Myth 1: All three of your credit reports are the same
The chances they will all be the same is almost nil. In fact, not only will your credit reports differ, but so too will your corresponding credit scores. The reason they differ is not all lenders report to all three credit bureaus so each report only reflects those that have been reported to that bureau. Since most lenders just pull one credit report when assessing credit worthiness, you will have a different number of inquiries on each report An inquiry is a record of when your credit report is accessed, such as when applying for new credit, and too many of them can adversely affect your score.
Myth 2: Your credit scores will suffer for seven years if you have bad credit
This isn't entirely true. Because credit scores are constantly updated, consumers can start improving their scores right away after experiencing a financial setback. Scores are calculated with emphasi s given to the most recent information, so if you pay off a large chunk of your debt or are able to have negative information removed from your credit report, you can see immediate improvement in your scores.
Myth 3: Obtaining debit cards will improve your credit reports and scores
Even though some of these bank-issued cards resemble credit cards, they are actually just easy access to your checking account. Because they don't actually involve credit, they do not end up on your credit report. However, if you become overdrawn on your checking account and do not repay bounced checks this could get reported.
Myth 4: You can hide your debt from credit scoring by moving credit card balances around
It is impossible to hide your debt. Your credit score is determined by the total amount of revolving debt you have, no matter how you distribute it. Even if you elect to open another credit card and consolidate all your debt on on e card, your total amount of debt hasn't changed so neither will your credit score.
Myth 5: Your credit report and scores will improve if you just make a lot of money
People assume that a good paycheck automatically bestows the benefits of a good credit rating on the holder. In fact, lenders do not associate a high salary with credit worthiness. Rather, they want to see that your salary provides you the capacity to make your monthly payments over a long period of time. Having excess capacity due to a raise or high salary, can however contribute to better scores and help you qualify for additional credit.
Myth 6: Paying cash for everything will help your credit rating
Lenders need to have verifiable evidence of responsible credit usage to establish solid credit histories and credit scores. If you don't establish and maintain various types of credit accounts then your scores won't be as good as someone with a long history of responsible credit use. Unless you never expect to need to use c redit to pay for a house, car, or even online purchases, you need to establish a good credit history.
Myth 7: No late payments equals a great credit score
Paying all of your bills on time is a great start, but it only accounts for 1/3 of your score. The other 2/3 of your credit score results from how much overall debt you have and how much you pay down each month. If you just make minimum payments on large balances, this negatively affects your score. To score well, in addition to making timely payments, you need to keep from accumulating too much debt.
Myth 8: A divorce decree will eliminate your credit responsibilities
It may not be easy, but when facing a divorce, it's important to not only divide up the marital property, but also credit debts. A judge may allocate responsibility for paying certain bills such as car loans, credit cards, and even the mortgage. However, it doesn't supersede any existing creditor obli gations. So if the newly responsible party chooses not to pay, both p arties will ultimately suffer. The lender will likely report any late payments on both credit reports if both names are on the account, despite any court ruling. Seriously delinquent or uncollectable accounts can reap repercussions for years.
Myth 9: You can increase your credit scores by closing credit card accounts
This myth is the biggest fallacy of all and can cause the most harm. A key component of card scores come from a measurement of your credit utilization. This is the percentage of available credit you have versus your debt. In other words, if your debt equals half the your available credit limits your utilization is 50% - not a good number. However, it would be even worse if you consolidated that debt onto one card and closed the other cards. If you do that you decrease your available credit so your utilization factor goes up even more, which lenders do not like to see.
Hopefully, debunking these myths will enable you to avoid t heir potential negative side effects. When seeking debt relief and improved credit scores, the best course of action is committing to a realistic budget that enables you to pay down your debt as quickly as possible. Acting on false beliefs never yields the intended results.
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