Credit Score Misunderstandings: Part 1

your credit score and real estate investingCredit scores have been around for years yet credit is still highly misunderstood.   Credit score misunderstandings can hurt your chances of obtaining any loan, including real estate loans.   According to Liz Weston of MSN Money, there are 10 highly misunderstandings.

Here are the first 5 misunderstandings.  Tune in next week for the final 5.

Misunderstanding #1: No need to agonize about your credit scores.
Many believe that responsible financing will result in high credit scores, or that scores are only important to lenders.   However, credit scores do not measure your income or wealth, but are based on how you use credit.   Even if you do not use credit, your score can be low or nonexistent.

Misunderstanding #2: Do not close a credit account.
The only times you do not want to close a credit account is a) if you do not have other forms of credit on your credit report, or b) you are in the process of looking for a major loan.  If you do not fall under these two, then closing one credit account should not have a big impact on your credit score.

Misunderstanding #3: Multiple credit cards are bad.
Numerous credit cards are not always a bad thing.   If you have multiple credit accounts, it is seen as positive to lenders as others have entrusted you with their money.

Misunderstanding #4: Obtaining a credit score is free.
Once a year, you are able to acquire your credit report for free, but not your credit score.   If it seems that you received your credit score for free, chances are that it was a addition to costly credit monitoring or that the score is not the once lenders use, a FICO score.

Misunderstanding #5: Debt creates good scores.
Keeping a balance on credit accounts has little effect on your credit score, but paying off monthly balances will give you a good score.

Which of the above misunderstandings have you heard conflicting information about?