Nothing more harmful than a financial myth is there. With the abundance of knowledge out there concerning credit scores and credit reports, it’s not shocking that the misconceptions surrounding them have increased.
Let’s dispel 10 common myths that can adversely affect your finances and future credit needs about your credit score and credit report. Let’s start now!
MYTH 1: IN A CREDIT REPORT, CREDIT SCORE IS THE ONLY RELEVANT ASPECT.
Information about your personal data, credit history, bill payment details, account purchases, and much more are included in a credit report. Although your credit score is an essential piece of credit report material, it is not the only thing you need to verify in a report. Until sanctioning loans, lenders review your credit history. To track if there is any suspicious activity involved, you can review account transactions. While your credit score is significant, on your credit report you still have to pay attention to other items, do you?
MYTH 2: INCOME AFFECTS MY CREDIT SCORE.
It is a common misconception that low-income results in a lower credit score. You’d be shocked to hear, though, that your credit score has little to do with your earnings. Yup! In reality, the credit report doesn’t even feature your salary. When you don’t earn enough to pay the bills, the only way a salary can impact the credit score. In this scenario, the failure to pay your bills is the explanation for a decrease in credit score, and it is not to blame your salary.
MYTH 3: CHECKING YOUR CREDIT REPORT REDUCES YOUR CREDIT SCORE.
Most people stay away from reviewing their credit reports under the expectation that their credit score will be reduced. This myth is obviously ridiculous and untrue because no person should be penalized for reviewing his or her own credit report. It is considered a soft inquiry when you take out your credit report and it has no effect on your credit score. However, when the credit report is reviewed by a lender, it is considered a complicated inquiry that leads to a small decrease in the credit score for a temporary duration. So, before you apply for credit, review your credit report. So, before you apply for credit, review your credit report.
MYTH 4: NO CREDIT = GOOD CREDIT SCORE.
By keeping several factors in mind, a credit score is determined, particularly your credit history, i.e. the loan you lent and how the dues were repaid. Although your credit score is improved by timely payments, late payments drag it down considerably. But if you’ve never applied for credit before, then your history of credit would be zero. There are about the same chances of receiving new loans with no credit or poor credit.
MYTH 5: CLOSING MULTIPLE CREDIT CARDS IMPROVES YOUR CREDIT SCORE.
The reality about the termination of credit cards contradicts the misconception. The credit utilization ratio plays a major role in the credit score calculation. Compared with the credit cap, this ratio is specified as the amount of spending on credit cards. So, your credit limit reduces significantly as you close many credit cards, but your credit card balance is still intact. Your credit utilization ratio increases, thus. The higher the ratio of credit utilization, the lower the credit score. So, you’re wondering, what do you do? In order to increase your credit score, you should consider paying off your credit card balance and keeping the credit cards away instead of closing them.
MYTH 6: CLEARING DEBT WILL ERASE LATE PAYMENT OR NON-PAYMENT HISTORY FROM THE CREDIT REPORT.
Although it’s awesome that you’ve cleared your debt, be mindful that, depending on the credit information agency, your credit history (good or bad) will remain on the credit report forever. So, if you have ever made a late payment on an EMI loan or credit card bill, irrespective of debt clearance, it will remain in the credit report.
MYTH 7: BAD CREDIT SCORE RESULTS IN NO LOAN.
Although your loan application may cause issues with a low credit score, it is definitely not the end of the road. There are banks and lenders that give loans with collateral in the form of a house, fixed deposit, etc. to individuals with a bad credit score. Such loans are called secured loans and, regardless of a good or poor credit score, they can be used.
MYTH 8: CREDIT SCORE IS NOT IMPORTANT IF YOU ARE NOT LOOKING FOR CREDIT.
This assertion is partially accurate, but it is totally unaware of the fact that it is a continuous method to construct a credit score. If a year ago you had a decent credit score, it’s not important that it’s still the same. You are digging your own grave by not giving a damn about your credit score because you do not need credit, as a financial emergency might knock at your door at any moment. Suddenly, the need for credit will come out of nowhere and you can regret not worrying about your credit score at that time. So, gradually construct it. Don’t ignore it.
MYTH 9: MANAGEMENT OF YOUR BANK ACCOUNTS AND INVESTMENTS IMPACTS YOUR CREDIT SCORE.
As neither the credit report nor the credit score has anything to do with bank account transfers and savings, this myth is entirely unfounded.No income, savings account transactions, investment transactions, cash payments, etc. are published by credit information agencies.
MYTH 10: DISPUTING A TRANSACTION WILL REMOVE IT FROM THE CREDIT REPORT.
To err is human, and often even credit reports include mistakes. If your credit history or bill payment transactions are found to be a mistake, make sure that you contest it with the credit agencies. Your report and credit history will then be investigated by the department, and if they find mistakes, they will be properly deleted. However, if the transactions do not cause any errors, the details will not be deleted.
Be a smart borrower and follow good credit habits such as paying bills on time, maintaining an acceptable credit usage ratio, reviewing your credit report from time to time, etc., now that you are aware of the misconceptions surrounding your credit score and credit report. It’s time to set aside misconceptions and work towards enhancing your credit score along with reality.