Your credit score is unquestionably the lifeblood of your borrowing power, so it’s only natural for you to want to put yourself in a position to have the highest score possible. After all, the higher your score, the more likely you are to be approved for financing, and the more likely that you’ll be approved for said financing with a low interest rate.
Despite the importance of your credit score – not to mention the importance of occasionally checking your credit report to ensure that there aren’t any irregularities – there are a lot of misconceptions out there about credit, credit reports and credit scores in general. Here’s a look at five myths that are often taken for fact to help settle the debate once and for all:
5 Credit Report Myths to Know
- I don’t need to check my credit: Many people think that if they’re good consumers and pay all of their bills on time, have good credit history, etc., that they won’t need to check their credit scores. Don’t get caught thinking like that. If you don’t have an ideal credit history, it’s important to check your report often to see if any credit repair tactics are paying off. And even if you’re an ideal consumer, it’s estimated that one out of every five Americans has an error on their credit report. Hence, checking it is really the only way to know and begin the process of disputing any errors.
- Checking my own score will dock it: This isn’t true, as when you check your own score it’s what’s known as a “soft inquiry.” This permits you to see the score and a limited amount of data to give you an idea of why it’s in the shape that it is and what you might need to work on to improve it. Conversely, “hard inquiries,” which are those pulled by lenders to assess your financial behavior, can hurt your score if many are done within a certain timeframe.
- Paying off debt will remove it from my report: While paying off a debt is likely to help your score, it won’t be removed from your report immediately. In fact, some entries can take anywhere from seven to 10 years to be removed.
- Reports only display one entry per debt: This is true in most cases, but in a situation where your debt is past due and has been sold off to a collection agency, both the original lender and the collection agency may appear on your report, essentially showing two negative entries.
- Canceling an old credit card will hurt me: This is generally false, as canceling a card will have little to no effect on your credit standing. There is one exception, however, and that’s the cancelation of a credit card with a big credit limit. This may impact your credit utilization ratio, which is essentially your debt-to-total-credit allotment percentage. Generally, your score will be better if your debt is 30 percent or less of your total limit. Bottom line – canceling an old credit card likely won’t hurt you, but it’s best to close out those with smaller limits.
Now that you can separate some credit report facts from the fiction that often accompanies them, you can be more sure of situations that either potentially help or hurt your score.