You very well know that credit report contains credit score, which determines your creditworthiness. But, do you know your credit report is your financial report card? Yes? That’s right! Each of your financial activity is listed on your credit report, which in turn affects your credit score and financial situation.
So, it is important that you must debunk some credit score myths to stop hurting your score and finances.
Let’s unwrap the truth behind some commonly believed credit score myths:
Myth 1: Checking credit report will hurt your credit score.
Your credit score won’t get hurt if you check your credit report because it results in “soft inquiry” or “soft pull.” You can get a free copy of your credit report annually from the credit bureaus.
However, your credit score is affected when your lender checks your credit report before giving out a loan. It’s because whenever a lender pulls out your credit report, a “hard inquiry” is added to your report, which in turn affects your credit score.
Myth 2: All lenders use the same credit score.
If you think that your lenders use the same credit scoring models to assess your creditworthiness, then you’re mistaken. Apart from FICO, there are other credit scoring models with different score ranges. Vantage Score is an example.
So, don’t think that your lender is using only the FICO score. He/she might be checking your Vantage Score.
Myth 3: Paying bills in cash will help your credit score.
Using cash to pay your bills may not be good for your finances. Remember, using credit accounts will help you build your credit. So, if you don’t use a credit card, you won’t be able to establish your credit.
So, you must use a credit card to pay your bills provided you pay off the balance at the end of each billing cycle. That’s the best way you can build a positive credit history.
Myth 4: Credit score will improve once you pay off all your accounts and close them.
Your credit score has already been affected since you’re delinquent on your payments. Don’t think that paying off debts will improve your credit score immediately. But, your score will get a boost in the long run if you don’t acquire further debts.
Moreover, closing your old credit account can increase your credit score because 15% of your credit score depends on the length of credit history. So, after settling your debts, you should keep your old credit accounts open.
Myth 5: Education level will affect your credit score.
Your education level and the degrees you’ve got are not reported in your credit report. So, it has nothing to do with your credit score. Your credit report only contains information on your financial transactions.
A credit report does not contain information about your income, investments, assets, race, gender, marital status, national origin, religion, savings and checking accounts, certificate of deposit and so on.
Do you know any other credit score myths?
Then, do share it with us in the comment section below.