Demystifying Credit Score Myths

Everyone in the United States ought to keep their credit score in good shape. Maintaining a good credit score entails several things such as for example, getting approved for various loans in less-stressful ways, the loans you obtained are charged with lower interest rates due to your high creditworthiness.

When it comes to employment, many employers today, request to see your credit report as part of their recruitment process. Needless to say, if your credit score is poor, the employer sees you as someone who does not take responsibility seriously, and that being a not-so responsible in your finances can also be reflected in handling responsibilities at work.

The internet is stuffed with hundreds of myths about the credit score. Some offer an overnight fix for your bad credit score. But whatever, we demystify these myths below.

“The Higher Your Income, the Higher Your Credit Score”

If your credit history is blank, it is as bad as having a negative number on your credit score. If lenders or brokers cannot see a basis on how you have kept up with your repayments, they cannot see in you the ability to make repayments in the future. Thus, they see you as a high risk borrower. The consequences are either they refuse your loan application or they charge with a really high interest rate.

“Eliminating Your Credit Card Debt will Help Your Score”

True, having no outstanding debts and being on time in making loan payments give you peace of mind. But when it comes to your credit history or credit report, neither will wipe away your previous discrepancies. The prescription period for financial activities which affect or reflect on your credit report is 10 years. So, even if you took a loan to pay off your debts, it will not erase your missed and late payments in the last 10 years.

“Cutting Off Your Credit Card Line Lessens Credit Use and thus Improve the Credit Score”

The latter premise does not necessarily follow because as mentioned earlier, information about financial transactions are held for 10 years and they do not get affected by how your current account is faring. Moreover, the formula used in determining your credit score considers the amount of credit available to you and which you are using at the present.

If you close your credit card account, it will lower the credit available to you while increasing the credit percentage at which you are using at the present. For instance, if you maintain two credit cards, each having a credit limit of $5,000, and each card has $1,000 as your outstanding credit, you will utilized 20 per cent of the credit available to you.

If you plan of paying off one credit card and closing it or have your credit transferred to one credit card, you will have the metrics skewed and youend up utilizing an even higher percentage—something that is counted as negative by the formula.

“Requesting for Credit Report is Similar to Credit Inquiries”

The truth is, only hard inquiries can affect your credit score. Hard inquiries are those requested or initiated by lenders and creditors with the objective of assessing your fitness to be approved of a loan or a credit card. If you request for your own credit report, such is counted and referred to as a soft inquiry, but it will not affect your credit score.