5 Credit Score Myths Everyone Believes Are True!
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We all know our credit score is incredibly important. But do we really know much about it? Do we harbor pre-conceived notions and half-truths about this mysterious number that defines us all? Yes. Most of us do.
Today I’m going to showcase 5 of the most ridiculous credit score myths out there and explain why they’re not only dead-wrong, but could actually hurt your credit score in the long-run if you keep believing them and do nothing to change your ways.
Credit scores may be super boring to most of us, but they aren’t going away and it’s best that we all learn what we can do to help them improve and take advantage of the benefits of a good score instead of blindly believing hearsay and risk lowering it to embarrassing levels.
Myth #1: If I Dispute Something On My Credit Score It Will Go Away
As much as we’d love this to be true, this is so wrong. While it is true that you can dispute errors on your credit report, only in certain instances will the negative accounts be removed and don’t forget you have to do it for all 3 bureaus 1-by-1, Equifax, Experian & TransUnion. Talk about an arduous process!
In many cases, outside of extreme error such as the debt belonging to someone else, the negative account will remain on your credit report. As always, if you feel there is an error – fight it! You can certainly dispute accounts with each bureau and have them removed, just don’t forget to provide proof!
Myth #2: I Don’t Need Good Credit, I Pay Cash For Everything!
Well, this isn’t 1965, unfortunately. You can’t just write a check or pay cash for everything. And even if you could, your “buying power” isn’t the only thing affected by your credit score. Yes, it’s harder to get loans for vehicles & houses when you have bad credit, but could you imagine your bad credit also stops you from renting an apartment? Or getting a job? Or causes higher auto insurance premiums?
That’s the truth. Credit scores factor into almost every financial decision in your life. Banks use it to evaluate your credit-worthiness and ability to repay. Insurance companies use it in their risk-assessment models to evaluate whether you’re likely to defraud them or file a lot of claims. Landlords use it to get a clear picture of your finances and decide whether it’s worth renting to you or not. Employers may be allowed to use credit scores to evaluate job applicants. The list seriously goes on and on.
While it’s true you can continue paying cash for nearly everything, it’s clear that some of the most important elements of your daily life revolve around having good credit!
Myth #3: No One Can Get A Loan With Bad Credit
This is a myth, plain and simple. There are millions of loans and programs that are available for all types of credit. It’s true that you’ll often pay a higher interest rate, and may also have to put a larger chunk of money down, and it’s hard to deny there are certain credit score thresholds that some lenders don’t prefer to lend to (sub-600), however, there are almost always loan options for people even with terrible credit, such as right after bankruptcy. We’ve all seen (or heard) the ads for buying used vehicles with no credit or bad credit. The same goes for furniture & appliances as these retailers have some of the best loan/credit options to not only help you finance what you want, but help rebuild your credit along the way!
While you may not always love the terms, these companies are out there to offer loans to people with bad credit, or no credit at all (which is actually worse than bad credit!) If you’re willing to shop around and find the right lenders that help those with less-than-stellar credit, you can find a reasonable loan for almost every credit score. If this weren’t true dealerships wouldn’t come out of the woodwork after you file for bankruptcy! Bad credit loans are big business.
Speaking of bankruptcy, this leads us to the next myth…
Myth #4: If I File Bankruptcy My Negative Accounts Will Be Removed
Oh how false this is! It would be splendid if true, but alas, it’s completely wrong. When you file for personal bankruptcy (Chapter 7 or 11) you’re absolving yourself from your current debt (Chapter 7) or agreeing to repayment (Chapter 11). And while the bankruptcy process is slightly complex to explain in this article, basically what happens is that your negative accounts now have a new piece of information tied to them, a note titled “Included In Bankruptcy”.
That’s it! If you filed Chapter 7 you will no longer be liable for repayment of these accounts, but they certainly aren’t going to be removed from your credit report. Even worse? You now have a bankruptcy mark on your credit!
I won’t go into the importance of heavily weighing your options for bankruptcy, however I will leave you with this. If you’re basing your decision to file bankruptcy around cleaning up your credit score by removing negative accounts it most certainly does not work that way. Bankruptcy is a powerful debt restructuring tool that shouldn’t be taken lightly and only used when absolutely necessary.
Myth #5: Checking My Credit Report Decreases My Credit Score
This is actually a half-myth, and I’ll explain why.
- Credit scores and credit reports are 2 different things. A credit report lists your accounts. A credit score lists your accounts + a FairIsaac Credit Score (FICO Score). You can get your personal credit report for free once per year at AnnualCreditReport.com and it will not affect your credit to pull it. The official FICO credit scores you actually have to pay for, and you need to get a 3 bureau credit report or you won’t have all 3 scores! The good news is viewing either the credit report or your score through these methods will not impact your credit score.
- If you use a lender to get your credit score, such as when applying for a loan, this is what is called a “hard pull” or “hard inquiry”, and yes, this will impact your credit score and show up on your credit report as a request. As a general rule you shouldn’t be allowing more than 1 or 2 hard pulls in an 18 month period. The more hard pulls you have on your credit score the more “desperate” you may look to lenders.
- If you, a landlord, an insurance company, an employer or sometimes even your credit card company pulls your credit score to evaluate where you currently stand this is called a “soft pull”. This does not impact your credit score in any way and it’s perfectly OK to use a soft pull to get a “snapshot” of your credit health.
Now that you know the difference between a hard pull and a soft pull, and that hard pulls should be avoided until absolutely necessary, hopefully this clears up myth #5. You can check your credit as much as you want via soft pulls and your credit will not be impacted in any way. Furthermore, if you use AnnualCreditReport.com you’ll have access to your free credit report once per year. The only cost you’ll ever have for soft pulls is when you want your actual FICO credit score, and it’s a very smart idea to pull your 3 bureau credit score before shopping for loans, as you’ll not only know where you stand credit-wise, but have the information to give out to lenders in advance before agreeing to any hard pulls.
Regardless of where you stand with your current credit, it’s always smart to utilize it wisely. Be sure to check your credit report once per year and dispute any and all errors on your report. Certain credit monitoring services are also worth looking into as they will help you keep an eye on fraud attempts by alerting you directly of new accounts and inquiries on your credit report as well as updating you in the event of a credit score increase or decrease, which is super helpful leading up to a major purchase such as a car or a vehicle!