Most common credit myths
Some things you’ve heard about credit are false
Learn the truth behind these false credit-related myths.
Your credit health is crucial, and that makes it imperative for you to stay abreast of information that can help you build it. Since this is the situation, however, a lot of information is being circulated concerning credit, and quite a number of them aren’t entirely true.
This post exposes some of the most common credit myths and gives you insight into what’s factual.
1. Holding a significant credit card balance helps your credit
If anything, holding a significant credit card balance is detrimental to your credit health. While your credit card should be in active use, it’s best to have little to no balance. A significant credit card balance could cause late payment and usually involves a high credit utilization ratio.
Late payments and high credit utilization do your credit no good.
2. Derogatory remarks can’t be removed from a credit report until the required time expires
There are various ways to remove negative entries from your credit report. You don’t have to wait for the derogatory mark’s required time to elapse. Sometimes, due to credit reporting errors, the derogatory mark could be a mistake. You can identify the error and dispute it.
Also, you can write a goodwill letter, or even negotiate pay for the negative entry to be deleted from your report.
3. Whenever multiple persons apply for a home loan, all their credit scores are considered
This is not entirely false. It’s not entirely true either.
In some instances, the only credit score considered is that of the person who earns the most out of all the joint applicants. However, there are other situations where lenders take into account the credit score of all the joint applicants.
4. Cancelling credit cards boost your credit score
This is untrue.
As a matter of fact, your credit score is largely affected by the length of your credit history. According to FICO, the length of your credit history accounts for 15% of your FICO score. This implies that your average credit account age matters; if it’s long, then it will be favorable to your credit score.
However, if your average credit account age is short, which is a direct consequence of canceling your credit cards, then it will reduce your credit score.
5. Paying down installment loans will improve your credit score
This is a wrong assumption. All that matters is that you make timely payments of your loans. The amount of the loan isn’t of much consequence. Therefore, paying down installment loans like your mortgage, student loans, and personal loans don’t have any special positive effect on your credit.
6. You have only one credit score
While many people would like it if that were the case, it’s not. You have typically three credit scores, and they are from the three major credit reporting bureaus. These major credit reporting agencies are:
However, these agencies usually have slight differences in the credit reports of consumers, and this translates to varying credit scores.
Misinformation about credit could land you in financial hot water. With the kind of inaccuracies flying about out there, you need to be in league with attorneys who are experts on credit matters. If you have any concerns, reach out to us. We’d be happy to help you out.
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