Credit scores are calculated using mathematical equations the average American cannot understand. Heck, the way these equations are formulated is designed to be hopelessly incomprehensible to normal folk like you and me.
So you can see just how easy it is for people to come up with a lot of misconceptions about the whole thing. Here are some of the more important ones you need to remember:
Paying off bad debt will immediately erase any wrongdoings.
Late payments and even bankruptcies will remain on your credit report for a couple of years (up to 10) even if you pay off the balance in one fell swoop. Steadily plug up your loans as agreed upon in the contracts or pay up now to get rid of debt – neither will have an immediate impact on your credit score.
Canceling credit cards will bump up credit scores.
Cutting credit cards makes management easier on your part, but doing so also increases your debt-to-credit ratio. The more debt you owe on your credit cards comparative to the maximum amount you can borrow, the bigger the negative impact on your credit score.
Frequent credit inquiries will raise your credit scores.
You may think you are a responsible borrower if you keep tabs on your score, but the credit rating agencies actually become suspicious of a credit account with too many inquiries on it. They will see you as at a greater risk of default, so they will actually lower your credit score instead of raise it up.
You can pay agencies to ‘raise’ your score.
No, no and NO. How much debt you take on and how regularly you pay off that debt will dictate your credit score. Sure, you can work with certain agencies to give you advice and assistance in improving your score, but no agency out there will painlessly raise your score just like that.
Remember that these are myths, not facts, and you won’t be left scratching your head about what went wrong with your credit score.