Can you spot a credit score myth when you see one? Survey after survey, including a 2017 MoneyTips survey, finds that people continually believe the same credit score myths. Have you fallen for these examples?
1. Checking Your Own Credit Report Drops Your Score – This myth confuses the two types of pulls on your credit report. When potential lenders pull your full credit report as part of a credit card or loan application, it's known as a "hard pull". Hard pulls can temporarily drop your credit score. They imply greater credit usage and risk, especially if you're applying for multiple lines of credit.
When you check your own report, it's a "soft pull" that does not affect your credit. Other soft pulls include requests from potential employers doing pre-employment checks or insurers/credit card companies who want to send you pre-approval offers.
"You should get your own credit report and know what's in it," advises Rod Griffin, Director of Public Education for the credit reporting agency Experian. "I check my credit scores periodically just to know where I stand and to make sure everything is okay."
You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
2. Unpaid Library Fines or Traffic Tickets Can Drop Your Score – Unpaid traffic tickets and library fines are municipal court records, which are not collected by credit reporting agencies. Most tax liens and non-bankruptcy court judgments are also excluded from credit reports, thanks to recent credit reporting changes.
Unpaid bills involving borrowed funds – like credit cards, mortgages, or personal loans – will directly and significantly affect your credit score. On-time payments are the most important factor in determining your credit score. Unpaid bills that involve obligations but not direct borrowing, like cable or phone bills, affect your credit score if they become delinquent and are sold to collection agencies.
3. You Can Raise Your Credit Score by Closing Old Accounts – You'll likely drop your credit score instead because closing old accounts affects two important credit score factors.
The amount of credit you're using compared to your total credit limits, otherwise known as credit utilization, should be low to keep your credit score high. Creditors consider you a higher risk for non-payment if you're nearing your credit limits. By closing old accounts, you're lowering your total credit limit and raising credit utilization.
The average length of a credit account is also a factor. Older accounts in good standing show greater stability. By closing old accounts, you're dropping your average account age, another factor in computing your credit score.
Other classic myths include thinking that income or assets affect credit scores (they don't), that credit scores and credit reports are the same (they aren't), and that having no credit cards or credit card debt means you have a good score (you'll actually have no score at all because creditors have no way to gauge how you'll handle credit).
Avoid falling for myths by understanding what credit scores are and how they're calculated. A credit score is a number calculated from the information contained in your credit report, which is a history of all your borrowing activities. Payment history, credit utilization, age of accounts, your credit mix (revolving and non-revolving accounts), credit inquiries that you make, and total debts are the main factors affecting your score. A good mix of credit, used regularly but sparingly and always paid on time, provides the best credit score.
Why should you care about credit score myths? Some credit score myths are harmless, but others can fool you into actions that actually harm your credit score, like closing old accounts. Says Griffin, "Your credit report should be a tool that works for you; it shouldn't be a mysterious thing. The same is true for credit scores."
Ignore the myth and check your credit score and your credit report frequently. Identity thieves could be setting up false accounts or making fraudulent charges – actually harming your credit score – and the fraud will go undetected if you're afraid of harming your credit score by checking. In short, what you don't know about credit scores really can hurt you.
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