The Truth Behind 5 Popular Credit Score Myths
Posted on 2015-07-30 09:00:51
There is no shortage of myths when it comes to credit scores. Here we expose the truth behind 5 popular credit score myths.
1. Checking your own credit report will hurt your credit score.
This myth is potentially self-destructive. Ordering your own credit report counts as a “soft inquiry.” Soft inquiries have zero impact on your credit score. Zero. They are not even visible to anyone else who may look at your credit report. Consumers can and should review their credit report periodically. It has the information used to calculate your credit score. Make sure your credit report is accurate.
2. There is only one “real” credit score.
There are hundreds of credit score models in use today. There are even multiple versions of the FICO credit score. Creditors often use industry-specific credit scoring models. An auto loan company, for example, may want a credit score that puts more emphasis on how you have handled past auto loans rather than an emphasis on how you have paid credit card bills. Consumers usually see a more generic educational credit score. The most important thing to consider is how you rate on the scale being used. Then look at the factors affecting your credit score.
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3. Co-signing a loan does not affect my credit score.
Whenever you co-sign for a loan, you are accepting full responsibility for the loan. If the other party bails, you are still responsible in full for the debt. Details of the account will appear on both individual’s credit reports, and therefore be factored into both individual's credit score. If you have co-signed a loan, pay close attention to how the other party is handling the obligation.
4. High credit card limits hurt my credit score.
High credit card limits can actually work in your favor when it comes to your credit score as long as you don’t overspend. Most credit score formulas will consider how much of your available credit you are using. Less is better. When you lower credit card limits or close accounts, you are lowering the amount of available credit. That automatically raises the percentage of available credit you are using.
5. Carrying a credit card balance helps your credit score.
This myth is costing consumers money unnecessarily every single day. Your credit score does not benefit one bit when you make payments instead of paying a balance in full. Credit card issuers typically report your statement balance to the credit bureaus. Nothing indicates whether you made a minimum payment or paid in full. It is always better to pay in full and avoid paying interest.
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