Beacon score: 4 myths about your credit / beacon score

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Beacon score: 4 myths about your credit / beacon score
There has been a lot of misinformation being propagated about what does and what doesn't hurt your credit score. In any of the mortgage brokers you deal with give you the below advise, it is time to find a new mortgage broker.

Closing accounts can help your credit score
Closing accounts will never help your credit score. Infact, it may hurt it. It is true that too many open accounts can hurt your credit score. However, when you open the account, you have already done the damage. You cannot repair this damage by shutting the accounts and if you do, you may actually make things worse.
The credit score will look at difference between your available credit and what you are currently using. When you shut down accounts, your total credit shrinks. This makes your balances loom larger which will eventually hurt your credit score.
The beacon score also tracks the length of your credit history. When you shut down older accounts, you make your credit history look younger than it actually is, which can hurt your credit score.
Credit score is one of the ingredients that lenders look before giving you a mortgage loan. Other factors that are part of the equation include income, assets, employment history and credit limits. Sometimes mortgage lenders will look at the total available credit and request you to close a few accounts as a condition for getting the loan.
If your goal is to improve your credit score, you should not close your credit card accounts in advance of such a request. Instead, pay down your credit card debt. This will go a long way in improving your credit score.



Checking your FICO (beacon) score can hurt your credit
Applying for new credit is what generally hurts your score. Ordering a copy of your credit report will not impact your score. Many credit card lenders will try to inquire about your credit and even those inquiries will not affect your credit score.
A good advise to be given here is to shop for mortgages in a relatively short period of time (usually between 10 to 15 days). Multiple inquiries in a 14 day timeframe is treated as a single inquiry and ignores all inquiries made during the month prior to the day the score is computed.
For most individuals, a single inquiry will knock around 5 points from your credit score and FICO scores run from 280 to 840 so it is not a big percentage.

Credit counseling hurts your FICO score as much as filing for bankruptcy
FICO score currently ignores any credit counseling you may have received in your life. The research division at Fair Isaac, the company responsible for creating the FICO credit system noticed that individuals getting credit counseling didn't default on their debts as more often than anyone else.
It is highly possible that your ability to get a loan could be hurt by credit counseling. It is possible that your current lenders may report you as late since you are not paying what you originally owed or your credit counseling company is not sending payments on time. It goes without saying that late payments do affect your credit score negatively.
Credit score is not the only factor that lenders look at. There are other factors that vary widely. Most lenders will want to know your income to be able to judge whether you will be in a position to repay the loan. Other lenders will try to gain more information like are you a home owner, how much savings you have and so on. Some lenders find credit counseling disturbing whereas others see it as a good sign.
There are mortgage lenders who do not like credit counseling at all. Such mortgage lenders will treat its enrollees the same as though they had filed for Chapter 13 bankruptcy. This is the bankruptcy which requires a repayment plan and is more favorable than the Chapter 7 bankruptcy, which allows you to erase many of your debts. Some lenders will still give you a loan with higher interest rate than if you had a perfect credit.
If you feel you need to get a mortgage soon and you are not behind on your debt, it is best advised to avoid credit counseling. On the other hand, if you are in trouble, you can rely on a good credit counseling agency to help you get back on track.

FICO is not the only score you will need to check.
There are many lenders who think that the FICO score is offered only by one of the three credit bureaus: Equifax.
In reality Fair Isaac has developed formula for all the three credit bureaus. To complicate matters, each of the credit bureaus give a different name to the FICO score. Equifax calls the FICO score as Beacon score. At TransUnion it is called Empirica. Experian calls it "Experian/Fair, Isaac Risk Model". Basically you are bound to have three different scores from three different bureaus as the credit bureaus don't share their data. As an example, one credit bureau will list more accounts for you than another and the differences will be reflected in the FICO score that is being computed.
Due to the above complexities, it is advised that you take a good look at your credit report from all the three major credit bureaus before applying for a mortgage. Many mortgage lenders will take the middle score of the three credit bureau FICO score so finding and fixing errors in all the three reports is a smart thing to do.

By the way, to improve your credit score make sure you correct errors in the credit reports, pay all your bills on time, pay down your debt and apply for credit very sparingly.

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