Credit Score Myths Debunked

As a consumer, you should already know that a good credit score is a key cog to your financial future. But credit scores and credit reports can be complicated topics – and as is the case with most complicated subjects, misinformation is likely to spread. In this post, we’ve taken the liberty of debunking some of the most common credit score myths that we hear today. Have a look:


  • Myth 1: Making on-time bill payments is one way to help improve a credit score.

    It’s important to make on-time bill payments, as it accounts for 35 percent – the single largest category – of the FICO score model. However, on-time payments won’t really help your score. Conversely, if you miss a payment, it can significantly hurt your score.

  • Myth 2: Closing unused credit cards will help improve a credit score.

    This isn’t necessarily true – and for two reasons. First of all, credit history plays into your credit score, so closing an account may affect that. Secondly, closing an account can also affect your credit utilization ratio, or your debt-to-credit ratio. Generally, you want this to be 30 percent or less for the best possible score.

  • Myth 3: Checking your credit report will dock your score.

    This is true, but only if it is a “hard pull.” Hard pulls are often performed by lenders during loan approval processes, and they may reduce your score by 10 points or so in the short term. Soft pulls don’t affect your credit score at all.

  • Myth 4: The more income you earn, the better credit score you’ll have.

    That’s not true, as your credit score has no correlation to your earnings.

  • Myth 5: I only have one credit score.

    That’s false. Though the FICO score is the most popular one, there are lots of different scoring models that lenders use.

  • Myth 6: Checking your credit report costs money.

    While this can be true, it doesn‘t have to be true. That’s because by law, every American is entitled to one free credit report per year from the three major credit reporting bureaus (TransUnion, Equifax, Experian).

  • Myth 7: Credit reports offer fully accurate histories of consumer financial behavior.

    Ideally, this is an accurate statement. However, it’s estimated that up to 20 percent of all Americans have some sort of error on their credit reports.

  • Myth 8: If there’s an error on my credit report, there’s nothing I can do about it.

    The potential of an error on your credit report is part of why you should be checking it at least once a year. If you find one, you should immediately dispute it. Contact the credit bureau that issued the report to dispute the inaccuracy. It will be investigated and resolved within 45 days.

  • Myth 9: A large credit card balance won’t impact my credit score as long as I make the minimum payments.

    That’s not true due to the credit utilization ratio that is taken into consideration. Generally, if this ratio is at or less than 30 percent, you’ll have a higher score than if it’s greater than 30 percent.

  • Myth 9: There’s no fast way to repair a credit score.

    This may be true depending on the various factors that have led to a low score (i.e., bankruptcy, foreclosure, etc.), however, it’s important to keep in mind that credit scoring is fluid. Just paying down credit card balances to get within the 30 percent utilization ratio can yield a significant and speedy score increase in some cases.

  • Myth 10: If I have bad credit, it will be hard to get a loan.

    There are opportunities to get loans no matter what your credit score is. However, being considered an at-risk consumer will unquestionably result in higher interest rates than if you had good or excellent credit.

In America, credit opens the door to so many things. And that’s largely the reason as to why U.S. consumers have some $3.4 trillion in outstanding debt. Yes, having good credit is essential to acquiring a credit card, taking out a mortgage and financing an automobile. On that note, it’s also important to separate fact from fiction when it comes to your credit score. Here’s a look at some of the most notable credit score myths.

