Credit Score Blueprint: Everything You Need to Know
Credit Score Myths Exposed
If you’ve been paying attention, we’ve already dispelled some myths about credit scores. You should now know that not all of your credit scores will be the same (you have three different FICO scores as each credit bureau may pull from different data), that neither your salary nor your level of education affects your credit score (though lenders may consider this information), and that checking your own credit report doesn’t hurt your credit score. Here are a few more credit score myths we thought were in need of debunking.
Myth: I can’t have any negatives on my report.
Truth: If you have a missed payment in the past, or even if you have a far more serious skeleton in your credit closet such as a personal bankruptcy, don’t sweat it too much. In fact, it’s entirely possible to have a score of over 700 even with a bankruptcy on your report. More recent credit data is actually weighted more heavily in calculating your credit score, so the longer it’s been since a past negative event occurred, the less it will affect your score. If you’ve made credit mistakes in the past, just do your best to rectify them and work on re-establishing a good credit history from here on out.
Myth: Opting out of pre-approved offers will benefit my credit score.
Truth: This is a common misconception. As previously mentioned, “soft pulls” that banks conduct to make you pre-approved offers of credit don’t negatively impact your credit score; thus, opting out of these offers won’t benefit your credit score. However, opting out of pre-approved offers will cut down on your junk mail and decrease your risk of identity fraud.
Myth: If I correct an error on a credit file with one credit reporting agency, the correction will be picked up by all of them.
Truth: You might have guessed that this one is false, since you now know that each credit bureau maintains its own separate database. When you find an error on your credit report from one of the three major CCRs, you need to check if it also appears on the credit reports from the other two. You’ll need to individually contact each agency which has an error on file for you; correcting your file with one agency won’t fix your records with the other two.
Myth: Paying or settling a negative account such as a judgment, lien, or charge-off will remove that item from my credit reports.
Truth: Unfortunately, this is also false. However, time does heal all wounds. Most resolved negative events will disappear from your report and stop weighing down your score after seven years, although bankruptcies are an exception – these can linger on your record for up to ten years. Nevertheless, it’s important to settle any negative account standings, since lenders will take outstanding delinquencies into account when considering whether to offer you a new line of credit.
Myth: Asking for lower limits will benefit my credit score.
Truth: Depending on your personal spending behavior, it may be a good idea to request that a lender lower a high limit on your credit card if this will help you stay out of debt. But if you can control your spending, there’s no need to ask for a lower credit limit; this will not benefit your credit score whatsoever. In fact, it could potentially hurt your score by increasing your debt to available credit ratio.
Myth: My credit score is merged with my spouse’s.
Truth: Unlike your assets, your credit score is yours and yours alone and is not affected by husband’s or wife’s score. But even though getting married does not cause your credit information to merge with your spouse’s, your spouse’s credit history can affect your ability to qualify for credit together — for better or for worse. Also, when you open a joint account with a spouse or another person, that information will appear on both of your credit reports.
Myth: A divorce decree will release me from financial responsibility for an account.
Truth: Regardless of what a judge determines in regards to division of credit card payments, mortgage payments and other joint debts between you and your ex, these decisions carry no weight with the creditors, themselves. Therefore, if your ex-spouse misses payments for a car, house or another account that your name is connected to, this can still negatively impact your credit score. To close a line of credit or remove one of your names from a loan you share with your ex, both divorcing parties must contact the creditor or have the other party sign a letter of consent to remove their name. If your credit score is too low, a creditor may not agree to remove the other person from the account, however.
Myth: Receiving credit counseling services will lower my score.
Truth: This is untrue. Seeking debt help from a credit counselor will not, by itself, impact your credit history or score. However, if you sign off on a debt management program, bankruptcy or debt settlement as a result of contracting a credit counselor, it will show up in your credit history. A debt management program (DMP) should not affect your credit score but a bankruptcy or debt settlement involving only partial debt repayment may lower your credit score.
Myth: Using debit or check cards can help rebuild my credit score.
Truth: Debit/check cards have no bearing on your credit score. However, if you overdraw your account using a check card and fail to repay the negative balance, this may harm your credit score if the bank files for collection.
Myth: The higher my credit score, the lower interest rate I’ll get.
Truth: While this is generally true, it is not always the case. Lenders typically use a grading system to calculate interest rates wherein scores falling within a specified range will be assigned a certain grade corresponding to a particular interest rate; a score at the top of this range won’t receive a better rate than a score at the bottom of the range. For example, depending on the lender’s grading system, all scores between 760 and 850 might be graded “A” and receive the lender’s lowest offered interest rate. In such a scenario, raising your score from 760 to 800 would not affect your interest rate.
Myth: My credit score is locked-in for a certain amount of time.
Truth: Actually, your FICO score changes as soon your credit report information changes, and your score is recalculated each time your credit information is accessed. It is entirely possible for your credit score to change in the course of a day.
Myth: As long I pay my bills on time, I don’t need to bother checking my credit report or score.
Truth: Credit reports commonly contain erroneous information ranging from an incorrect date of birth, to missing accounts in good standing, to fraudulent accounts opened in your name. Even if you have good credit habits, it’s important to check your report at least once yearly to make sure the credit information on file for you is accurate.
Myth: I can raise my credit score by hiring a stranger to add me as an authorized user to a credit card account in good standing.
Truth: FICO recently changed its scoring rules to prevent credit repair companies from paying strangers to add clients to their accounts. However, this strategy may still work if the credit card account to which you are added belongs to a spouse, parent, or another close relative.
Myth: My credit report will show a zero balance for any credit cards I pay off before the due date.
Truth: Lenders usually report to the credit bureaus on the statement closing date, not the due date. The closing date appears on your statement and is usually about 20 to 25 days before the due date. Thus, if you want your credit report to show zero balance for a particular card, you need to pay it off before your statement closing date. To play it extra safe when you’re applying for a major loan such as a mortgage, you may want to avoid using your cards altogether for a month in advance so that your debt-to-credit ratio is as low as possible.
Myth: All lenders have the same impact on my credit score.
Truth: Consumer finance accounts are considered a negative by the credit bureaus. Consumer finance companies provide credit to customers who may not qualify for bank or credit union loans, and the credit bureaus know that these customers generally have higher rates of default. Consumer finance companies also charge higher interest rates than traditional lenders, which further increases their clients’ default risk.