When you apply for a mortgage, line of credit or even a department-store credit card, the lender will check your credit score. This figure, a measure of your past ability to make payments on time and manage your credit, will be somewhere between 300 and 850, with the average American coming in around 678, according to Experian’s 2005 National Score Index. If your score is too low (most lenders consider anything below 620 to be "sub prime," or higher risk) you may not get the loan you’re seeking or, if you do, it will likely carry a higher interest rate.

With so much riding on this number, it’s important to understand what factors affect it. Unfortunately, there’s a lot of misinformation floating around about credit scores. Here are six of the most common myths and the facts to set you straight.  

• MYTH #1: The major bureaus use different formulas for calculating credit scores.

  The three major credit bureaus -- Equifax, TransUnion and Experian -- sell their services under different names, but they all use the same formula to arrive at their numbers. Your score may vary slightly between the bureaus, however, because each has different information in your file. For example, one bureau’s records may go back longer, or a previous lender may have shared its info with only one bureau and not the other two. Unless the scores are wildly at odds, many lenders will use the one in the middle when they consider your application.

• MYTH #2: Closing old accounts will boost my credit score.

  Having too many credit accounts can negatively affect your credit score, but canceling them may not improve it. In fact, it could do harm. To measure your ability to manage debt, credit bureaus look at the amount of credit you’re using compared with the total amount you have available. So closing unused accounts reduces your untapped credit and may make you appear overextended. Closing your oldest accounts is even worse because the longer a line of credit is open, the more history you’ve accumulated. If you do close an account, consider closing your newest one and transferring any balance to an older one.

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• MYTH #3: Shopping around for a mortgage or car loan will hurt my score.

  When a lender makes an inquiry about your credit, your score has the potential to drop up to five points. For this reason, some borrowers are afraid that comparison-shopping for a mortgage or auto loan will result in multiple deductions. This isn’t the case. The score is set up to take into account that even though you are only looking for one loan, multiple lenders may request your credit report (i.e. make an "inquiry"). For that reason, all mortgage or auto inquiries made in the 30 days prior to when you choose your loan will not affect your score. To determine your score, the credit agencies also look back at any auto or mortgage inquiries that were made in the past two years (but are older than the 30 day window). If there are any within that 2-year window, all of the inquiries that fall into a normal "shopping period" are counted as just one inquiry when determining your score. The length of the "shopping period" varies depending on the version of the FICO scoring formula used by your lender and can be either 14 days (older versions of the scoring formula) or 45 days (newer versions of the scoring formula).

  Here's an example: Say you are applying for a loan and are talking with four lenders. All four pull your credit report. If you choose a loan within 30 days of those first credit pulls, the inquiries will not affect your score. The score then looks at the past two years of your credit report. Say you applied for a car loan a year ago with three lenders. If your current lender is using the older version of the scoring report, all three inquiries will count as only one inquiry, as long as they occurred within 14 days of each other.

• MYTH #4: Paying off my debts will instantly repair my credit score.

  Your credit score is a measure of your past performance, not your current debt load. Paying off your credit cards and settling any outstanding loans will certainly help, but if you have a history of late or missed payments, it won’t undo the damage overnight. Improving your credit score takes time, so after paying down your debts, make an effort to consistently pay your bills on time.

• MYTH #5: Companies can fix my credit score for a fee.

  You may receive an offer from a company that claims it can fix your bad credit rating. The truth is if the credit bureaus have accurate information, there’s nothing you or anyone else can do to quickly improve your score if you haven’t managed your debts well in the past. (The only way to influence your score is to start managing your debt wisely.) And if there are errors in your file, you can contact the bureaus directly -- you don’t need to pay someone else to do it. The three major bureaus have instructions on how to do this on their Web sites.

• MYTH #6: Requesting your own credit report will affect your score.

  Credit bureaus do not penalize you for checking your own score, nor do they deduct points for inquiries from landlords or employers who may check your score with your permission. On the contrary, it’s a good idea to check your credit score with all three bureaus occasionally, especially if you plan to apply for a loan. This gives you an opportunity to correct any errors in your file before lenders make their inquiries.

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