10 Credit Score Facts and Fictions, Thats True ?
If you're a fan of TV's "Mythbusters," then you may already know the truth about many popular fictions - like how a heated Jawbreaker can explode when you bite into it, or that a home ceiling fan cannot decapitate you, or that your toilet seat is the cleanest surface in your house. While these are fun myths to debunk, knowing the facts of these fictional stories probably won't affect your personal finances.
What can impact your wallet is what you know - and just as importantly, what you don't know - about your credit score. Your credit score is a three-digit numerical representation of your credit-worthiness, or how likely you are to reliably pay back money you borrow. It may seem simple enough, but credit scores aren't always intuitive. Even when you think you're doing the right thing financially, you may be actually hurting your score.
When it comes to credit, knowledge is power. Here are the real facts behind 10 common credit score fictions:
Fiction: The more money you make, the better your credit score will fare.
Fact: Your income has nothing to do with your credit score. It's not reported to the credit bureaus or listed on your credit report.
Fiction: Once you've paid a past-due debt, it will drop off of your credit report.
Fact: Late payments and other negative information remain on your credit report for seven years from the date of the initial late payment. Bankruptcies typically stick around for 10 years from the bankruptcy filing date. While that black mark may continue to soil your report, however, its effect on your score will lessen over time.
Fiction: Credit bureaus and those reporting to them never make mistakes.
Fact: Nearly eight in 10 credit reports contain a serious error or some sort of mistake, according to a survey by the U.S. Public Interest Research Groups. Because many errors can negatively impact your score, it's important to check your report regularly and dispute any inaccuracies you find.
Fiction: Practicing a cash-only policy will help your credit score.
Fact: Having good credit is a function of having credit available to you and using it responsibly. If you don't have or use credit, you may have no credit history at all and if you do, your score won't be as good as someone who consistently demonstrates responsible use of credit over time.
Fiction: All credit reports and scores are the same.
Fact: You have three main credit reports - one from Experian, Equifax and Transunion - plus a variety of credit scores. The information listed on each of your reports may vary, and your scores - even if based on a single report - may also vary. No one report or score is better than the others. They all seek to document your credit history and assess your default risk.
Fiction: How responsibly you manage your checking, savings and investment accounts will impact your credit score.
Fact: Like income, your checking, savings and investment account activity is not reported to the credit bureaus and does not affect your score.
Fiction: Closing credit card accounts will help your credit score.
Fact: When you close a credit card account, you may be affecting your "credit utilization," which is simply how much credit you use (balances) compared to how much is available to you (limits) - the lower, the better. Closing a card lowers the amount of credit that's available to you, which may increase your utilization percentage if you maintain balances on any of your other cards. A higher credit utilization may negatively impact your score.
Fiction: Pulling your own credit report will lower your credit score.
Fact: When you pull your credit report for your own educational purposes, it's considered a "soft inquiry" and will not affect your credit score. On the other hand, when a creditor or lender pulls your report for the purpose of extending you credit or a loan, it's a "hard inquiry" and may negatively impact your score.
Fiction: If a bill or debt isn't generally reported to the credit bureaus, missing a payment won't affect your credit score.
Fact: Any time you pay a bill late or don't pay at all, that activity can be reported to the credit bureaus. Different companies have different policies about reporting late payments or negative information, but never assume that just because you've never seen a particular bill listed on your credit report that it can't negatively impact your credit score if you don't pay it.
- Fiction: Disputing accurate information will remove it from your credit report.
- Fact: You can only dispute information on your credit report that is inaccurate. When you dispute information on your report, the credit bureau has 30 days to investigate. If it finds the dispute to be valid, it will remove the inaccurate information. If, however, the dispute claim is found to be false, that information will not be removed from your report.
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