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What Affects Credit Scores? 7 Misconceptions


If youre trying to raise your credit score to get a good rate for a refinance or HELOC, you might be surprised by what affectsor doesnt affectyour score.

More money improves your credit score

False.Your level or sources of income dont affect your credit score, although lenders may look at it when making loan decisions, according to the Fair Isaac Corp., the company that issues the commonly used FICO credit scores.

Ownership of several credit cards can hurt your credit score

Mostly false.Having many credit lines isnt necessarily a bad thing, says credit expert Liz Weston, author ofYour Credit Score.Multiple lines give you a favorable debt-to-available-credit ratio. But use them correctly: Its best to keep any balances below 10% or 20% of the total credit line, she says. Anything more will affect the ratio of debt-to-available-credit, which can decrease your credit score.

Opening and closing credit lines can hurt your credit score

True.New credit applications can decrease your credit score, so be careful about applying for new credit cards or personal loans before applying for a HELOC, second mortgage, automobile loan, or other large line of credit.

Surprise: Closing existing credit lines may also hurt your credit score, since itll damage your debt-to-available-credit ratio. A good rule is not to make any credit changes in the months leading up to a major credit request, such as for a HELOC.

Consolidating credit lines will help your credit score

Mostly false.Although it may seem like a good idea to move all your balances to one card, that can actually hurt your credit score, since your debt-to-available-credit ratio will spike on that card, says Weston.

However, credit expert Harrine Freeman says such a slight decline isnt necessarily a deal-breaker for a loan, especially if the card has a lower interest rate and will allow you to pay off the balance sooner. Your score will increase as soon as that ratio goes down.

Changing jobs can hurt your credit score

Partly true.Taking a new job or losing your job doesnt affect your credit score. However, if you have a spotty employment history, lenders may hold that against you in making a loan. Dips in income may signal that it could be difficult to pay bills in a timely manner.

Co-signing for others can hurt your credit score

Partly true.Simply co-signing on a loan for someone else may not affect your score, but if that person is late on paying the loan, its likely to show up on your report, says Freeman. And thats a nasty surprise if you didnt know the person was late.

Judgments and liens arent considered in your credit score

False.If youve had a judgment or lien filed against you, its considered in your payment history, which represents 35% of your score.

Similarly, while most utility companies dont report payment history to credit bureaus, your account will likely be reported if it is seriously delinquent and referred to a collection agency.

Additional details on how to manage your FICO score are available on theFICO site.


Gwen Moran is a freelance business and finance writer from the Jersey shore. Shes the co-author of The Complete Idiots Guide to Business Plans and writes frequently about real estate.

Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS.

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