Credit Reporting - Score Myths and Misconceptions Debunked!

Credit scores play a significant role in financial decision-making, yet there are several myths and misconceptions surrounding them. Believing these myths can lead to confusion and potentially impact your credit-related choices. In this blog post, we will debunk common credit score myths and provide accurate information to help you make informed decisions about your credit.

Closing Credit Accounts Improves Your Credit Score

One prevalent myth is that closing credit accounts will improve your credit score. However, closing accounts can have the opposite effect. When you close an account, it reduces your overall available credit, potentially increasing your credit utilization ratio. Additionally, closing old accounts can shorten your credit history, which is a crucial factor in determining your credit score.

Checking Your Own Credit Hurts Your Score

Many people believe that checking their own credit report or credit score will negatively impact their credit score. In reality, checking your own credit is considered a soft inquiry and does not affect your credit score. Regularly monitoring your credit is a responsible practice that allows you to stay informed about your financial health.

Only One Credit Score Exists

Contrary to popular belief, multiple credit scoring models exist, each with its own algorithm and criteria. The most well-known models are FICO® Score and VantageScore®, but individual lenders may use customized versions or other scoring models. This means you may have different credit scores from different sources at any given time.

Credit Repair Companies Can Quickly Fix Bad Credit

Credit repair companies often claim that they can quickly and magically fix bad credit. However, no company can remove accurate and negative information from your credit report. Legitimate credit repair involves disputing errors, not erasing valid negative marks. You have the right to dispute inaccuracies on your own, without the assistance of a credit repair company.

Bankruptcy Erases Bad Credit History

Bankruptcy can provide relief from overwhelming debt, but it does not erase your credit history. Bankruptcy information remains on your credit report for a certain period, typically seven to ten years, depending on the type of bankruptcy filed. While bankruptcy may lead to a fresh start, its impact on your credit score and future credit applications is significant.

Debunking these myths is essential for making informed decisions about your credit. Understanding the truth behind credit score misconceptions empowers you to take the right steps to manage your credit effectively.

Remember:

Closing credit accounts does not necessarily improve your score.

Checking your own credit has no impact on your score.

Multiple credit scoring models exist, yielding different scores.

Credit repair companies cannot remove accurate negative information.

Bankruptcy does not erase your credit history.

Stay informed, rely on credible sources for information, and focus on responsible credit management to build and maintain a positive credit profile.

Reference:

·       Consumer Financial Protection Bureau: https://www.consumerfinance.gov/