11 Egregious Credit Score Myths

  1. Credit isn’t necessary: This is completely false, but not just for the aforementioned purposes of taking out a mortgage or financing a car. Employers, landlords and insurance agents may also look at your credit score in a better effort to judge what type of a professional, tenant and customer you are, respectively.
  2. Carrying a credit card balance improves your credit score: Actually, if you carry too much of a credit card balance, your score can drop. That’s why it’s important to keep credit card debt within 30 percent of your total credit limit.
  3. I only need one credit card: Keep in mind that credit history plays a role in your overall credit score. So if you have multiple credit cards that are all managed responsibly, that can help increase your score versus just having a single card.
  4. Credit scores are all the same: There are three credit reporting bureaus and all of them use different scoring formulas. FICO is the most popular, but it’s not the only one.
  5. If I close out accounts, my score will improve: This is true to a certain extent. As we noted prior, you want to keep your debt owed within 30 percent of your total credit allotment, so closing multiple accounts could cause you to go above this available credit limit. So while closing accounts may help, this strategy can also backfire on you if you’re not careful.
  6. If I settle a negative report, it will go away: While you should make every effort to settle accounts in poor standing, negatives may stay on your record for up to seven years from the time of your first delinquency.
  7. Credit limit raises aren’t good: Credit limit increases are great in that they boost your available credit limit and can lower your debt-to-credit ratio.
  8. Co-signing has zero risks: False. Co-signing can cause your credit score to take a hit if the other co-signer doesn’t take responsibility for the payments.
  9. My annual salary impacts my credit score: This is false, as your annual salary has zero impact on your credit score.
  10. I don’t need to worry about checking my credit report: Even if you have no big purchases on the horizon, checking your credit report at least once a year can help you find – and dispute – errors that may be impacting your credit score.
  11. I get penalized for checking my credit score: Performing a soft inquiry, which is what occurs when you check your credit score, has no impact on your score. It’s hard inquiries that do – and this occurs when a lender analyzes your report, typically after you apply for financing.

Credit Scores – More Important than Ever in 2016

If you’re reading this, we hope that you already know just how important your credit score is. To review, your score is somewhat of your financial lifeblood, and those three little digits can tell lenders if you’re an at-risk borrower, whether or not you should even qualify for a loan and what interest rate you should pay on said loan (should you qualify for one). Generally speaking, the better your credit score, the lower the interest rate – and vice versa. So, yes it is important – and in 2016, it’s arguably going to be more important than ever. Why? Because the Federal Reserve Board elected to raise the benchmark federal funds rate. We explain:

About the Benchmark Federal Funds Rate

You’re probably wondering just what impact the raising of the benchmark federal funds rate has on the value of your credit score. Consider this: the aforementioned rate, essentially, is the determining factor in how high of an interest rate banks and financial entities have to pay to borrow from each other. When the benchmark federal funds rate increases, so does the minimum interest rate, or prime rate, that lenders will charge even their most exceptional customers.

What the Rate Increase Means

Since the prime rate is likely to go up, so will interest rates in general, even if your credit is exceptional. This means that new loans are likely to be more expensive, as will any existing loans with variable rate financing. Those who will be particularly hard hit are individuals with bad credit, as loans and credit cards may become more difficult to attain (not to mention the likelihood of even higher interest rates for at-risk borrowers). The Federal Reserve Board has elected to raise the benchmark federal funds – and the board is likely to approve further increases in the future, hence why your rating and score is so important as we begin 2016. So if it is less than stellar, start making efforts now to improve it. Some common credit repair practices include committing to paying bills on time, lowering your debt-to-credit ratio and, perhaps easiest of all, checking your credit report at least once a year to ensure its accuracy related to your consumer behavior. With the funds increase, interest rates are likely to increase across the board, for those with both good and poor credit. Make the commitment now to elevate your score so that you can ensure you’re paying the least amount possible on any loans or credit cards.

Blank checks from credit card company.

Employment Troubles – How we may be able to help.

Employment TroublesWhen it comes to debt management, you may want to think twice about overspending or missing a payment. It could have an impact on your employment. The simple fact is, bad credit can cost you a job. It’s important to know how credit impacts employment as well as what steps you can take to reduce this risk.

If you are looking for a new job, hoping for a promotion, or just trying to remain in the same position, your credit score can get you in trouble if it is less than ideal. Employers are using credit checks as a key component of their hiring routine, in fact. They do so for various reasons, but studies don’t indicate a direct link between a bad credit score and poor job performance. So, why is this happening?

