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Your credit report is just like a report card, providing lenders with insight into your use of credit, debt management and financial health. So, when trying to impress creditors and improve your score, you should avoid the bad advice out there.
There are many ways to improve your credit, including paying debts on time, keeping low balances on your credit accounts and building a long history of responsible credit use.
And there are also many things that do NOT affect your credit, despite common misconceptions.
We sifted through many myths about credit scores and credit reports, many of which are recirculated online. Below we debunk twenty-two of these common credit score myths.
Myth #1: Paying off all of my debts will make my credit report spotless.
Your credit report is a history of your credit use and debt management, not merely a snapshot of the current moment. You can't change the past, but paying off debts may help you improve your credit and re-establish good credit history.
Myth #2: Checking my own credit report will hurt my credit score.
Reviewing your own credit report is known as a "soft pull," which means it is only visible on your personal credit report and it will not affect your credit score.
Don't worry about hurting your credit score because checking your credit report is very important! You can order a free copy of your report every 12 months at AnnualCreditReport.com to stay on top of your credit and watch for signs of fraud.
"Hard pulls," by the way, happen when you apply for credit and a lender pulls your credit report. These inquiries will be added to your credit report, and they do affect your credit score.
Myth #3: There is only one credit score and all lenders use it.
The truth is there are many credit scoring models used by all types of lenders, and each model has a different score range. A generic score may be used by lenders or businesses to determine your general risk.
A VantageScore is one such generic credit score developed by Experian, TransUnion and Equifax that assigns a letter grade to you.
Some lenders or companies even use their own custom credit score to predict your risk for a specific type of lending, such as retail debt, an auto loan or insurance.
Myth #4: Credit counseling will always ruin my credit score.
Simply attending a debt management program through a credit counselor will not impact your credit score. It will hurt your credit if the counselor negotiates a settlement on one of your accounts, or encourages you to stop making payments, and it is up to the lender how this will be reported. While it won't affect your credit score, it will be apparent on your credit report and lenders may or may not take this into account.
Myth #5: Canceling unused credit cards can improve my score.
Open credit accounts increase your available and potential debt, so it may make sense that closing them will improve your score. Actually, most creditors want to see you have at least two active credit accounts to show you can use credit responsibly.
Your credit-to-debt ratio also plays an important role in your FICO score, as does the average age of your credit accounts. If you close an old account you don't use, you may lower the average age of your accounts and actually hurt your credit score.
Myth #6: My credit score is locked for six months.
This is something many people believe, but your FICO score is actually very dynamic and it may change daily or monthly to account for any changes in your credit file, such as on-time payments, accounts getting older or missed payments. Your score will change as soon as data on your report changes.
Myth #7: I don't need to check my credit report if I pay bills on time.
Did you know about 80% of credit reports have some errors? This may be the wrong birth date, missed payments erroneously reported and even accounts that aren't yours.
In 2002, the Consumer Federation of America and the National Credit Reporting Association analyzed credit scores and found that 78% of files were missing a revolving account in good standing, while a full 33% were missing a mortgage account that had never been late.
Don't assume your payments are reported correctly, or that they're even showing up at all. What's more, checking your credit report helps you stay on top of your financial situation and potentially spot these errors before they cost you big when you apply for new credit.
Myth #8: Paying cash for everything will help me improve my credit score.
The only way to establish and build credit is to use credit accounts. Cash and debit cards will not help you build good credit and it will not be reported in any way on your credit report. To qualify for great rates when you get insurance, apply for a student loan or buy a house or car, you will need to demonstrate that you can use credit responsibly.
Myth #9: Making a lot of money will give me great credit.
Credit reports do not list bank account balances, assets or income, and the amount of money you make in no way affects your credit score. The only way your bank account can impact your credit is if you bounce a check or run your account into the negative and skip out on paying, which means the balance may be turned over to a collection agency.
Myth #10: Having a degree can improve my credit score.
As with income, your education level is not on your credit report and is not factored into your credit score at all. Your credit report, and thus your credit score, pertains only to data related to your debt.
Myth #11: Having bad credit can't keep me from getting hired.
