When it comes to understanding our financial health, one of the most commonly misunderstood aspects is our FICO score. A FICO score is a three-digit number that represents an individual’s creditworthiness based on their credit history. While many people are familiar with the concept of a FICO score, there are several misconceptions that persist about how FICO scores are calculated and used by lenders.
One common misconception about FICO scores is that they are the only factor that lenders consider when making a lending decision. In reality, lenders take into account a variety of factors when determining an individual’s creditworthiness, including income, employment history, and debt-to-income ratio. While a FICO score can be a useful tool for assessing credit risk, it is not the only factor that lenders consider.
Another misconception about FICO scores is that checking your credit score will negatively impact your score. In fact, checking your credit score yourself is considered a “soft inquiry” and will not lower your score. However, when a lender checks your credit score as part of a loan application, it may result in a “hard inquiry” which can lower your score slightly. It is important to regularly check your credit score to ensure that there are no errors or fraudulent activity on your credit report.
Many people also mistakenly believe that closing a credit account will improve their FICO score. In reality, closing a credit account can actually have a negative impact on your score, as it can reduce your available credit and increase your credit utilization ratio. It is generally better to keep credit accounts open and in good standing to maintain a healthy credit score.
One important thing to note is that FICO scores are not permanent and can fluctuate over time. Your credit score is updated regularly based on your credit activity, so it is possible for your score to change from month to month. Working with a reputable credit repair agency such as amsher collection services, may help to improve your credit score over time.
In conclusion, there are many misconceptions about FICO scores that can lead to confusion and misinformation. By understanding how FICO scores are calculated and used by lenders, individuals can take steps to improve their credit health and financial well-being. Regularly monitoring your credit score and working with a reputable credit repair agency like Amsher Collection Services can help you achieve a higher credit score and better financial outcomes in the long run.
