The Truths about Credit Score Myths

There are plenty of credit score myths out there to confuse anyone. So we are going to clear a few of them up for you here that have been circulating for a bit.

[Read: Get Your FICO Score for Mere Pennies]

The Credit Score Myths Abyss

Myth number 1:

Once you have a bad credit score, it will never get better.

Truth:

A bad credit score will only stay that way if you continue to do what you are doing now.

1. a. If you are not paying bills, are late on bills, or are continuously using your credit to its limits, then it will continue to stay that way.
2. b. If you decide to become proactive with your credit and start paying your bills on time, making at least your minimum payments instead of ignoring your bills, and allowing yourself to build a cushion of available credit , if not paying off your credit cards in full, then your credit will start to get better in time.

Myth number 2:

It takes forever to ruin a credit score.

Truth:

This credit score myth has ruined many credit scores that could have been saved if only people had known the truth.  A credit score can plummet in a matter of months.

1. a. It only takes six months before a creditor can decide to charge-off a delinquent account. That is one of the worst marks to have on your credit report because it will stay for seven years unless stated otherwise.
2. b. A creditor can still use a collection agency or other remedy to collect the charged-off debt from you.

Myth number 3:

Anyone that checks on your credit, including you, hurts your credit score.

Truth:

Many companies out there will allow you to check your credit score free.

A few of these companies are:

1. CreditKarma.com
2. CreditSesame.com
3. Quizzle.com
4. Credit.com
5. FreeCreditScore.com
6. FreeScoreOnline.com*(make sure to cancel before the 7-day trial expires)

You can also find credit cards that will give you monthly reports of your credit scores on your bills so do not fall for the credit score myths that checking your own scores will damage your credit. The only ways you can hurt your own credit score is by getting a creditor to do this for you or continuously applying for credit, after having been turned down repeatedly.

Myth number 4:

You cannot have good credit without having a lot of money.

Truth:

This credit score myth is one that has been repeated for some time. It is how you budget the money you make to pay the creditors. Your timely payments of those bills make the difference between good and bad credit.

Having money in the bank doesn’t matter, either because it is not used to calculate your credit score.

Myth number 5:

There is just one credit score.

Truth:

This credit score myth could not be further from the truth. There are several credit scores. The three major scores are from the three credit bureaus: Equifax, Experian, and TransUnion.

To break this down for you here is an explanation:

Each of these scores has different ranges, and each credit bureau uses a different formula. Not every credit bureau has the same information as the other two in their files.

1. Equifax – 350-850 – BEACON
2. Experian – 330-830 – Experian/Fair Isaac Risk Model or PLUS
3. TransUnion – 300-850 – EMPIRICA

Now these scores are independent of each other, meaning, they are made up based on a formula of what is in their files. When you compare your reports side-by-side, you will notice that the information is set up differently in each.

Then there is a relatively new credit score out called the VantageScore 3.0. This credit score was initiated by the three credit bureaus to show more uniformity of consumers’ credit scores. This score is similar to the FICO score. The categories are just a bit different and the weight that each category carries varies in each score.

Now this is where you will have to realize that companies who report to and inquire from credit bureaus have a relationship with one or two of the credit bureaus. They report or inquire from them. What you see is called an ‘educational score.’ These scores are meant to give you a “perspective” on your credit standing. So what you see is not what the lender sees. There is a chance that the lender is not looking at the score but more at the activity anyway.

Myth number 6:

Your credit score will merge with your spouse’ when you get married.

Truth:

Your credit score is yours and will always be yours. The only thing that will affect your credit is when you apply for credit with someone else (spouse or anyone). Both of your credit scores would be affected equally.

Myth number 7:

Prospective employers want to check a prospective employee’s credit scores.

Truth:

This credit score myth often gets confused with the credit report that a prospective employer may want. Prospective employers do not have access to another person’s credit score when inquiring about a job applicant. They gain access to the prospective employee’s credit report. It is against the law to base employment on a credit score and may soon be against the law to for employers to ask for the report as well.

Myth number 8:

It takes seven years for bad credit to disappear from your credit report to raise your credit score.

Truth:

It is true that bad credit can stay on your report for up to seven years, but there is more to it than that. Here is a list of things that are not going to help you with your credit:

1. Bankruptcy

Bankruptcies usually stay on your credit record for ten years. In order for it to really do any good, you need to build a positive credit record from that point on.

2. Charge-offs

Charge-offs are going to be there for the duration whether you pay them or not. The only possible positive here is that they may note on the account that you have paid it, but that is strictly up to their discretion.

3. Multiple inquiries for credit

Whether you are just starting out or just received your fist credit card after a rough period, do not go overboard applying everywhere.

4. No payment history

If you are just starting out, or just like to pay with cash you are going to have a rough time trying to get credit when you want to make a large purchase. It may be best to start small by getting a credit card for those who are new to credit

5. Paying a collection account

Paying on a collection account is tricky. You haven’t paid it when it was active and now that it was sold to the collection agency, you deal with high-pressure collectors. If you agree to pay, your seven years start at your agreement all over again. Don’t default!

6. Closing a credit card

Whether you close a credit card because the balance is out of hand or you have it paid off, it is not a good idea. You can have an account frozen but don’t close one.

7. Debit cards

Debit cards are just an extension of cash, they are just easier and safer to carry around than bills, that’s all.

8. Never checking your credit

You should check your credit score once in a while to make sure you are handling your credit correctly as well as making sure there are no mistakes on your report

9. Bad payment history

And Finally, a bad payment history can keep you from getting what you want, much less what you need.

[Read: Simple Ways to Improve Your Credit Score]

To Prevent Falling Into the Credit Score Myths Abyss

Here are a few suggestions to prevent falling in the credit score myths’ abyss:

1. Sign up for a few free credit score site to track your credit scores.

This way you can get an understanding of how different credit inquiries can affect your score.

2. Get your credit reports free, yearly from AnnualCreditReport.com.

No one should be worried about the credit score myths as much as  the activities in the files themselves. Compare it to studying all year to take the final. How do you expect to pass if you haven’t studied all year?