How one’s credit score is computed is to most people a complete mystery, akin to figuring out a quarterback’s passer rating. Thus, there are numerous myths and half-truths that have attached themselves to credit scores, some of them having at least a partial basis in fact.
So over at Credit.com, they went about debunking eight common credit score myths.
Here are some of the highlights:
Myth #1: Every inquiry for credit costs 5 points.
Fact: There is no fixed set number of points that an inquiry will cost. Generally speaking, inquires have a relatively minor contribution to the overall score.
Myth #2: Part of my credit score is calculated based on where I live.
Fact: Credit score calculations do not factor in where you live (city or zip code, for example). Effectively managing your credit, on the other hand, will result in a higher score–regardless of whether you live in Beverly Hills, Calif. or Zanesville, Ohio.
Myth #3: A short sale has less of an impact on a score than a foreclosure.
Fact: The presence of either a foreclosure or short sale information on a credit bureau report is considered negative by credit scores, as it is predictive of future credit risk. Generally speaking, both will have a similar impact on a score.
Myth #4: Going to a credit counseling agency will hurt my score.
Fact: Not true. An indication that you are working with a professional credit counselor will not, in and of itself, hurt the score. However, negotiated settlements on balances owed with your creditors may affect your score if the lender reports it as such.
Myth #5: Carrying smaller balances on several credit cards is better than having a large balance on just one card.
Fact: Not always. A credit score will often consider the number of accounts or credit cards you carry that have a balance, in addition to your overall utilization of available credit. Thus, you may lose points for having a higher number of accounts with balances.
8 Credit Score Myths Debunked [Credit.com]