Credit Score Myths: Here Are Some Typical Credit Score Myths You Should Know

You probably already know that a strong credit score is required to secure the best interest rates on a mortgage or auto loan, making a significant difference in your monthly budget. But of course there are exceptions. You may get a loan with very low interest rate Direclty from PaydayChampion.

“With something like a mortgage, even a small difference in rates may mean tens of thousands of dollars or more over the life of the loan,” said one renowned financial planner.

But that’s only the start of how the three-digit figure affects your finances. Your credit score, which is an evaluation of your creditworthiness, can impact the insurance rates you pay, your cell phone plan, and even your ability to get certain types of jobs. Despite their significance, credit ratings are commonly misunderstood. Here are a few common misunderstandings.

You only have one credit score.

Even though FICO is the most widely used credit score, different types of lenders utilize different versions of the score. In addition, a rising number of lenders, like VantageScore, collaborate with FICO competitors. There are many, many different credit scores out there. The number you just saw could not be the same one lenders see when analyzing your creditworthiness.

Even if the scores are somewhat different, they should be trending in the same direction. If one of your credit scores falls dramatically while the other does not, it could suggest a mistake or other issue with one of your credit reports.

Having credit card debt helps your credit score.

According to a recent US New & World Report survey, about 60% of consumers accept this misconception. Your credit utilization ratio, or the percentage of your available credit that you’re utilizing at any one time, is one of the essential criteria in establishing your credit score. The smaller the percentage, the better, but try to keep it around 30%. You don’t want to carry a balance because it raises your usage ratio.

Getting rid of old credit cards can help you improve your credit score.

Another aspect that affects your credit score is the length of your credit history. 

Keeping your oldest cards open and using them (and paying them off) regularly improves rather than hinders your credit score. Similarly, canceling an account will lower your credit score.

Checking your credit costs money.

You may get your credit reports for free every week from the three major credit bureaus: Equifax, Experian, and TransUnion. Most experts recommend that you review your reports at least once a year for inaccuracies or signs of identity theft, and federal law requires that you do so for free. During the epidemic, credit agencies began providing weekly access to reports, but this may soon come to an end.

Fixing errors on your credit report is one of the best methods to enhance your credit score.

People are startled at how frequently mistakes occur.

Getting a new credit card will damage your credit score.

Any new credit, including credit cards, will have a short-term impact on your credit score, but it will not have a long-term effect. The new lender’s inquiry would most certainly deduct a few points from your score, but it should recover soon if you have good credit.If you have several years of solid credit, you don’t need to worry about getting a new card as long as you don’t plan to get a mortgage in the next few months.

Your spouse’s score may impact your own.

Individual credit ratings, not couple credit scores, are used. If you apply for a combined credit card or mortgage, lenders will look at both of your scores, but they are independent. As a result, if your spouse has a bad credit score, it will have no bearing on any credit you seek in your name.

Having a co-signer on a loan has no impact on your credit.

Co-signing a loan is the same as taking out a loan on your own in the eyes of a credit agency. 

The loan sum will affect your credit utilization ratio, and late payments will lower your credit score. If the person you’re co-signing for isn’t responsible and doesn’t pay their loan for any reason, that may have a massive, negative influence on your credit score.

A higher salary equates to a higher credit score.

While lenders will take your income into account when determining the size of a loan you can get, credit bureaus do not use it to pick your score. You might have someone with a low income and a great credit score, or you can have someone with a high income with a bad credit score.