3 Reasons Why Employers Care About Your Credit

It is important to consider your financial health before and during your employment. While you may not be looking to finance a purchase through your employer, he or she is still using your credit information to make hiring, firing, and even lay-off decisions. This happens for these reasons:

  • A poor credit score can mean a person is less dependable in the eyes of the employer.
  • Someone who mismanages money in their personal life may be more likely to embezzle or make bad decisions managing company funds (a key reason financial managers and those in most management positions will have credit checks before being hired.)
  • In some cases, hiring someone with a bad credit history could lead to a lawsuit down the road if the employee does something wrong. Liability risks are a big factor for many employers even as far-reaching as this.

In short, employers are allowed to use credit scores in most states as a key component of the hiring process. They tend to use them when seeking individuals for financial-related positions, including senior executive positions. They want to know they can trust their employees to be responsible and reliable.

What Else You Need to Know

Should you work on credit repair? While you should work to repair credit for your benefit, keep in mind that laws are changing. Some states, including Washington, Oregon, Hawaii, Illinois, Maryland, and Connecticut, have cracked down on the practice of credit checks for employment. Second, the employer has to get your written permission to conduct such as check as directed by the Federal Fair Credit Reporting Act.

Most employers are not looking at the details of your credit report. They want to know what the big picture says about you in terms of responsibility. As a result, it is important to read through a few credit tips and work on your debt management skills. These steps can help increase your ability to get and maintain your job.

Free FICO Scores?

Over half of all Americans say that they have no idea what their credit scores are. This isn’t surprising; until fairly recently, those scores and the factors that affected them were carefully guarded secrets. As consumer credit protections were made stronger by the FCRA and other laws, credit reporting agencies have gradually demystified what makes good credit.You can now get your credit reports free one time per year. But, to see your FICO score you have always had to pay a fee or sign up for a free trial of FICO’s monthly monitoring service. But now, FICO is partnering with banks to give you free access to your score as soon as a bank requests it. So far, Discover, Barclaycard and First Bankcard have signed on to the program, and more banks are expected to join. Discover will provide your FICO score each month on your statement. The service will be offered to Discover It holders starting this month and other Discover card members later on.

What is a FICO Score?

Your FICO score is a three digit number between 300 and 850. The higher your score, the better. The score is affected by a number of weighted factors: length of credit history, on-time payments, types of credit used, the amount you owe and how recently you looked for new credit. The exact formula is kept a secret, but, FICO has shared that some factors, such as payment history count more than others, such as new credit inquiries. FICO is the score used by 90% of banks to determine your credit worthiness. While the score will generally be similar to other credit scores such as your Vantage Score, they will not be quite the same.

Knowledge is Power

Knowing your credit score can help you make financial decisions. If, for instance, you have a score that is too low to qualify for a home loan, you can avoid applying before fixing your credit. That way, your score does not take an additional unnecessary hit through an inquiry for a loan that you cannot afford. By the same token, if you discover that you have an excellent FICO score, you can apply for a larger loan or one at a better interest rate.

By staying aware of your FICO score and your credit reports, you can fix potential credit problems before they rob you of opportunities. See if a financial service that you use will be offering the new free FICO scores. Check your score regularly to ensure that bad entries on your credit record are not dragging it down and that you are taking advantage of the opportunities that you have earned.

Fore more information on how FICO will be offering free credit scores contact our office at 617-265-7900.

Credit Scores – Here’s What Matters

Don’t become too fixated on your credit score. There are other factors that determine whether you qualify for the home loan that you are looking for.When you are trying to qualify for a home loan, it’s easy to get fixated on your credit score. A lot of people check it day after day, obsessing over every minute shift up or down. But, it’s important to keep your eye on the big picture and remember the other factors that determine whether or not you will qualify for the loan that you want.

Your Debt to Income Ratio

Even if your credit rating is high, if you have too much other debt, it can keep you from getting a loan. If you are on the hook for too much every month, lenders could decide that you are living too close to the edge. If you have the funds to do so, consider paying off installment loans and paying down credit cards to improve your debt to income ratio.

Your Payment History

Have you been late on a mortgage payment within the last year? That could disqualify you from getting a new loan. Lenders tend to hedge their bets and are often only willing to lend to those with a good recent history on their last mortgage.

