Credit scores have become a major metric in our lives; if you are getting a car loan, mortgage or even applying for a job your credit score will have a significant impact on the decision. I believe everyone should check their credit reports on a regular basis, semi annually or quarterly if you have a credit score that needs improvement. Many myths have come about due to the mysterious algorithm which calculates your FICO score, let’s shed some light on a few of these credit score myths.
Checking Your Score Will Hurt
This is one of the most common myths out there. Constantly applying for new credit will most likely hurt your score, but if you order a copy of your credit report and credit score it does not affect your FICO. You should check your credit report regularly for mistakes and possible fraudulent activities.
Shopping For Loans Will Hurt Your Score
This maybe true at times but not always. If you constantly apply for new credit cards and loans it will hurt your score, however shopping around for a mortgage or a loan in a short period will not affect your score. If the same kinds of inquiries are made within 14 days of each other, they will just count as one inquiry and not hurt your FICO score.
Paying My Debt Will Fix My Score
Unfortunately there is not a quick fix for your credit score; if you had payment issues in the past it will take some time before things improve. Your credit score is a history of your payments over a long period of time, although paying a debt will help improve your score it will not magically fix everything.
Scores Get Merged When Married
I have heard this one a few times recently and am not sure how it has started. Your credit report is yours and yours only; it will not be merged or otherwise mixed with your spouse’s. If you apply for joint credit the information will reflect on both reports, however your credit reports will never merge.
Just Dispute Unfavorable Info
If you have had bad credit history you cannot simply dispute it and fix everything. Nonetheless, if there is inaccurate information on your credit report than you should contact the agencies and dispute the information. However, do not fall for “Credit Repair” companies who promise a quick fix – these do not work.
I Pay On Time No Need to Check My Credit Report
Wrong! I have mentioned several times that everyone should check their credit report on a regular basis to ensure the information is up to date and correct. Imagine if you are applying for a mortgage and you find out you had 2 late payments (which are inaccurate), it will take you months to rectify the incorrect information. About 80% of credit reports have inaccurate information on them, better you fix it sooner than later.
You Should Close Cards to Improve Your Credit Score
Not true. This can actually hurt you in two ways:
- Part of your credit score is the history of your account, the longer you have a card the better score you’ll get. If you close an old account it can actually hurt your score.
- Your score is based on your utilization ratio (total debt/total available debt) the lower this ratio the better your score, if you close an account you will lower your total available debt which will increase your utilization ratio and can possibly hurt your score.
If you keep a low debt amount and have to close an account try closing a newer account.
The best strategy is to have one or at the most two credit cards and carrying a low balance, avoid excessive account opening a closing.
Do you have any myths to share?
Subscribe to Financial Highway
Like what you just read and want to get more great content from Financial Highway? Doing so is easy, just enter your email address below and you'll automatically get Financial Highway posts sent straight to your inbox. Spam? I hear ya, but don't worry, Financial Highway will never spam you or share your email address with anyone. Oh and you can unsubscribe at any time with one simple click.