As much as I try, these top credit myths still trap a lot of people into missing their full financial potential
Why are there so many myths and misunderstandings about credit?!
That was the question in a recent mastermind group I hosted with some personal finance experts.
Between the group, we had more than five decades’ experience in financial planning, debt counseling and money management. We had answered just about every credit question imaginable and worked through countless client budgets.
But nobody could answer why there were so many credit myths and why they just won’t die!
I can’t claim that we uncovered the secret to spreading credit truths to our readers but we did put together one of the best lists on common credit misconceptions I’ve seen.
Check your own understanding of credit reports and scores against the list and use the comments box to add other credit myths.
Checking my own credit will hurt my score
This is false false false. When you check your own credit score, it’s called a soft inquiry. Unlike pesky hard inquiries, soft inquiries don’t affect your credit at all. Wouldn’t it be terrible to be penalized for being responsible and checking your credit?
So feel free to check your credit report regularly; it won’t affect your score at all! I check and monitor my credit through TransUnion which is offering a $1 trial subscription. Check your report at least a few times a year to catch any identity theft quickly.
I have one credit score – that’s the one lenders check
This is one of the biggest credit myths out there. Thankfully, more people are being educated on the fact that there are lots of different credit scores that lenders use, not just the FICO score.
The credit score your lender chooses to use can depend on lots of factors, so it’s smart to have a good understanding of your overall credit health rather than one three-digit number in mind.
Check out the ultimate guide to credit scores for everything you need to know about FICO and how to boost your score.
Checking my score every day will help push off old inquiries
This is a common rumor perpetuated in online forums all about credit scores and credit reports. People believe that if you check your score enough, inquiries will magically disappear.
Hard inquires fall off your credit report after two years. Unless you have an unauthorized inquiry on your report, waiting that two-year period is the only way to get rid of a hard inquiry.
Other marks on your credit report take longer to clear. Public records will take three to five years to clear off your report. Loans that go to collections agencies and bankruptcies can stay on your credit report for up to ten years.
My gender is on my credit report
There is lots of confusion surrounding the information that is or isn’t included on your credit report.
I’d like to set the record straight that things like your gender, age, race, ethnicity and even marital status aren’t on there.
I used peer lending loan data to find what’s on the Average Credit Report…and some of it will surprise you. How many delinquencies does the average American have on their report? What is the average person’s debt-to-income ratio?
My employer can see my credit score
Another myth perpetuated by the online world. Your employer cannot check your credit score. However, he can check your credit report. This usually happens with potential job candidates, most often for positions with financial responsibilities.
A bonus credit myth relating to how your credit report is used – did you know your credit score affects how much you pay for car insurance? The auto insurance credit score is a secret way insurers use to charge bad credit customers higher premiums. It’s not a myth and is totally legal!
- Carrying a balance on my credit cards will help my score
Some people think that they need to show a current balance on their credit cards to prove credit utilization, but this isn’t the case.
Just using your cards on a regular basis will show this activity and build your credit. In the end, carrying a balance from month to month will just cost you in interest.
My income factors into my credit score
Another credit myth ready for the busting! Your income isn’t one of the factors in your credit score. In fact, your income isn’t even on your credit report.
However, it’s important to know that it is one of the factors that comes into play when creditors set your credit limit or looks at your debt-to-income ratio.
Cosigning on a loan won’t affect my credit
When you cosign on someone else’s loan, you’re putting your credit at risk. The loan will go on your credit report and any activity—good or bad—will affect your credit health accordingly.
That’s why cosigning is such a serious decision.
I’m married, so now I have a joint credit report
Your credit report is yours, till death do you part. At no point do you have a “joint credit report,” even if you have joint accounts with your spouse. When this happens, the accounts will appear on both credit reports, but the reports don’t merge in any way.
I have to pay for my credit report
According to the Fair Credit Reporting Act, you’re entitled to one free credit report from each of the three credit bureaus during a 12-month period. Understand that the 12-month period doesn’t follow the calendar year, it’s a rolling period.
Since you can get your free credit report from each of the three credit reporting bureaus individually, you can time it to keep track of your report. Go to AnnualCreditReport.com once every four months to download one of your three reports. This will cut down the time it takes to spot identity theft or any errors on your credit report.
Understand that your credit report doesn’t include your credit score. To get your score, you’ll need to enroll in a credit monitoring services. I use TransUnion to monitor my credit report and get my score regularly but you can also get it through free credit card services offered on most cards.
The most common credit myths aren’t going away but working to make sure everyone knows the truth will help make sure everyone has access to the money they need. Understand what’s in your credit report and how it affects your credit score to build your credit and open the door to a whole new world of lending.