Credit Score Myths & Facts....
If you are new to the world of credit accounts – or even if you aren’t – the world of credit reports, credit scores and credit bureaus can be confusing. How much do you know about credit myths vs. facts?
Here are a few Myths and Facts about Credit Scores you should know:
Even if you pay off your credit cards every month, if your credit utilization ratio is high, it may impact your credit scores. Your credit utilization ratio represents how much revolving credit you're using compared to the total amount available to you. Revolving accounts, such as credit cards or personal lines of credit, do not have a fixed number of payments. Installment loans, such as vehicle loans, do. When you pay your vehicle loan in full, the account would be closed and marked as paid. Keep in mind there are many different credit scoring models with different ways of calculating credit scores.
If you see information on your Equifax credit report you believe is inaccurate or incomplete, contact the lender or creditor. You can also file a dispute with Equifax or, if your credit report was furnished by another credit bureau, with that bureau.
If you have an old, rarely used account that demonstrates a strong payment history, it will be reflected in your credit history if the account activity is reported to the nationwide credit bureaus. But it’s more important how you use your accounts and the amount of available credit you’re using.
In fact, closing a paid-off credit card account may not positively impact your credit scores. Closing the account may affect your debt to credit utilization rate (the amount of credit you’re currently using compared to the amount available to you) as well as the average age of all your credit accounts and the age of your oldest credit account. Both of those may be factors used in calculating credit scores, depending on the credit scoring model used.
It’s important to note this only applies to revolving credit accounts and not installment loans.
Everyone’s financial and credit situation is unique. And the same goes for how each creditor or lender evaluates your information to decide whether or not to extend your credit.
The one common ground is the importance of education and awareness. The more you know about how credit works in general, and the more familiar you become with your own situation, the more informed you will likely be.
There are many different credit scores, and each may be calculated differently. In addition, your lenders and creditors may report data to all three nationwide credit bureaus -- Equifax®, Experian®, and TransUnion® -- just one or two, or none at all. That’s why your credit scores may be different among the three credit bureaus.
Checking out your credit scores and credit reports does not impact your credit scores. In fact, it’s a good habit to get into, and it’s especially important if you’re planning a large purchase such as a home or a vehicle, as you will be able to better understand your credit position before applying for a loan.
Credit bureaus aren’t the ones that decide your creditworthiness – that’s up to lenders and creditors. Your credit reports only contain information about the credit accounts you have or have had, along with inquiries from companies when you apply for credit and collections accounts or bankruptcies you have or have had. Lenders and creditors use and interpret the information in your credit reports their own way and may have additional criteria to evaluate your credit application. If you get rejected by several lenders, there may be common factors in your credit history that drives those decisions, but there is no “blacklist.”
Things like parking tickets and library fines don't show up on your credit reports –even if the accounts are sent to a collection agency.
The information on your credit reports relates to you personally – not your relatives, partner, or former roommates. Living with someone or being in a relationship does not impact your credit scores – and it’s against the law for lenders to take a relationship status into account when making a credit decision.
If you apply for a joint account with someone, such as a credit card or a mortgage, a lender will generally use both of your credit data to determine creditworthiness. However, your relationship status doesn’t factor into that decision.
Also, keep in mind accounts you have co-signed on with another person may affect your credit scores.
Good credit scores aren’t a golden ticket. A lender may use information in your credit reports and other information included on your application, such as your income, to decide whether to grant you credit. While good credit scores are a strong start, each application is unique, so it’s not wise to consider a loan, credit card, or mortgage a given based solely on credit scores.
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