6 Credit Report Myths Tripping Up Consumers
When it comes to credit reports, many people have a lot of questions. They don’t fully understand what goes into their reports or how those reports affect their financial lives. In fact, a large percentage of Americans don’t even know what their credit score is.
With so much bad advice floating around online and outdated information still being passed along, it’s important to understand what actually goes into your credit report and how it can affect your ability to get a loan or even a job.
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Keep reading as we take a deeper look at common credit report myths that trip up a lot of consumers.
Checking Your Own Credit Score Hurts It
Some people believe that checking their own credit score can cause it to decline. This belief is a major reason so many people remain in the dark about what their score actually is.
However, if you’ve logged into your bank’s online dashboard or your credit card account, you might have noticed your credit score. That’s because many banks and credit card issuers now offer access to credit scores through at least one of the major credit bureaus and checking it doesn’t affect your score.
The only time checking your credit score can have a negative impact is when you’re applying for a loan or a new line of credit and a hard inquiry is made.
You Only Have One Credit Score
Some people believe they have only one credit score. In fact, you have many different scores. Two of the major scoring models are FICO and VantageScore. There are also three credit bureaus, TransUnion, Experian and Equifax and each has its own credit scores.
If you’re hoping for simplicity and only track one score, it’s going to be a little difficult. Different lenders will pay attention to different credit scores based on the types of loans they offer. This means it’s important to make smart financial choices so that, no matter which scores your bank uses, you have the best chance of having a good credit score.
Carrying a Credit Card Balance Helps Your Score
One of the most common myths is that carrying a balance on your credit card is helpful. Not so!
Instead, paying your balance in full each month is the best thing you can do for your credit score. Not only do you avoid paying interest, but you also keep your credit utilization ratio at zero, which is a major factor in your credit score. That's a double win.
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Closing Old Credit Cards Always Helps
If you have a credit card with an annual fee, you might be tempted to close the account if you don’t use it anymore. Unfortunately, this can harm your credit report. The average age of your credit accounts is part of your credit score, so closing an account will reduce that average and lower your score.
Instead of closing the account, call your credit card issuer to ask about downgrading to a no-annual-fee option. This will let you keep the account open, helping you maintain your average credit age.
Your Income Directly Affects Your Credit Score
Your credit report doesn’t include any information about your income. So it doesn’t matter whether you earn $30,000 per year or $300,000. Your credit score is based on your borrowing behavior, not how big your paycheck is.
Paying Off Debt Instantly Removes Negative Marks
While paying off your debt can improve your credit score by lowering your credit utilization ratio, it won’t remove negative marks. Instead, negative marks will remain on your credit report for a period that depends on the type of mistake. For example, late payments can stay on your credit report for up to seven years and bankruptcies can stay for up to 10 years.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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