There is a lot of information floating around out there about debt. Today, we are going to take a look at some of this information and determine if it is fact or fiction.
(1) If I close my credit cards, I will remove all of my credit history - True or False.
False – your credit history stays on your credit report if you close a credit card.
(2) Your credit score is your FICO score - True or False.
True and False – Fair Issac Corporation developed the original credit scoring formula. However, each credit reporting agency has its own version of the scoring model. Trans Union’s score is called the Empirica score. Equifax calls their score the Beacon score. Experian does call its credit score the FICO score.
(3) Every time you check your credit report, you get an inquiry posted and could lose points on your credit score - True or False.
False – When an individual checks their credit score, it is called a soft inquiry and there are no deductions or records of the inquiry. When a company checks a consumer’s credit score for the purpose of credit information, this is a hard inquiry and there is a deduction of points.
(4) Every time you close a credit account your score lowers - True of False.
More True than False – Approximately 30% of your credit score is determined by how much overall credit that you have available to you versus how much of that credit you are using. This creates your utilization ratio. It is the ratio of total available credit to debt. If you have a lot of available credit and low amount of debt your ratio is low. That is a good thing. If it is the other way around, your utilization ratio is high. If you close accounts that have free credit limit, you remove the available credit limit from your ratio, which in turn could increase your utilization ratio and lower your score.
(5) If someone illegally uses your credit card without your authorization, you are on the hook for the full amount charged on the credit card – True or False
False – The law states that you are only on the hook for no more than $50. The credit card company is on the hook for the unauthorized charge. Credit card companies market that you have zero liability for unauthorized charges. They are just marketing something that you have anyway due to the law. In fact, most companies waive the $50.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.
