6 Credit Report Myths Debunked
There are numerous misconceptions around what does and does not affect your credit score. Many of these myths have been passed along so frequently, and for such a long period, even some accountants or lenders believe them to be true. You may be guilty of believing some common credit card myths. Understanding what is or is not accurate is important since in many cases, credit myths can harm your credit in the long run.
Whether you are afraid of ruining your credit or you think it is going to take several years to regain good credit again, these myths may be dictating how you approach this. Learning the truth behind these myths can put a smile on your face every time you run your credit score check. The sections below debunk six common credit score myths and tell you what you can actually do to raise your score.
1. Ruining Your Credit Report Score Takes Time
People often believe it takes a lengthy amount of time to ruin your credit, but this simply is not true. You can ruin good credit within a few months if you are not diligent about making your minimum payments on time. The longer it takes you to pay down your credit card balance, the lower your score becomes. If you wait approximately six months or more to address your bills, you are at risk of receiving a charge-off on your account, which automatically drops your credit a considerable amount.
One or more charge-offs can ruin your credit entirely. It can take less than a year for your credit score to plummet. To avoid falling victim to this myth, be sure to make at least your minimum payments on time each month once you receive your balance statement. If you have difficulty remembering when your card payments are due, set a reminder in your calendar.
2. Takes Several Years to Change or Improve Credit Card Score
If you have checked your credit score and feel as though it is going to take several years to improve your circumstances, you may be falling victim to another credit myth. One commonly repeated statement about credit scores says that bad marks stay on your credit history for seven years. While this may be the case, the impact of bad marks on your report decreases gradually over time.
If you consistently take steps to improve credit score mistakes you have made, your credit will improve. It may take you several months to better your credit score or change it drastically, but it will not take forever. Steadily pay off your card debt and refrain from making large purchases to keep your credit from dropping. If you make consistent payments and chip away at your debt, your score will go up bit by bit.
3. Checking Your Free Credit Score Lowers Your Score
One of the most common credit score myths is the idea that checking your credit lowers your score. This is only true in instances when you are asking lenders to check your score for you. “Hard inquiries” on your credit report, generated when you apply for a card or a loan, will lower your score somewhat. This is because multiple hard inquiries in a short period of time indicate that you are trying to access cash fast. Lenders are suspicious of this behavior because it may indicate that you have more expenses than you can keep up with.
Related Article: How to Check Your Credit Report and Credit Score
However, you can check your own credit score with an online credit monitoring service. Online credit monitoring services are designed to help you track your score over time, as this can help you make any necessary adjustments or improvements to your spending. Many of these services can even break down the factors contributing to your bad credit score, allowing you to make modifications based on your own history.
You can use these services to get a credit score check as many times as you like without fear of lowering your score in the process. Additionally, you can access your report from any of the three major credit bureaus (TransUnion, Equifax and Experian) whenever you want. Checking your own report will not harm your score.
4. Lenders See the Credit Report You See
If you are struggling with your credit but wish to apply for a loan or an apartment, you may be hesitant to do so for fear the lender is going to see your low score. While online credit scoring services provide you with an idea of what your score is, this is not the actual number reflected on your score when this information is pulled by a lender during a credit score check.
Online scores are considered educational. They can calculate your average score, but they do not pull information the same way a lender would. If you are worried about having a bad credit score, take preventative measures to help boost your score before allowing anyone to run a credit check. Your true credit score may be lower than you anticipated if you rely on online services to see your score.
5. Closing Your Credit Card Account Improves Your Score
Once you pay off a line of credit, you may consider closing the account to remove temptation while simultaneously boosting your credit. This is one of the biggest credit score myths, as closing your account does not directly improve your credit score. More often than not, when you close your account you are damaging your credit score, not improving it.
Part of your score is calculated based on your total credit utilization. Credit utilization is how much of your available credit you are using at a time. Closing a credit card means you are removing that credit line from your calculated utilization ratio. The best course of action is to leave your credit accounts open, even if you do not intend to use these accounts again in the future. This helps to stabilize your credit score and keeps your credit history in good standing.
For instance, if you have three credit cards, each with a $1,000 limit, your total available credit is $3,000. If you carry $500 in credit card debt, you are using 16 percent of your available credit. However, if you close a credit card, you are left with $2,000 in available credit and your credit utilization ratio becomes 25 percent.
6. A Bad Credit Score Keep You from Receiving Lender Approval
Credit holders often believe their credit score is the deciding factor when they are waiting to receive lender approval. Your score does factor into the equation, but it does not make or break your case if the other contributing factors are positive. A lender considers other factors as heavily as your score, including your current income and the level of debt you have at the time of your application.
If your income is steady and your debt is nearly nonexistent, a bad credit score may not keep you from receiving this opportunity. Lenders often place higher interest rates or request a larger down payment if you have a low credit score, but this is not the same as being denied a loan outright.
Related Article: A Guide to Lines of Credit
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