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Myth Busters – Credit Score Edition

credit score mythsAs we’ve discussed in previous articles, your credit score can be affected by a wide variety of factors. Because of this, there are a number of persistent myths about credit scores that have existed over the years.

To help you to better understand your credit score, we’d like to debunk four of the most common myths.

Myth # 1. You Have to Carry a Balance

This is a myth that the credit card companies would like for you to believe, but it isn’t true. Your overall credit utilization rate is much more important than your balance at any given moment.

The less of your available credit that you use, the better your credit score. If you have a credit card with a zero balance, it will still count positively toward your credit utilization rate.

Myth # 2. Don’t Check Your Credit Score Too Often

To understand this myth, it’s important to understand the difference between a “soft” and “hard” credit inquiry.

A “soft” credit inquiry occurs when you look at your own credit score. This is the type of inquiry offered via https://www.annualcreditreport.com and through services like credit karma.

Checking these resources don’t affect your credit score at all. In fact, they can provide you with helpful information that can help you improve your credit score and avoid potential issues.

Your credit score may be affected by a “hard” credit inquiry.

These occur when a financial institution, like a bank, credit card company, or other lender checks your credit report when making a lending decision. This commonly takes place when you apply for a loan, credit card or mortgage, and you typically have to authorize them.

A hard inquiry could lower your credit score by a few points and may remain on your credit report for two years, but won’t cause lasting damage.

One thing to be aware of is that credit reporting agencies will look to see how often hard credit inquiries are being requested. If they see a few requests clustered within a thirty-day period, they’ll understand that you’re looking for a loan, a mortgage or a new line of credit.

If you make multiple requests over a period of months, it may signal that you are looking for credit in a more haphazard manner, and this may send up a red flag.

Also, if you see credit inquiries that you didn’t authorize, you should investigate immediately. It may simply be a reporting error, or it could be a sign of identity theft.

Myth #3. All Credit Scores are the Same

While Discover and CreditKarma offer your score for free, it doesn’t mean that they are the most accurate.

Different credit scores are based on different models and are used in different ways by different types of lenders. Some take higher credit card balances into account where a mortgage lender or underwriter will focus more on mortgages.

Most of the time different scores will be in the same ballpark. However, if there’s a discrepancy of 100 points or more, there may be a reason.

If you’re serious about reviewing your credit report, your first visit should be https://www.annualcreditreport.com

This site was created in association with the Federal Government after the 2008 mortgage crisis and is managed by Experian, Equifax, and TransUnion which are the three largest credit reporting agencies.

As the website suggests, consumers are allowed to access their complete report for free once per year and can purchase additional soft inquiries as needed.

Myth #4. I Can’t Improve My Credit Score

There are solutions and options. For a guide to repairing your credit score, take a moment and review this article to learn about 5 steps to improve your credit score.

Another way to improve your credit score is to talk with a Certified Credit Counselor. They can help you to organize your finances and make smarter choices when it comes to paying your debts in the future.

Want to learn more? Schedule a free counseling session today or call us at 800-920-2262.


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