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Don't Be Scared Off By Credit Score Myths

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Nov 26, 2008 5:37 am US/Mountain

Don't Be Scared Off By Credit Score Myths

Reporting
Alan Gionet
DENVER (CBS4) ― Where do you need to be?  680, 700. Those are considered some of the minimum scores these days to get the best rates.

Overall, if you're above 700 on your "FICO" score used by creditors to gauge your credit worthiness, your chances of be one of those, "Well qualified buyers" are pretty good.

"It can hurt your credit score a little bit if you're a little bit late," said one woman we talked to who fessed up that she worked at a bank.

That's some of the easy stuff though. The questions we put to people got harder. We asked one woman how long a bad debt will haunt your credit?

 "Probably for the rest of your life."  Not so. Seven years. Ten if it's been a Chapter 11 bankruptcy.

We asked a man if moving your debt to another, cheaper credit card helps?  "I think it does if you actually pay it off before the interest rate hits."

Again, not so. Kim McGrigg of Money Management International, a non-profit that offers credit counseling says creditors will check how much is open, "They need to consider if you were to rack up all these cards that you have to the maximum, would you be able to repay your debts?" 

Plus it's simply not a good idea having a lot of cards open. "Well, there's a couple of issues there," says McGrigg. "One is that I like to tell people that moving debt is not the same as paying off debt."  

In fact, no credit history can hurt. "Absolutely. You need to have something on that credit report."  Perhaps a loan.

Protect that legacy debt experts say. That's the cards or the loans you've had for a long time. A long history with a creditor can help your score by showing you're reliable.

Watch those credit limits. "I'm hearing from consumers right now that their available credit is being reduced," says McGrigg. "Which does mean that they're likely closer to their limits than before." 

The closer you are to your limits, the lower your credit score. "You're just not going to want to bump up against that score," says McGrigg about how much room you need. She suggests keeping balances 80 percent or lower.  

"It's not a good idea to have ten open accounts on a credit report. It helps to have a good mix, which means different types of loans represented on a credit report, but just having a ton of open credit, available credit is not a great thing."

In addition, she strongly urges people to check their credit. You can get a yearly report for free.

"Probably the fastest and easiest way to improve a credit score is to take a look at your report and dispute anything on there that's not correct."  

The most widespread credit rating is called a FICO score. These days a score over 700 is the best way to get good rates when you borrow, or to help ensure that you have the best chance at a mortgage.

Your debt to income ratio is not figured in your credit score. That's something that comes outside of the score as you apply -- which is why you're often asked the question on a loan application. It may also affect your ability to borrow.

You'll find more information in the video version of the story on the right and here's a link to a Web site where you can estimate your credit score for free, but recognize that if you choose any of the more sophisticated options, there might be a cost to you.

(© MMIX CBS Television Stations, Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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