Your Monthly Income

Creditors will look at how much you and your spouse earn every month when determining whether you qualify for a loan. In some cases, your income may not be deemed high enough to support the mortgage needed for the home value you want. You may need to look in a less expensive market or look for a smaller home.

Lenders also generally look only at income that is predictable going forward. Usually, this means that they will not consider bonuses or overtime pay. But, if you earn overtime every week or have dependably earned a regular bonus, you may be able to get a lender to consider this pay when deciding on your qualification for the loan.

Your Down Payment

Depending on what sort of mortgages you are looking at, you will need to have anywhere for 3% to as much as 20% for a down payment on the home. Some types of loans allow you to use money gifted from friends or family. Other require that you raise the money yourself.

If you had been considering making only the minimum down payment, find out if a larger one will help you qualify. You can also put extra money toward other closing expenses if you are close to qualifying.

Remember that every aspect of a home loan is negotiable. For instance, if the monthly payment on the loan would be a higher ratio of your income than is usually allowed, you can get limits extended by demonstrating that you have reliably made a rent payment that is even higher. Or, you can get lenders to work with you by giving a higher down payment. Don’t be afraid to ask your lender what you need to get the loan you want.

For more information about how credit score will effect your mortgage application contact our company by calling 617-265-7900.

Emergency Fund – Protect Your Credit

Emergency Fund For Rainy Day

When you have gone through all of the trouble of credit repair, you want to ensure that you do not wind up with bad credit again. But, in many cases, people do not wind up with bad credit because they are irresponsible. It is because they were unprepared to deal with surprise medical bills, expensive home repairs, last-minute vehicle replacements or other calamities. This is where a healthy emergency fund comes in.

How Much Should Be In Your Emergency Fund?

Add up all of your fixed expenses for a month, then multiply that number by three. That is how much you will need to have on-hand to keep yourself relatively stable should something interrupt your earnings for a three month period. Three months expenses is the most common recommendation for emergency funds; some experts recommend keeping six months expenses on-hand.

This fund isn’t just for loss of income. It is also for handling unexpected bills. For instance, after your home purchase, you will want to have extra cash available to deal with the inevitable emergency repairs every homeowner eventually faces.

But I Can’t Save That Much!

If you are not in the habit of saving, or if you are living close to the edge of your means, putting aside thousands of dollars can seem like an impossible feat. It can be a lot easier if you break the task down into smaller parts. Start by putting away just $10 a week until you have enough that you could pay your electric bill out of savings. Then, aim for two bills worth. It’s easier if you set up an automatic withdrawal so that you never see the money in your account.

You may be able to free up more money by going over your bills and seeing if there is anyplace you can cut back. Look at monthly membership fees like your gym or Netflix account and decide whether you can go with a cheaper plan. Or, eliminate one restaurant dinner a month and sock the money into savings instead.

When Can I Touch My Emergency Fund?

Set up firm criteria in advance so that you aren’t tempted to dip into your fund prematurely. The emergency fund is not for vacations, splurges, or even great deals that you would otherwise have to pass by. Set up a separate account for impulses so that you can keep your emergency fund secure.

The only times you should dip into your emergency fund is when you have little other choice. For instance, if your car needs expensive repairs, it is okay to use the fund for that. It is also okay to dip into the emergency fund to cover basic bills if you have been laid off from your job or have been out for an extended illness.

An emergency fund is a great tool for keeping your credit score high and your family secure. By keeping these funds on-hand and available, you can help ensure your family’s future stability.

For more information on how you should budget for a rainy day and how to protect your credit score click here to request a free consultation.

FICO & Vantage Scores – Different Systems

Different Systems, Different Scores

Those three little digits that control so many of your financial opportunities. Your credit score can be pulled when you apply for a job, shop for insurance, during the home purchase process and in many other circumstances. But, it might surprise you to learn that there are actually a number of different agencies that create credit scores, and your scores will vary depending on which one is used. Some financial institutions even have their own internal credit scores that they use in place of independent ones.

