7 Credit Score Myths

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
credit mythThis 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:

  1. 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.
  2. 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?

Want More FREE Finance Tips?
Like what you just read and want to get more great content from Financial Highway? Just enter your email address below and you'll automatically get Financial Highway posts sent straight to your inbox.
We hate spam just as much as you

Comments

  1. says

    What do you think about sites like CreditKarma and Credit.com? Are they accurate enough or sohuld we stick to the Annual Credit Report 3 times a year?

  2. Bosch's Poodle says

    I think you’re off the mark slightly when you say not to dispute unfavorable items. Companies and their loans are often sold, and the records that document the loans are often incomplete or lost during those transactions. I had a student loan that I forgot about after I moved. When I found out I got caught up on payments but my credit scores were impacted. I was aware that the student loan company had been bought, so when I disputed it, the company was unable to document that the payments had been late, and the item was removed from my score. That is a totally legitimate tactic. It won’t work most of the time but it’s often worth a shot.

  3. daniel says

    “80% of credit reports have inaccurate information on them”

    and this is acceptable, how?

  4. says

    @Daniel I am not sure about CreditKarma or credit.com……however your scores and information will vary depending on the agency.

    @Bosch’s Poodle…. I agree….your claim was “legitimate claim”, but I was talking about if you have missed payments and just want to remove the to improve your score……..as you correctly said you can try but often is a long shot.

    @daniel….the info is manually entered and are subject to human error often you find small mistakes…..for example I found out that they had my wrong employer and wrong address on file for me….. National Credit Reporting Association and Consumer Federation of America Study

    http://www.ncrainc.org/resources/CSAstudy.htm

  5. Sue says

    80% of information on credit reports is inaccurate? Wow, let’s use these agencies to dictate who gets credit and how much they get. The reporting agencies can pretty much do whatever they want, a pure menace to society.

  6. George says

    “mysterious logarithm”

    Uh, are you trying to say algorithm? Closer, but I think formula is a perfectly serviceable word in this case.

  7. hegemony says

    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.

    What makes you think one inquiry wont hurt yourr score?

    The best strategy is to have one or at the most two credit cards……

    You can’t be serious.

    If you keep a low debt amount and have to close an account try closing a newer account.

    Why? Both open and closed accounts are factored into your average age for Fico.

    Another terrible credit article.

  8. says

    solid myth busting. “Paying My Debt Will Fix My Score” is misunderstood sometimes too.. people think if they suddenly pay off a large installment loan, their credit will suddenly improve drastically. unfortunately that’s not the case. good credit requires the factor of time!

  9. says

    @hegemony thanks for your comment! I am not sure where you have been living or where you get your info but here are some clarifications.

    14 day question: Not sure what the disagreement here is, make same kind of inquiries, rate shopping for example, are counted as one and not several. 6th question on MYFCIO.com
    http://www.myfico.com/CreditEducation/CreditInquiries.aspx

    “one or two credit cards” again not sure what your point here is, but I really do not see a reason why people need to carry dozens of credit cards, have just a couple and keep your utilization low and this would be fine.

    “If you keep a low debt amount and have to close an account try closing a newer account.” Maybe you did not read the whole thing….point was that older credit cards will have a bigger impact on your scores so if you HAVE to close an account try closing newer accounts as they carry less weight.

    Again thanks for the comment…..I suggest you read it again as you criticisms do not make much sense. :)

    Further resources to answer your concerns: http://www.videocreditscore.com/biggest-credit-score-myths/

  10. says

    I’m a lover of simplicity, so while it may not be “cool” in the personal finance community, I do advocate for closing some of your credit card accounts. A lot of the focus of critics against this strategy has to do with DTI ratio, but if you’re using cards responsibly, you’re in full control of your DTI anyway on a month-to-month basis.

    I’m mixed on whether to close newest or oldest accounts, but I have heard that once you close an account, it no longer contributes to your average age (perhaps, per hegemony, this is a myth as well). But just in terms of practicality, my older accounts have higher limits and more established relationships. In other words, I know what to expect from these cards.

  11. says

    Over times, these refinancing options can stack up, ultimately causing complete ruin of
    an individual’s personal finances. As the name suggests, this cash loan could be easily availed through online application method.

Trackbacks

  1. [...] 5 Overall Articles: 7 Credit Score Myths Canadian Discount Brokerage Review and Comparison for TFSA and RRSP 11 Dumb Ways to get in Debt [...]

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>