit score.  FICO’s formula makes no distinction between balances you carry month to month and balances that you pay off

7.  Adding a 100 word statement to a trade line that you dispute will remedy the effect of the negative trade line.  If you have a dispute with a creditor that results in a negative item on your credit report, you have the right to place a 100 word dispute on that report to present your side of the story to prospective credit grantors.  But you should note, however, that while the creditor’s negative item affects your credit score negatively, your 100 word dispute has absolutely no affect on that number.  It is only used by the prospective lender to determine what credence to give to your explanation.

8.  Your closed accounts should state “Closed by Consumer” or they will damage your score.  The fact is  the FICO score does not account for who closed  your account.    If your account was closed because you were chronically late, those late payments will be documented in your account.

9.  Credit Counseling is worse than bankruptcy.  Nothing wrecks a credit report like a bankruptcy.  The current FICO formula ignores credit counseling.  This is treated neutrally.  Credit counselors attempt to negotiate lower payments and interest rates from your creditors.  Many times they are successful in doing so.  But some lenders can be vindictive and even though a new payment schedule may be negotiated, they may still report the payments late because you did not pay according to the original schedule.

10.  A bankruptcy makes it impossible to get credit.  You can get a mortgage in as little as six months after your bankruptcy is discharged.  You may even be able to get credit cards, however, you should be prepared to pay some unusually high interest rates.  With some credit card companies, you may be asked to make a security deposit.  Still these new lines of credit can help you re-establish your credit.