Myths About Credit Reports and Scoring

One of the most important tools you have to help you achieve and keep a good credit score, whether you’re just starting out or are turning over a new credit leaf, is correct and accurate information. There are many credit myths floating around out there, and part of that is due to the fact that credit scoring practices have evolved through the years and continue to change, making it important to continue to update yourself on credit matters.

Here are a few of the more common credit scoring myths that are current today. It’s important to know the facts, as believing the myths can be not only inconvenient, but also damaging.

My credit score doesn’t matter because I’m not applying for loans and I don’t want a credit card

The fact: Your credit score can affect your life, even if you are not applying for loans and have no desire for a credit card. Potential employers and landlords sometimes use your credit score to evaluate your potential to be a responsible employee or a trustworthy tenant. Utility companies may use that to determine whether or not they will require a deposit from you, and if so, how much. Insurance companies may use that score to help determine your rates. Whether or not you seek credit cards or loans, your credit score can affect your quality of life.

Paying off a debt will remove it from your credit report

The fact: Your credit report will list activity for seven years, with some major items, such as a bankruptcy, staying on it for up to ten years. That means, even if the debt is paid, it will be on your credit report.

Your age, gender and income are important factors in your overall credit score

The fact: While, years ago, that was indeed the case, today is a different situation entirely. Various consumer credit protections have been enacted, and gender can no longer be used in that way. Age and income are also no longer the factors that one would think they were. In fact, the credit score is strictly about how you handle your money and credit. These are things within your control, giving you an opportunity to create a good credit score, in due time, with careful money management.

Reality vs. myth about credit scores

Checking your credit score can damage your score

The fact: A “hard inquiry” is registered when a creditor pulls your credit report in response to loan or credit card applications that you submit. A “soft inquiry” is recorded when a creditor pulls basic information about you in order to verify your identity or to send marketing materials (i.e., pre-approved offers, etc.), or if you check your own credit. Soft inquiries do not impact your credit score whatsoever.

It doesn’t look good to seem as though you are being repeatedly turned down for credit or seeking more credit than you can afford. You should try to keep the number of hard inquiries to a minimum. However, you can shop around for loans without hurting your score, if you do so within a two-week period, and each inquiry is for the same loan amount and purpose. In that circumstance, those hard inquires falling within that time period will count as one.

When it comes to creditors, your credit score is the only thing that matters, that is the number you sink or swim on

The fact: The good news is that, although different lenders do have different standards, for many there are a variety of factors that count, meaning that it your credit score it not the best it can be, all hope is not lost. Other factors can play a role, including how long you’ve lived at your current address, how long you’ve had your current job, as well as your previous work history, your current income and other assets you may possess.

A divorce decree will absolve you of your credit responsibilities

The fact: Part of the divorce process is to divide the joint debt. The divorce judge will determine who is ultimately responsible for the payments on all debt that was accrued during the marriage, including credit cards, auto loans, and mortgages. However, the judge’s ruling does not override the contract that you signed with your creditors. So if you and your spouse have joint accounts, any default on those accounts will affect both of you, regardless of who the judge ultimately assigns responsible for the payments after the divorce. We see this time and time again, so take this as fair warning: If you and your spouse obtained a credit card in both of your names prior to the divorce, and the judge orders one of you to be responsible for that card’s payments after the divorce, BOTH of you will still be affected by this card on your credit reports.

See Also: How to Correct Credit Errors