Over the years as the credit score has become more mainstream the consumers concern with their credit scores has increased due to many erroneous believes and credit score myths. These myths have gained legitimacy simply because they have been repeated enough times by many people.
However, a myth is not important in the real world as it has no credence, it only effects our decision making as we factor that myth in our decision process.
Mymoneykarma.com wants you to be aware of the top 5 credit score myths so you know how to make the right decisions about your credit:
Myth #1: Checking your credit score hurts your credit score.
There are two ways you can check your credit score : Hard pull or soft pull.
A soft inquiry pull will not impact your credit score adversely because in this pull a creditor is only reviewing a certain part of your report or a site such as mymoneykarma.com is soft pulling you credit report to educate you. These soft pulls do not lead to any loan for the customer.
When you apply for a loan and the creditor pulls your entire report from the credit bureau then it is known as a hard pull. Such hard pulls may impact your credit score minimally. If you are selective when applying for credit and take credit prudently you will minimize the impact of the hard pull. We would strongly suggest that you should regularly monitor your credit report for free at mymoneykarma.com to ensure that you have a healthy credit score for when you need it.
Myth #2: Credit reports and scores are similar.
People consider credit score and credit reports to be similar. That is not correct. Credit reports present your entire credit history with details of the loans that you had taken and serviced. On the other hand the credit score is a number based on calculations on your credit history.
Due to this myth people do not see the need to review their credit report and loose the opportunity to improve their credit score.
Myth #3: No credit card or debt = best credit score.
Many people think that no credit = good credit score. That is a huge fallacy because without any credit there is no data available on you as a creditor to calculate your credit score, let alone you having a good credit score.
The credit score reflects that you can responsibly service the credit you take and that is what is certified by the credit reporting agencies. The credit reporting agencies calculate the credit score by assessing your credit behavior and asses risk of your default.
In the absence of debt and debt servicing history the creditors will assume the worst: that you are a high risk creditor.
A better strategy to have a good credit score would be to have credit cards and some debt and manage them properly by making all payments on time. This will enable you to get a good credit score.
Myth #4: Only a few unpaid accounts show up on a credit report.
What ever the creditors report will show up on your credit report. All outstanding accounts that are reported to a debt collection agency will be reported to credit agencies and will show up on your credit report. These will include home loans, loans against property, car loans, credit cards and personal loan to name a few.
You should ensure that you make timely payments of all your loans and don’t let them go into collections. If for some reason you are not able to pay your debts in the short run, make sure to clear the debts when you have the money and take the proof of payment to the credit reporting agencies.
Myth #5: Paying off debt clears the credit report automatically
Paying of debt that you are in default off is a great move, however don’t assume that this will automatically clean up your credit history. Your credit report shows all types of accounts( positive and negative), including accounts sent to collection, late payments and write offs.
It is important that you regularly review your credit report and check whether the information is now accurate and reflects the time period in which it should stay on your report. For the things that are still on your report that should be removed or taken off, you will need to get proof and submit it to all the credit agencies in order to get your credit report cleaned up uniformly.
Educate Yourself for Informed Credit Decisions
Reading this is the first step to educating yourself to have a better credit score by taking better credit decisions. Mymoneykarma.com has many other such articles that you can read and increase your knowledge levels.