No doubt you’ve heard plenty of misinformation about credit. People fall victim to myths about credit all the time. Let’s get to the bottom of some of these myths.
Fact or fiction?
Myth #1 Having multiple credit cards will guarantee that I get a good credit score. If I close my unused credit accounts, that too will strengthen my score.
The facts: Multiple credit cards can help your credit score if you manage them properly. Consistently paying off your balance each month and rotating the use of the cards can be good for your credit score. But if you let the balance on each card exceed 30 percent of your available credit, that actually hurts—not helps—your credit score. This is because a high ratio of borrowed money to approved credit can make you appear overextended. As a result, creditors will see you as a risky borrower because you could default on the money you owe. Finally, when you close credit accounts, you shorten the span of time covered by your credit history, and that actually can hurt your credit score. It is better to keep accounts open and make sure your balances are paid off each month.
Myth #2 The only credit score for consumers is FICO.
The facts: FICO may be the most widely known credit score, but it’s not the only one. There are many credit-scoring models, across different categories. Typically, the credit score you receive from one score provider will be comparable with scores from others, and most likely you will be slotted into the same “risk category” by each provider.
Myth #3 Multiple inquiries into my credit performance will weaken my score.
The facts: This is not always the case. Sometimes credit bureaus treat numerous inquiries by potential lenders as a single inquiry. For example, if they see multiple inquiries coming in on a car loan, they’ll likely consider them related and count them as one.
Myth #4 I don’t need to check my credit report because I pay my bills on time and don’t have a lot of debt.
The facts: Even if you are not worried about your credit score, you still should get a free copy of your credit report each year. Check for inaccuracies in your birth date, address, and account information. By keeping a watchful eye on your credit report—looking in particular for any new accounts opened or unfamiliar large balances—you can help limit the damage if you become the victim of identity theft.
Myth #5 Checking my own credit score is a bad idea.
The facts: Not necessarily. There are two different types of credit inquiries. Soft credit inquiries have no impact on your credit score, and they are typically made for pre-approved offers, background checks, and instances when you check your own credit score. Hard credit inquiries result in your credit score dropping a few points, and they occur when a lending body (bank, mortgage company, credit card company, etc.) inquires about your credit for lending purposes.
Myth #6 Potential employers aren’t allowed to do credit checks on job applicants.
The facts: Potential employers may pull applicants’ credit reports, but not without first getting their written permission. Companies review credit scores to get a detailed picture of a person’s credit history as a part of a background check during the hiring process. An employer looks at patterns of decision making and responsibility that are likely to carry over into the workplace.
Now that you know facts that dispel some common credit myths, take the needed steps to ensure that you have a good credit score, and to keep it that way!