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Mythbusters -- Credit Traps To Avoid

Main Boise Home Loans

Even the most credit conscious consumers make mistakes while managing their credit profile with credit scoring in mind. Here are some of the most powerful myths with regard to credit.

Here are some of the more popular myths that I have seen and heard from my mortgage customers regarding people's perception of "how to keep a good credit score." Let's call this article, "Mythbusting...credit scoring style."

Never Use Credit Cards

Although a cash/debit card approach to consuming can work in today's society, this approach completely ignores the fact that a significant portion of your credit score (30%) is derived from looking at your use of credit in the past.

Having High Credit Card Limits Hurts Your Score

The amount of your credit limit does not matter at all to the credit scoring system. What does matter is the ratio of the balance you owe to the credit limit.

You Must Have A Balance On A Credit Card to Build Credit

As long as you are using and keeping your credit cards active, they will be rated and used by the credit scoring systems. As we have talked about earlier, having a balance equal to less than 30% of the available credit is ALWAYS the best position to keep for the best credit score.

Closing Credit Card Accounts Will Help Your Score

DO NOT do this ever...unless you are closing a joint account after a divorce or you are the victim of identity theft. 45% of your score will be negatively impacted by closing credit card accounts. It simply cannot be justified unless you are divorcing or are a victim of identity theft.

Using my Debit Card Will Help Build My Credit

Many of my customers think that because their debit card carries the Visa/Mastercard symbol, that purchasing with a debit card will help build credit. This is not true.

A Divorce Decree Protects Your Credit

This is not true...your agreement with the creditor will always take precedence over a divorce decree. If you are a joint owner of the debt, you are also responsible for the debt, regardless of what a judge says.

There are many more myths of credit scoring out there, but I tried to hit the questions and scenarios that I see most often as a Mortgage Consultant and Loan Originator.

Posted by Eric Leigh at 9/22/2009 9:07:00 PM

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