Business Credit

Most individuals who have made it a habit to annually check their credit reports with the three credit reporting agencies; Equifax, Experian, and TransUnion have found themselves in a state of confusion when it comes to understanding credit scores. The most commonly used credit scoring model is FICO® and the new kid on the block known as Vantage Score.

While these scores are important in obtaining credit, loans, and lower interest rates, there seems to be several credit score myths that need to be debunked.

Here are my ‘Top 10 Credit Score Myths’

Myth:  There is only one credit score.
Fact:  There are three credit scores; one from each of the aforementioned agencies.  Equifax’s credit score is called the Beacon Score, Transunion’s credit score is Empirica Score, while Experian has embraced it’s own new credit scoring system called Vantage Score.

Myth:  Your score will decrease every time you check it.
Fact:  Not true.  You can ascertain what your score is as often as you need to and it will not lower your score at all. Go to http://www.myfico.com to order your scores today.

Myth:  The FICO score is determined by income, age, and gender.
Fact:  False.  Your score is determined by many factors, none of which include the above.

Myth:  The more money I have, the higher my score will be.
Fact:  Untrue.  The score is based on payments made on time, and keeping your debt under 30% of the debt to credit limit available.

Myth:  Credit repair is illegal and cannot be done.
Fact:  False.  Consumers have every right to repair their own credit in accordance with the Fair Credit Reporting Act. If you choose to use a credit repair company be sure to verify their track record with the BBB. Also, if you are paying for the service before its rendered be sure the company is in compliance with the Credit Repair Organizations Act (CROA). *Non Profits and Credit Union Service Organizations (CUSO) are exempt from CROA.

Myth:  The more credit card applications received, the lower the score.
Fact:  Untrue.  While we are flooded with these applications in the mail, if you don’t apply, your score is untouched.  It is only when you do apply, and wind up with many high-balanced credit cards that are in use, that your score may be lowered. You can always stop credit card solicitations by opting out for free.

Myth:  Scores will rise if credit card accounts are cancelled.
Fact:  False.  The truth is that it is better to keep a long-existing credit card account even though you may not use it.  It has a history attached to it; the number of years you’ve had it, used it, and maintained steady on-time payments.  This is the card that gave you a high score to begin with.  To cancel out an account would defeat the purpose of maintaining a high credit score.

Myth:  Applying for a new credit card to pay other credit cards raises the score.
Fact:  Absolutely untrue. Keep in mind; if you own $5,000 and you apply for another credit card to pay the $5,000 off, you are still in debt for $5,000.   

Myth:  Having no credit cards is a good thing.
Fact:  Wrong.  At some point in your life, you will need to establish a credit card history.  It’s a catch-22 situation.  Without a credit card, you cannot create a credit history, you cannot finance a car, home, or other tangibles you wish to own.  Credit history is essential in obtaining high credit scores.

Myth: Using personal credit for business has no effect on the corporate veil

Fact: When you use your personal credit for the benefit or operation of the company it can lead to an “alter-ego” decision by regulatory or a financial organization, and a piercing of the corporate veil. This would directly endanger the owner’s personal assets and make the owner or owners directly liable for the penalties or repayment of any debts incurred by the business or corporation.

Owning a credit card and working to obtain a high credit score will serve you well, as long as you do not incur expenses above your means.  Pay on time and/or pay off balances when you can; stay within the 30% of debt to credit limit ratio and over time, your credit score will work well for you.

Remember – Formal education will make you a living; self-education will make you a fortune.  ~ Jim Rohn

To Your Success!

Marco Carbajo

About the Author

Marco Carbajo is a business credit specialist, author, speaker, and founder of http://www.startbusinesscredit.com . Want to learn more about how to build business credit and obtain unlimited financing for your business? Claim Marco’s popular FREE business credit seminar ($597 Value), available by simply submitting your email below To Your Success! =>
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