Truths and Falsehoods on Credit Scores

As the economy continues its rough ride, the fallout from mortgage and credit card late payments and delinquencies has dropped the credit scores of consumers across the country. As credit scores take a higher profile from news reports to conversation at cocktail parties, more consumers are taking interest in their credit reports.
The problem with all the information and chatter is that much of it doesn’t accurately reflect what is important regarding credit scores and what is not.
Take this true/false test to see where you stand:
1) You should check your report on occasion whether your are applying for a loan or not
2) Checking your own report can hurt your score
3) Closing a credit card account you are not using can hurt your credit score
4) All credit scores are not the same
5) Paying off outstanding balances is a great way to boost your score immediately
6) A credit score is the same as a credit report
7) Comparing loans can hurt a credit score
8) Debt relief options hurt more than they help
…and the answers are:
1) True – Reporting errors don’t happen every day but they do happen. Checking your report can save you from being surprised when you apply for a loan or a credit card. You can visit for a free, no-obligation copy of your report.
2) False – Checking your own reports does not damage your score. Employer and landlord checks will not damage a score either.
3) True – One of the factors in calculating a credit score is the amount of unused but available credit, specifically on credit lines and credit cards. Closing these unused accounts can actually lower your credit by removing available credit from the report.
4) True – Between the three reporting agencies (Equifax, Experian and TransUnion) the scores will most likely be similar but not identical as each agency receives and compiles data in different ways.
5) False – Credit scores reflect an extended time frame so the sudden paying off of manageable balances won’t add much immediately. In fact, depleting cash balances to these pay off might hurt the overall review of you as a borrower.
6) False – A credit report is a history of your debts, payments, available balances, and open/closed accounts. The credit score is based on a formula that takes all that information and calculates a number between 300 and 850.
7)  False (and true) – Hard loan inquiries for mortgages that come in over a span of about two weeks will not hurt a credit as agencies accept that loans might shopped generating multiple inquiries. Multiple credit card inquiries can hurt a score. 
8) False – For consumers in trouble debt relief options can provide viable solutions to insurmountable debt. While these options will temporarily decrease credit scores, credit counseling, debt settlement and bankruptcy each have long term advantages for getting out of debt. Debt settlement is rapidly increasing in popularity due to the immediate reduction, usually around 50%, of monthly principle payments and the reduction in principle owed by 40 to 60%. Additionally, the timeline for getting out of debt is shorter than credit counseling and filing bankruptcy. Credit counseling can help to manage bills, and lower interest rates and monthly payments to creditors when debt issues are still manageable. Bankruptcy, an even more serious alternative, should be considered a last resort and discussed with a bankruptcy attorney.
Credit scores are more important ever. Knowing what affects them and what doesn’t could make a huge difference in whether you get the loan you want or get it at all. Prior to doing anything that might hurt or help your score, be certain that your actions will help your financial picture.
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