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Common Myths About Credit – Education
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As credit scoring bureaus have become more open about what makes up your credit score, people have become more educated about maintaining good credit. However, there are still many myths that abound that can damage your score and get in the way of home purchase dreams. Don’t believe any of these dangerous myths:
Myth: You can buy a new credit identity.
Some fraudulent credit repair companies say that they can get you a brand news credit identity free from part credit mistakes. What you actually get when you deal with these companies is an Employer ID Number. It has nine digits, just like a Social Security Number, but it has a distinct purpose. Trying to use it instead of you SSN is fraud and can result in criminal charges.
Myth: You should close old accounts that you aren’t using.
Many people believe that old credit accounts can hurt their credit score because creditors fear that, with too much credit, you’ll get in over your head. Those old accounts, however, look good to potential new creditors. They show that you can be trusted with large amounts of credit without going on a spending binge. To make sure that old accounts stay open, make sure you make an occasional charge on the account. One of the best ways to do this is to put one of your monthly automatic withdrawals, such as a health club membership, on the card and sign up to have the bill automatically paid.
Myth: Reducing Your Limits Can Help Your Score
Like the old account myth above, this is an action that can actually hurt your credit. Potential creditors want to see low utilization of credit, as it signifies that you can be trusted.
Myth: You should always keep a balance on your cards.
The truth is, credit reporting companies have no way to know whether you are keeping a balance on your cards. Your credit card debt is reported once a month, usually when your statement goes out. Whether you pay in full each month or leave a bit unpaid won’t be noticed. Plus, credit scoring bureaus tend to give higher scores to those who use only a small portion of their available credit. Don’t carry a balance if you don’t have to and save yourself unnecessary interest payments.
Myth: Looking at your own credit score counts against you.
When you look at your own score, this is known as a soft pull. Credit reporting agencies are only concerned about hard pulls; that is, ones that indicate you are shopping for more credit. In reality, you should look at you scores from all three agencies at least once a year to ensure that everything is accurate. Make sure that you request the information directly from the three credit reporting bureaus. If you buy your score from a third party, this can appear to be a hard pull.
Being educated about what helps and what hurts your credit score can make you a more savvy consumer and open up new opportunities. As you work to improve your credit and accomplish dreams of owning a home, learn all you can and apply it to your financial health.