Debt Free Destiny

There are many misconceptions floating around about what can help or hurt your credit score.  You have likely heard conflicting rumors from friends, co-workers or even on the web.  We will look at the top myths and misconceptions to help you get to the truth of the matter. 

• You credit score will increase 50 points for every debt you pay off-  It is simply not that easy  to predict how your score will be affected by paying off a debt.  There are literally hundreds of factors and values that are considered when calculating your credit score and predicting an exact increase in points is impossible.  One thing is certain, paying off your debt is in your best interest overall; keep reducing your debt and paying your bills on time and you will eventually see a positive impact on your credit score.
• Comparison shopping damages your score – It is a fact that applying for numerous credit accounts can be viewed as a negative on your credit report.  If you apply for 10 different credit cards in a short period of time lenders may view that as an act of desperation on your part to gain access to credit.  That being said if you are legitimately shopping for the best rate when purchasing a home or a car, most lenders will group the requests into an “inquiry period”.  To prevent possible damage to your credit score it is advisable to limit the number of applications to necessary inquiries within a short time period.
• You should close old credit card accounts - You credit report and score take into consideration your overall credit history.  By closing old accounts you will lose the history of that account in credit score calculations.  In addition to losing the history you also increase your debt to credit ratio which has a negative impact on your credit score.
• Co-signing a loan won't affect your credit - When you co-sign a loan you take on all the obligations of the loan.  If the original borrower is unable to fulfill the contract you are on the hook for repayment.  That means the activity on the loan is also reported on your credit report. If the primary borrower makes a late payment or defaults on the loan your credit will be negatively impacted the same as the original borrower.
• Paying off a negative record removes it from your credit report-  There are very few opportunities for a “do-over” when it comes to damage to your credit.  When late payments, collections accounts or bankruptcies are reported they can stay on your account for up to ten years. 
  
  Note: Inaccurate reports can be disputed and possibly removed from your credit report.