Top 10 Credit Score Myths
There is no shortage of myths when it comes to credit scores. Even with all the buzz about credit scores today, a surprisingly high percentage of people don’t understand the basic principle that a credit score measures creditworthiness. When it comes to your credit, what you don’t know can hurt you. Let’s take a look at ten myths and separate fact from fiction.
Myth #1: Checking your own credit report will hurt your score.
There is absolutely no truth to this statement. Ordering your own credit report counts as a “soft inquiry.” Creditors do not see soft inquiries, nor are they factored into your credit score. Period.
Myth #2: There is only one credit score.
The truth is there are hundreds of scoring models in use today and different score ranges, too. One lender might even use a different scoring model for each type of loan it offers. Generally, if you score well on one scoring model, you should score well on another.
Myth #3: Closing accounts will improve your credit score.
This is outdated advice! We now know two good reasons not to close accounts, especially older accounts. When you close an account, it raises the ratio of your debt to your available credit—a negative thing and one of the key factors considered in most credit scoring models. Closing an older account can also shorten your credit history.
Myth #4: Credit scores are locked in for six months (or 90 days, or a year…)
Credit scores are based on the information in your credit report. And since the information in your credit report is always changing, so is your credit score.
Myth #5: Co-signing for a loan will not affect your credit score.
Whenever you co-sign for a loan, you are accepting full responsibility for the loan. Details of the account will probably appear on both individual’s credit reports and therefore be factored into both individual’s credit scores.
Myth #6: You can dispute negative information to have it removed.
Generally, negative information will remain on your file for seven years from the date of delinquency. Bankruptcies may remain for ten years and tax liens may remain seven years from the date they are paid. There is no legal way to remove accurate negative information sooner (unless you have a sympathetic creditor), though some unscrupulous credit repair companies may tell you otherwise.
Myth #7: You have only one credit score.
Wrong! You have three scores, one based on your credit report from each of the three bureaus (Experian, TransUnion, and Equifax). Because all creditors don’t report to all three bureaus, your credit file may be different at each bureau.
Myth #8: My spouse’s credit will help (or hurt) my credit score.
The reality is credit reports are kept on individuals—not on couples. Your credit score is based on what is in your credit report only. There are no “joint” credit reports or credit scores.
Myth #9: Shopping for the best credit rate will hurt my credit score.
While it is true that too many inquiries can raise a red flag that you are going on a credit binge, most credit score models can recognize when you are rate shopping for a mortgage or auto loan and will count it as a single inquiry and have minimal impact on your score.
Myth #10: Credit counseling is as bad or worse than filing for bankruptcy.
While credit counseling may alert potential lenders of a credit concern, most lenders look at the bigger picture. Some even see consumer counseling as a positive sign of a commitment to making lasting changes in your credit habits. Bankruptcy, on the other hand, should be avoided if at all possible