Common Credit Misconceptions

There are many myths and misconceptions associated with credit and FICO scores. We’re going to clear up credit score myths and credit report facts. The following is a list of the most commonly held with a brief explanation of what is actually true in regards to these.

5 Credit Score Myths & Credit Report Facts

1. The FICO Score is Solely Determinate of Whether a Loan is Granted

The truth is that, while important, a FICO score is just one of many factors that lenders consider when judging whether or not to extend credit. Some of the other factors generally taken into consideration are the amount of debt the borrower can handle based on income and other current debts, employment history, credit history, and various policies unique to the specific lending institution. A low score does not automatically disqualify a potential borrower, nor does a high score always guarantee acceptance.

2. A Poor Credit Score is a Permanent Black Mark

A credit score is essentially a snapshot in time. It is made up of several constantly fluctuating factors as consequently will change over time to reflect these factors. As time passes negative entries in a credit report will have less and less effect. Sometimes a significant improvement to an individuals score can occur in as little as a year or two.

3. Credit Scoring Discriminates Unfairly Against Various Minorities

This is not true. Race, gender, age, religion and marital status are prohibited by law from being included in FICO scores or being used as determining factors when evaluating credit worthiness of a prospective borrower. Studies have shown that FICO scores are an accurate measure of someone’s credit worthiness irrespective of their minority status.

4. FICO Scores Are An Invasion of My Privacy

Actually the opposite tends to be true. All of the information used to compile credit scores is already available to lending institutions. Remember a FICO score is merely a number used to quantify the various factors used to judge credit worthiness. Typically, lenders give enough importance to the score that they will ask for LES personal information on credit applications.

5. Applying For New Credit Will Lower a Person’s Score

Generally this is not true, as a result multiple inquiries could possible indicate higher risk, but if there are multiple inquiries from mortgage or auto lenders in a short period of time it is considered to be a single inquiry and will not affect someone’s credit score.

Now we know the credit score myths and credit report facts, it’s time to get working on your credit score! Check Out: How to Improve Credit Score in 30 days!

Are you ready to improve your credit in 5 easy steps? You may be thinking “Improve your credit in 5 easy steps? I have bad credit… Is this applicable to me? Will this work?” Yes! Improving your bad credit score is possible with very little effort. Let’s get started on improving your credit score!

Improve Your Credit In 5 Easy Steps

1. Improve your payment history:

This one is obvious but is so central to restoring a good credit rating that it merits mentioning. There are some simple steps that you can take to help you maintain a timely payment history. Write the due date on the front of the envelope. Just the mere act of writing the date down will help formulate it in your mind and elevate its prominence. Set a specific time each month for paying bills, for example, the second and forth Sunday of each month. By setting aside a time devoted to paying your bills you will avoid a payment slipping your mind. This is another benefit of using online banking for scheduling payments.  This way is that it will be easier to set and meet your personal budget. Pay by automatic electronic transfer or by going online. If possible have a reminder sent to you by email, most companies now offer this service and many do it by default.

2. Reduce the amount you owe:

Keeping balances low on revolving credit is very important. The higher the percentage of the balance you owe versus your available credit the worse it is for your FICO score. Try to keep your balances at 10% or less of your available credit. Reducing the amount you owe will also reduce your monthly payments, which will make it easier for you to make timely payments. Transferring your account balances to credit cards with lower interest rates is certainly helpful but remember that paying off debt rather than just moving it around is always preferable.

3. Keep your “length of credit” high:

The higher the average age of your accounts is the better. With all other factors being equal an account that you have maintained for ten years will have a greater positive effect on your credit score than an account which you have had for only one year. Also, keep in mind that if you open too many new accounts all at once the average age of your accounts will drop, which will lower your score.

4. Apply for new credit within a confined time period:

When applying for new credit, if you submit multiple applications to different sources do so in a short period of time, this way they will all be counted as a search for one single loan. If you spread the applications out over an extended period of time they will appear as separate loan inquiries, which will have a negative impact on your score.

5. Maintain a small number of credit cards:

If you presently do not have any credit cards try to obtain a limited amount of credit cards and make timely payments on them. Having no credit cards at all will have a negative impact on your FICO score. If need be, set up a secured credit card or two. They are very easy to obtain, as they are seen as having an extremely low risk from a bank’s perspective.

I’ve received a lot of question about “How to stop impulse buying?” Everything about shopping is designed to make us feel delicious. The bags and boxes, labels and logos all add up to a dizzying experience. Slide in lights, music, colors, shapes, smells and designs and it’s little wonder we succumb. It’s all a science of course, a science whose only purpose is to part us with our money.

It begins with the way things are named and packaged. There are no accidents at the perfume counter or Apple Store. The shapes, names, and images that underpin these objects of desire are chosen for their power to enthral. The pinlights in the ceiling, the fleeting flashing graphics and the artfully arranged displays have all been tested, evaluated and scored. When we walk into a shopping center or department store our path has been planned. The aisles are laid out so as to lead us deeper and deeper into wonderland – Until we land with a bump at the end of the month and realize we’ve hammered the plastic again.

Why do are we predisposition to impulse buying?

When we were children we went shopping and wanted everything. Now we’re grownups we can go shopping and have everything, at least until we hit our credit limit. Shops are enemy territory. 98% of what they sell ends up as landfill. And yet that New Thing compels our attention. That “New Thing” is the thing we now can’t live without. We didn’t know about it until today but now; now we can’t live without it.

In our hearts we know that nothing we buy ever keeps its promise of fulfillment but we carry on believing the spiel over and over again. It’s almost like we’re hypnotized. In a way, some of us are. Some of us are wired to get out of feeling rotten by buying stuff. It doesn’t work, at least not in the long term. A better way to get out of feeling rotten is to prove to yourself that you’re actually quite clever. If something is truly desirable today then it will be equally desirable next week. Rather than snapping everything up immediately put a shopping together and study the retail cycle. Plan a bit. Remember, 10% off doesn’t amount to much if you’re paying 27% interest.

How to stop impulse buying? Recognize you have a problem

If you’re a shopaholic, recognize that it’s an addiction. Other people, people you don’t know, can press a button in your head and make you spend right up to the limit. Impulse buying fills our cupboards with stuff that’s never quite as wonderful as it seemed in the shop. It gives us a momentary rush now, and a comedown at the end of the month. Like all addictions it borrows fun from tomorrow to enjoy today. Like all addictions the buzz never makes up for the payback. And, like all addictions, it can be kicked.

Alcoholics avoid pubs. Shopaholics avoid shops. There’s a life beyond retail. Start enjoying it. Stop shopping.