Our credit scores seem like a mythical beast that we need to tame in order to start a business, own a house, or get a credit card.
In fact, there are so many myths surrounding credit scores that most people don’t really understand what they are or how they work.
In today’s article, we are going to debunk the 5 most common credit score myths. We are also going to teach you 5 facts about credit scores that you can use to improve your credit.
Myth 1 – Your education level affects your credit score
This one is not true on any level.
Nothing about your personal life is used when checking your credit score. The banks are more interested in financial history than your personal one.
Depending on where you live, your student loans may affect your credit score but your education itself does not.
When putting together your credit report, banks will look at your payment history, loans, bankruptcy filings, and your credit cards – no personal information.
Fact 1 – Checking your credit score will not affect your ability to get credit in the future
When credit checking bureaus first emerged, there was a worry that they would scare people into not taking out loans. Therefore, lots of rumors were started saying that if you used one of these services it would damage your credit score.
This is not the case.
In fact, checking your credit score is a great thing to do.
Many credit checking companies will even give you step-by-step guides to improve your credit score.
Myth 2 – A bad credit score is forever
This myth has caused a lot of people to stress over the last few decades. But don’t worry anymore, it is a lie.
Improving your credit score does not happen magically or overnight, however. If you have a bad credit score and don’t break your bad money habits then it won’t get any better.
But, if you take small steps to improve your credit score – over time it will all add up. What is one small thing you can do today to improve your credit score? Pay an upcoming bill early.
Fact 2 – Not every credit bureau will give you the same score
Many people believe that we only have one credit score. However, most bureaus use different systems to measure our credit history.
However, this is only really relevant when our scores get into the ‘good’ region.
A bad credit score is going to be bad, no matter who measures it. Instead of focusing on finding the most favorable score, look at the things on your credit report that are docking you points and fix them.
Myth 3 – Declaring bankruptcy is an easy way to get rid of your debts forever
We have seen far too many people say that if you declare bankruptcy then you don’t have to pay back any of your debts or worry about them affecting your credit score.
This is wrong on both counts.
If you falsely declare bankruptcy, the people that you owe money to can get a court to force you to pay it back anyway.
Secondly, both the debts and the bankruptcy will be recorded in credit history for up to 10 years. Any bank that does a check on you will be able to see this.
Fact 3 – You can still get a loan, even if you don’t have any credit history
If you have no credit history, which most people don’t before they’re 23, then you can still get a loan.
The easiest way to get a loan when you have no credit history is to get someone to co-sign the loan for you. This means that if you fail to make a payment then your co-signer will be forced to make the payments for you.
Check out http://www.creditninja.com to see what types of loans are available to you.
Myth 4 – Credit bureaus are all owned by the government
Again, this myth is completely wrong.
Governments are prevented by law from owning credit bureaus. They are asked to stay independent from both the banks and the government to help prevent fraud and other monetary crimes.
Fact 4 – Both loan applicants need to have a good credit score to be approved
If you are looking to apply for a joint loan then you need to make sure that each applicant has a good credit history.
Whether you are applying for a business loan, personal loan, or a mortgage loan – everyone is required to meet the bank’s lending criteria and standards.
A lot of people think that if one of the applicant’s scores is good enough, the request will be approved. Sadly, this just isn’t the case.
If one applicant has poor credit then you might want to consider getting someone to co-sign the loan for you.
Myth 5 – Late payments are taken off your record once they are paid
If you make a late payment it is not taken off your record once you have paid the bill. Sadly, the fact that the payment was late will stay on your credit history for up to 7 years.
The same goes for bankruptcy claims and delinquent accounts or loans. These can stay on your credit record for up to 10 years.
When you do make a late payment or pay off a delinquent account, it will change the status on your record to PAID.
Fact 5 – Paying off debts is the best way to improve your credit score
Yes, even when a debt is paid off it will remain on your credit history. However, having a debt marked as paid isn’t a bad thing.
Paying off your debts improves your credit score faster than anything else will.
Start by focusing on paying off your smallest debts, but continue to pay off the minimums on all your other debts. If you can’t meet all your monthly payments then you should look into consolidating your debts.