Did you know federal law allows potential and current employers to see a modified version of your credit report for employment purposes? While not all employers check credit, having bad credit can keep you from getting hired or promoted. In this case, your credit report will be reviewed manually and not scored, and your employer must obtain written permission before accessing your credit report.
Myth #12: My employment history affects my credit score.
A survey by Visa Inc. found that 60% of people surveyed incorrectly believe their employment history affects their credit score. Your occupation, salary, title and employment history may be considered by a lender when you provide it on an application, but it does not factor into credit scoring at all.
Myth #13: My race or gender impacts my score.
1 in 6 people incorrectly believe race and gender affect credit scores, but this is not true. This information is not included on your credit file and lenders may not use it in their consideration of a loan.
By the way, your age, national origin, ability to speak English and where you live are also not used in determining your credit score. Your age may play an indirect role, as your length of credit history is one factor that determines your credit risk, and credit score. If you're just 22, you haven't had as many years to build credit as someone who is 50.
Myth #14: When I got married, our credit merged.
Marriage does not result in a merging of two credit reports. Your credit lines themselves may merge, and thus get reported to both credit reports, but the reports themselves will not become one. Every person retains their own credit score, and any joint applications for credit will appear on both reports. If only one spouse applies for a credit card, it will only be reported to one credit file.
Myth #15: Getting a divorce will sever our joint accounts.
Many people mistakenly believe that once they receive a divorce decree and a judge approves plans to divide debts and assets, this will in some way have an impact on creditors.
Getting a divorce will not sever any joint accounts, as this must be done manually through each lender, and it may not even be possible.
If you have a joint mortgage loan, for example, and want your spouse to take over the loan, he or she will need to have good enough credit to get approved by the bank to take over the loan on their own.
If joint accounts remain open after a divorce, you may be in for a nasty surprise when your ex-spouse's missed payments start showing up on your report.
Myth #16: All bad information will be removed in 7 years.
While a lot of bad marks will be removed in seven years, this isn't true for everything. Chapter 13, or reorganization of debt, will drop off your report after 7 years from the filing date, but Chapter 7 bankruptcy will remain on your credit file for 10 years.
If you have declared Chapter 7 bankruptcy, individual accounts in bankruptcy may be deleted 7 years from the date of the first missed payment, so you can actually see individual pieces of your bankruptcy disappear years before the word "bankruptcy" is gone.
Myth #17: I can pay someone to fix my credit.
You can have errors on your credit report fixed for free by doing the work yourself and contacting the credit bureaus and possibly the reporting companies as well. Any company that claims they can fix your credit, though, is promising something they can't deliver.
Many of these companies use illegal or improper tactics that may just get you into more trouble, or waste thousands of dollars you've worked hard for.
Myth #18: Co-signing on a loan won't impact my credit.
Co-signing on someone else's loan does put your credit at risk and this loan will appear on your credit report, as well as any activity, good or bad. If the primary borrower defaults on their loan, you will be on the hook. Their missed payments will be reported to your credit and the loan will now be your responsibility.
Myth #19: Carrying a balance helps my score.
Many people mistakenly think it's necessary to show a current balance on their credit cards just to prove credit utilization. This is just not true! Using your card regularly will show activity and build credit, but it is not necessary to carry a balance from month to month and pay interest.
Myth #20: I can boost my score really quickly by disputing everything.
A really common myth is you can simply dispute every negative mark on your credit report for a fast boost to your score. The requirement hat reporting companies respond within thirty days to validate the mark, and thus keep it on the report, does not mean this tactic will work for you.
What's more, reporting every bad thing as inaccurate will most likely just get your request flagged and ignored by the credit bureau as frivolous.
Myth #22: I have to pay for my credit report.
Finally, don't assume that you have to pay to see your credit report.
Many companies, as well as the credit bureaus themselves, will happily charge you, but you are entitled to one free credit report from each of the three bureaus every 12 months thanks to the Fair Credit Reporting Act.
You will, however, usually need to pay to get your credit score. But you can check out this article to find resources that offer free versions of your credit score.