9 Credit Score Myths Do More Harm Than Good

In today's economy, a good credit score is more valuable than ever, and for many, improving your score has become a financial priority. Turn on the radio or TV and you'll likely be bombarded with various credit-improving strategies. But not all advice is good advice. Here are nine credit score myths that could actually do more harm than good:

1. Closing out old, inactive accounts will help your score.
Your credit score is based, in part (15 percent), on the length of your credit history; and in part (30 percent) on your utilization rate -- your total balances versus the total amount of credit available to you. Canceling old accounts can make your credit history appear shorter and, as a result, actually lower your score.  It also reduces the total amount of your available credit, so you'll be utilizing a higher percentage of your credit, which can also affect your score.

2. Opening (but not using) accounts will help your score.
To improve their utilization rate and, theoretically, their credit scores, some people open as many accounts as they can.  Your score is affected by how well you manage the credit you do have over a period of time, not by how many credit cards you have or the available balances.

3. You should avoid using your credit cards at all.
Remember the advice that you should use them only for emergencies? If you're a financially responsible consumer, that approach could negatively impact your credit score. Your score reflects the responsible use of credit. If you're not using your credit, you're not building credit history. You need to use your credit from time to time and then promptly pay off the balance.

4. Dispute letters can clean up your bad credit.
Errors on your credit report can and should be disputed, but don't expect to magically erase accurate but negative credit history.  Dispute letters may force the removal of negative items temporarily, but once the lender can prove the record's accuracy, it will reappear on your credit report.

5. Paying off old debts and judgments will help your score.
Have a judgment or an account that went to collections? Don't expect to make that negative "disappear" by paying it off. Negative records -- judgments, collections accounts, bankruptcies or late payments -- remain on your credit report for seven to 10 years, regardless of any remedies you've made.

6. Credit Inquiries can hurt your scores
Inquiries alone have little impact on your score. Coupled with a history of bad credit, a hard inquiry, such as an inquiry for credit, could factor negatively into your score, but again, the effect would be minimal. Another myth? Pulling your own credit report, a soft inquiry, lowers your score. In fact, checking your credit report on a regular basis allows you to catch errors that could affect your score and identify those areas that need improvement.

7. Using a credit counseling service lowers your score.
Credit counseling services no longer figure into the FICO scoring system, so although your report might indicate you are receiving credit counseling, using those services won't lower your score. It could actually help your score because then you're making your payments on time and paying down your debt, the top two factors in credit scoring.

8. There's a set formula for obtaining good credit.
Be suspicious of any blanket statement about what people should or shouldn't be doing to improve their credit scores. Credit is a very individual thing.   Credit scoring looks at everything and takes it all into account. If you are keeping your balances low and paying your bills on time, you'll have good credit and a good credit score."

9. You can get a perfect score.
Don't go to Herculean efforts trying to obtain that elusive 850 -- getting a perfect credit score is nearly impossible. Your credit score is a reflection of your credit risk, and regardless of your credit history, there's always a risk.