Lenders look beyond the score

“We look at their job history, residency history, if they have a relationship with our bank or not,” House said. “We look at the overall picture, not just their credit history.”

Lenders also look at income, which is not factored into the credit report process.

Individuals should be realistic about their situations before considering a purchase, House said.

“If you’re 20 years old, wanting to buy a $40,000 car maybe isn’t realistic,” she added. “Part of it is being real about expectations – a financial institution is not doing a borrower a favor if they lend them $35,000 for a car and that person makes $7 or $8 an hour.”

James Philpot, professor of finance at Missouri State University, said lending is all about assessing credit risk, especially as lenders tighten their restrictions in the wake of increased foreclosure and default numbers.

“Some simple rules of thumb apply – maximize the credit score, and do all the responsible things that would make you as attractive as possible to a lender,” he said.

Myth No. 1 – Companies can fix your credit quickly – for a fee.

“Credit clinics” that advertise a quick fix aren’t offering any services that an individual can’t do for themselves – and for less money.

“Anyone who says they do credit repair, they’re going to tell you to write it yourself, because no one else can inquire on your credit for you,” said Mike Cherry, president of Consumer Credit Counseling Services in Springfield. “It’s something you can do on your own and not pay anything for it.”

The Federal Trade Commission also warns against companies who offer to fix one’s credit by creating a new credit file for you. Such activity is illegal.

Myth No. 2 – Closing out credit cards with zero balance is a good idea.

If credit cards come with fees to keep the account open even with a zero balance, then closing the account can be financially beneficial.

But if a credit account has no fees and a zero balance, closing it can actually have a negative effect on the cardholder’s credit score, Cherry said.

“Closing credit cards that you don’t use will not help raise your credit score,” Cherry said. “If you close a card, it’s going to make your total percentage of (credit) use higher than if you have more available credit out there.”

Myth No. 3 – Higher income means better credit.

This is a myth Cherry sees shattered every day based on the clients that he serves.

“We’ve had people come in to ask us for help who are surgeons and physicians and make $500,000 a year but are over their head in debt. The amount of money you make doesn’t reflect your ability to pay your bills.”

Cherry also notes that income is not used to calculate credit score.

Myth No. 4 – Opening new credit cards will increase your credit score.

This is partially true and partially false. While making regular payments on a credit account can be beneficial to a credit score, opening accounts just to have them can be detrimental. It brings down the portion of the score based on the number of open accounts.[[In-content Ad]]