13 Myths About Raising Your Credit Score That Don’t Work
Given how commonplace using credit cards has become, there is a surprising amount of incorrect information about credit scores. Lenders use a borrower’s credit score as a simple numerical indicator to assess their likelihood of receiving payment. It is based on various particular standards that evaluate a borrower’s overall credit risk, including the amount of debt they already owe, their payment history, and other aspects. Following just one of the suggestions below may not be sufficient to improve or maintain your credit score because credit reports and scores are the consequence of various factors. Today, we’re debunking the credit myths that get the most comments and telling you the real story about your credit.
Myths About Raising Credit Score That Doesn’t Work
1. Checking your credit report can hurt your score
It is a widespread fallacy that makes many people wary of checking their credit scores. The truth is that a hard inquiry occurs when a lender requests your credit report from a bureau in response to a loan or credit card application, and there is a potential that this will lower your score. When you check your credit report, it is a soft inquiry; thus, it has no negative impact on your credit score. It is a good idea to check your credit report regularly.
2. My Credit Score Determines Whether or Not I can Get a Mortgage Loan
Your credit score is significant, but it is only one factor. Your credit score provides the lender with a quick summary of your financial management dependability. Your debt-to-income ratio, employment history, and other criteria are also taken into consideration by the lender. A trustworthy mortgage banker can help you select the loan program that best suits your needs because different lenders have varying underwriting guidelines.
3. A Bad Credit Score Lasts Forever
Your credit score depicts your financial history. However, this does not imply that a poor grade will follow you forever. Establish a solid credit history, eventually leading to a strong credit score. You can establish a good score and let the negative transactions from the past disappear if you make it a habit to follow all the best practices and advice. A transaction typically remains on your report for three years. Information like bankruptcy and payment defaults may be retained for up to ten years. Improvement is still possible, though.
4. There’s only one credit score
You may have a variety of credit scores depending on several variables, including the scoring model utilized and the type of credit you’re seeking. The credit score you check might not match the one a lender requests. Your credit ratings will often be similar, no matter how determined. In most cases, unless one of your reports contains an inaccuracy, they don’t differ by more than 50 points. Keep your credit record free of inaccuracies, negative marks, and excessive debt to guarantee your credit score is as high as possible.
5. Carrying a credit card balance will improve your score
A recent US New & World Report survey shows that nearly 60% of consumers hold this myth true. Your credit utilization ratio, or the percentage of your available credit that you’re utilizing at any one time, is one of the critical variables in calculating your credit score. The lesser the percentage, the better; try to keep it under 30%.
6. I should close credit lines I don’t use
The age of your credit plays a role in determining your credit score. Your credit score could suffer if you close your oldest credit line. If you have a few cards open, think twice before canceling an inactive account. Maintaining a minimum balance on it isn’t necessary, but once it has been fully paid off, store the card in a drawer and keep the line open. Contact your creditor or bank if you’re worried about paying an annual fee on a card you don’t use; they might be able to advise you on how to do so.
7. Credit Bureaus Give “Good” or “Bad” Score
Credit reporting agencies gather information about your debts and use that data to determine your credit score. These results can neither be categorically deemed “good” nor “poor.” They serve as a risk indicator. Lenders are in charge of determining if a specific score satisfies their requirements for issuing credit. And scores are typically only one consideration in their choice. If you lack a job or other assets, even a “high” score may not be significant. A high income and a collection of gold bars may also outweigh a “poor” score.
8. My income impacts my credit score
False. Your income and salary are viewed as indicators of your ability to pay your expenses, not your likelihood of being denied credit. Your credit reports don’t even include your income, so they can’t lower your score. Credit scoring models do not take into account wealth measures. While it’s helpful to know that your income level has no bearing on whether you have excellent or bad credit, you should be aware of the factors that do. Your payment history, utilization rate, the length of your credit history, use of new credit, and your credit mix are all factors (the variety of credit products you have).
9. Getting Married Results in a Joint Credit Score
When a couple gets married, one of the choices they have to make is whether or not to combine their finances. However, do not worry if you are concerned that you will have to combine your credit score with that of your new husband. A shared credit score does not exist; only individual ones do. Your personal credit history is yours alone, whether or not you are married. Now, such accounts will typically appear on your credit report if you open joint accounts with your spouse or sign on as an authorized user. Your actual credit score will always be separate from your spouse’s and remain your own.
10. All debt is bad
Some debts might improve credit. However, debt can be tricky, so before making assumptions or taking on new debt, make sure you speak with a specialist about your debt. Some debts benefit you. Your mortgage gives you a place to live and ownership of a rising-value asset. Your ability to graduate with marketable skills and better earning potential is made possible by your student loan. However, some debts cost you money, including debts you cannot pay back or that don’t yield a profit.
11. Debit cards help in building your credit score
Contrary to popular belief, debit cards cannot raise your credit score in the same way that credit cards may. The explanation for this is straightforward: Your credit score determines your “creditworthiness” as a person, which refers to your ability to take on credit and make timely repayments. Debit cards cannot help you raise your credit score since when you use them, you are using your own money and not using any “credit.” Here are five advantages of a credit card versus a debit card.
12. You Can Get Access to the Credit Report Your Lender Can See
It is a fallacy that a customer can obtain the exact copy of their credit report as a lender. A lender receives a complete copy of your credit report from a credit rating organization. However, whether it is a free or a paid copy, you will receive the credit report in a much more condensed manner where only the information you need to know will be presented.
13. The government owns the credit bureaus
The credit bureaus are private, for-profit businesses. It’s simple to imagine the credit bureaus as legitimate government organizations, but this isn’t the reality. The Fair Credit Reporting Act protects your rights to examine your credit reports, dispute inaccurate information, control who can access your statements, and pursue financial compensation from violators even if the government doesn’t own the agencies (FCRA).
