Credit score myths
You know that your credit score is important, but do you really know how it's calculated?
May 19, 2004: 5:44 PM EDT
By Sarah Max, CNN/Money senior writer

BEND, Ore. (CNN/Money) Your credit score, or FICO score, is arguably one of the most important pieces of information in your financial life.

Lenders, landlords, insurers and even employers scrutinize this rating which sums up all of the information in your credit report with three digits ranging from 300 to 850. (Read "Credit Scores: Key to the best mortgage" for more on how your score affects the interest rate you pay.)

For all of its importance, though, the credit score is also one of the most misunderstood aspects of personal finance, said Jeff Davis, a vice president with Credit Counseling Network in Fort Worth, Tex. "There was a time when people weren't aware of their credit score," he explained. "Now they're sometimes overly concerned."

No doubt, it makes sense to check your credit score and do everything in your power to improve it. But first, you'll want to make sure you're not falling for some of these common credit score myths.

Myth: Shopping around for a loan will hurt your score

When you apply for a loan or get pre-approved the creditor checks your credit report, which shows up as an inquiry to your credit. While it's true that too many inquiries to your credit will lower your score, you absolutely can shop around for a mortgage, home equity loan or car loan without worrying about damaging your credit, said Ryan Sjoblad, a spokesman for Fair Isaac, the company that created FICO scores.

"As long as the same kind of inquiries are made within 14 days of each other, they count as one inquiry on your credit score," he said, adding that one exception is with credit cards.

Myth: Checking your own credit will lower your score

"People are afraid to access their own credit because they've heard it will lower their score," said Davis. In truth, you can check your own score as many times as you want without impacting your score. Not knowing your credit score or the information behind it could be far more damaging, he added.

Myth: Your age, income and sex are factored into your score

According to Sjoblad, none of this information has any bearing on your score. Your employment is something that is listed on the credit bureau report, he added, but doesn't affect the score itself.

Myth: Credit card offers are hurting your score

Credit card solicitations, while annoying, don't affect your score, said Davis. That's assuming you don't respond to the solicitations. "If you answer the promotion, then yes an inquiry will be created," he added.

Myth: When you get married your credit scores are merged

"People think once you're married your credit information gets mixed," said Sjoblad. But, your good or bad credit is yours and yours only 'til death do you part. When you open accounts jointly, though, that information will be reflected on each of your credit reports.

Myth: You only have one credit score

In truth, you have three credit scores, one from each of the three major credit bureaus. "These scores can vary by as much as 50 points or more," said Sjoblad. This is why it's a good idea to check all three.

Myth: You can remove unfavorable info from your file by disputing it

If there is information in your report that is legitimately inaccurate, you should by all means dispute it. Credit agencies are obligated to investigate credit inaccuracies within 30 days or remove disputed information, said Davis.

But don't fall for so-called credit repair companies promising to remove unfavorable (though accurate) information from your credit reports to "instantly" improve your score. These days credit agencies not only investigate disputes quickly, said Davis, they know a sham when they see it.

Myth: Shuffling your debt will help your score

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There are times when it makes sense to close inactive accounts and transfer balances for the lowest rate, but be careful about making big changes before you apply for a mortgage or other loan. Shuffling your debt could actually lower your score, said Sjoblad.

"There is no magic bullet," added Davis. Your best strategy, he said, is to not seek a lot of credit, to pay down your existing obligations and last but not least to pay your bills on time.  Top of page

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