Some of the most common credit scores used to determine your credit worthiness:


The FICO score is the one that people are most familiar with. It uses information from the three major credit bureaus to assign a three digit score that estimates credit risk. The score uses a number of weighted factors that include payment history, age of the accounts, ratio of available credit to debt, types of credit used and how recently you’ve searched for new credit. Your FICO score might vary depending on which credit bureau’s records are pulled to estimate your score.

Vantage Score

This credit score was created through a joint effort between Experian, Equifax and TransUnion. The advantage of the VantageScore is that your score is the the same no matter which credit bureau’s information is pulled to calculate it. The score can range from 501 to 990 and also comes with a letter grade. It has not been adopted by many creditors and is currently only used for about 6% of credit score pulls.

PLUS Score

This score was created by Experian to give consumers an easy to understand their credit health. It is not used by lenders; instead, it is intended as a consumer tool. The scoring range goes between 330 and 830, with a higher score indicating lower credit risk. Since this is not the score that creditors use when considering credit-worthiness, do not be surprised if your PLUS Score is different from the score that your bank says that you have.

TransUnion New Account Credit Score

This credit score is available for free from financial monitoring site Credit Karma. (As an aside: Credit Karma is a great resource for those undergoing credit repair. They allow you to check your credit score in real time and also to test what affect different actions will have using their credit score simulator.) The TransUnion New Account score is used by many lenders to decide how risky it is to extend credit to you. This score ranges from 300 to 850. It is based on information from TransUnion. It is made up of a number of factors that include the age of your accounts, our payment history and other factors.

Auto and Home Insurance Scores

These scores are used by the insurance industry to determine risk of a claim if you are insured by them. The results can affect the rates that you are extended when you shop for a policy. The scores range from 150 to 950. While the use credit scores for insurance is controversial, industry members defend the policy because of a correlation between credit scores and insurance risk.

What is a credit score? – Education

It can seem a little esoteric: this three digit number, concocted by people who you’ve never met, can affect every area of your life from home purchase plans to what cell phone plan your carrier offers you.

What is a credit score?

The most commonly used credit score is your FICO score, a three digit rating that goes from 300 to 850 points. Higher is, of course, better. Most experts agree that a FICO score of 750 or better will get you the best rates on credit and insurance. The FICO score is based on reports from the three major credit bureaus: Equifax, TransUnion and Experian. Each reporting agency has its own internal scoring system, as well, but FICO is what most people mean when they talk about their credit score.

What Affects Your Credit Score?

The are five factors that affect your score. Some are considered more important than others, and affect your score more heavily:

  • Payment history (35% of your score). This is the most important. Do you have a history of paying your bills on time?
  • Amount owed (30% of your score). How much you owe on accounts like credit cards is a big factor. Using only small amounts of your available credit raises your score.
  • Length of credit history (15% of your score). The longer the history, the higher your score.
  • New credit inquiries (10% of your score). How recently have you looked for new credit? If you look often, it can lower your score, because it can signal that you might be trying to live beyond your means.
  • Types of credit (10% of your score). Potential creditors want to see a mix. Do you have revolving accounts like credit cards? How about an installment loan such as a car payment? The more types, the more confident they are of your ability to handle credit.

What Are Some Ways to Increase Your Credit Score?

Going through credit repair to resolve the negatives on your reports will significantly increase your FICO score. This process helps remove unjustified negative entries that were bringing down your score.

If you do not yet have a credit card, attaining one can help you increase your score. Secured credit cards are easier to get if you have bad credit. Use the card and pay it off regularly to begin building a credit history.

Paying down debt is another way to increase your score. Financial advisor Dave Ramsey recommends what he calls the “snowball” method: apply payments to one debt at a time to eliminate it from your record and rebuild your credit score. With time and persistence, even those with poor credit can bounce back.

Avoiding a balance on credit cards also boosts your score. If you are near your limits on every card, creditors can decide that you are living beyond your means. Many advisors recommend using no more than 10% of your available credit at any time and paying off every card in full every month.

Credit scores can be intimidating. But, with a little education and planning, you can stop them from being a hurdle and make them work for you.