debt
11 things you never knew about your credit report


3. Canceling credit cards boosts my score.
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.

"The 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 score.
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.

"Outside 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 says.

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.

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-- Updated: Sept. 22, 2006

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