When it comes to credit scores, everyone has their own opinions, and sorting through all of the opinions to find the truth can be difficult. This is why we have compiled a list of facts and fiction when it comes to credit scores.
- Fiction: All credit reports and scores are the same.
- Fact: There are three major credit reporting bureaus - Experian, Equifax and TransUnion. The information listed on each of their reports, as well as your score, may vary. However, no one bureau or score is better than the others.
- Fiction: Your score solely determines whether or not you’re able to get credit.
- Fact: While your credit score is one determining factor for your credit eligibility, lenders use a wide number of additional factors including your income and employment history, as well as the situation in which you’re applying for credit – e.g. a home loan vs. a car loan could yield different results.
- Fiction: You will never be able to get rid of a poor credit score.
- Fact: Your scores are essentially “snapshots” of your creditworthiness and risk at particular points in time. Your score will fluctuate gradually as new information is added to your files.
- Fiction: Once you pay a past-due debt, it will be removed from your credit report.
- Fact: Most negative information, such as late payments, will remain on your report for seven years from the date of the initial late payment. Bankruptcies, however, will remain on your report for 10 years. Even though these blemishes will stay on your credit report for a long period of time, their effect on your score will gradually diminish.
- Fiction: My score will drop if I apply for new credit.
- Fact: Applying for one loan or one credit card shouldn’t decrease your score by much, if at all. However, applying for multiple forms of credit within a short period of time, or making too many inquiries, could have a greater effect on your score.
- Fiction: If I make more money, my credit score will benefit.
- Fact: Your income is not a factor in your credit score. However, lenders will look at your income when deciding how much credit to give you.
- Fiction: Paying in all cash will benefit your credit score.
- Fact: In order to have a credit score, you must apply for and responsibly use credit. If you pay in all cash, you will have no credit history, and your score may not be as high as someone who responsibly uses the credit they have.
- Fiction: Closing a credit card account will benefit your score.
- Fact: Closing a credit card you’ve had for a long time and have consistently paid off can negatively impact your score, since it will affect your credit history. This will also affect your credit utilization, or how much credit you use compared to how much is available to you.
For more information credit scores, be sure to check FreeScoresAndMore.com.