|11 things you never knew about your
3. Canceling credit cards boosts
Open accounts spells
available, potential debt, so better close them, runs the legend. But experts
agree that most creditors want to see at least two or three pieces of active credit
to prove you can manage debt responsibly.
And, Watts chimes in, those unused cards lying in
your jewelry box aren't wreaking havoc with your score.
myth is that they look ominous to potential lenders," he explains. "Reality
is that paying your bills on time and not being overextended is more important
than having $5,000 worth of available credit on a card you're not using. We continue
to evaluate this 'open to buy' statistic, and we simply don't find it falling
into one of those highly predictive areas."
On the other hand, extremes never look good. Opening
one charge account occasionally to take advantage of a 10 percent
offer is negligible. Going wild and signing up for five during the
holiday season probably would invite a decreased score, he notes.
4. Too many inquiries hurt my
Once upon a time, this statement was true. But
get with the times -- in this millennium, the credit agencies recognize
a shopping mindset when they see one. If a batch of mortgage or
car loan inquiries arrive within the last 30 days, they don't count
at all, Watts assures.
that 30-day period, if we locate a mortgage or car inquiry that occurred 180 days
ago, and then see more mortgage or auto-related hits in the accompanying 14-day
window, we err on the consumer's side and still assume she's shopping for one
item," he explains.
"We really feel like
we are capturing the true consumer experience and not holding it against them
for being an aggressive or smart rate shopper," he adds.
Furthermore, there's no such thing as some fixed number
of points associated with these inquiries, Watts says.
"Inevitably when a consumer or a lender evaluates
a credit file, they think this item must be worth 20 points, this
is worth 100 points," he says. "In reality we design the
FICO scoring model so that each credit report item is given a reasonable
or statistically valid number of points."
In English, that means FICO is designed to predict
the likelihood that you'll fall seriously behind in repaying one
of your creditors within the next two years. Some things have predictive
value and some don't. Inquiries fall in the middle.
"They're not incredibly predictive, so
they're in the model but they don't drive the boat," Watts
5. Checking my own credit report
harms my standing.
The reporting agencies distinguish
between soft and hard pulls. When Target calls to check before issuing its line
of credit, the agencies chalk that up as a hard pull and it counts against your
score. Personal requests and credit counselors -- if they do it correctly, so
insist on this as part of your agreement terms -- fall under soft pulls, which
do not reflect on the evaluation.