These FICO credit score myths can prevent you from getting the money you need, a good job, or even a roof over your head
Your FICO credit score is one of the most important parts of your financial life. It can help you find your dream home, get cheaper insurance rates, and even find a job.
Unfortunately there is a lot of false news about credit scores. I’ve seen FICO credit score myths passed on as fact to bully people into bad credit credit and debt negotiation.
Your credit score doesn’t necessarily have to be a cause for concern, and building good credit is a lot easier than you might think. In each of these credit score lies, there is a lesson on how to improve your credit and get the money you need.
Basic Myths About Your FICO Score
There are some myths about FICO credit scores that go into exactly defining your score and how it affects your finances. Understanding your credit report and your FICO score is the first step in overcoming these credit myths.
I only have one credit score
There are actually three companies that collect your financial information for credit reporting. Some lenders report your loan payments to all three or just one. Most of the information on your three credit reports will be exactly the same, but there may be some differences. This means that the credit scores based on these reports will also be different.
Just as some lenders only report to one credit bureau, they can only rely on one bureau for information and the credit rating they provide.
Everyone has a credit score
Your credit score is based on your credit history. If you’ve never applied for a loan, you don’t have a credit score. This is a problem for many younger people and for those who have just left school. It can be almost impossible to get a loan because they don’t have a credit score.
Credit cards get a bad rap for people overusing them, but they can be a powerful tool to improve your credit score. Even if you are able to pay for anything in cash, get yourself a credit card and use it on essentials like groceries. Pay it out every month and build your bankroll so you can get money when you need it.
A new credit website has been released to help people with no credit score, especially new graduates. PersonalLoans uses special credit criteria to approve individuals for personal loans up to $ 50,000. Check if you qualify for a PersonalLoans loan.
I can get my credit score once a year for free
This is probably the biggest credit score myth, and it catches a lot of people. Under the Fair and Accurate Credit Transactions Act (FACT Act) You have the right to receive your credit report from any of the three credit bureaus free of charge. You can request your free credit report at AnnualCreditReport.com (note: this is the only website that is truly free).
Your credit score is different and not regulated by law. Your credit reports will show you the credit history on which your score is based, but will NOT include your credit history. There are two ways to get your credit score cheap or even free.
- Some credit card companies will show your creditworthiness as long as you have their credit card
- Many credit monitoring services offer free trials to check your score or a $ 1 trial fee like these from credit bureaus
Credit scores are unfair to women and minorities
It is illegal to deny credit to someone because of their race, gender, or sexual orientation. The Law on Equal Opportunities (ECOA) sets out your rights as a borrower and banks that refuse a loan can get into serious trouble.
Your credit report and rating is based on financial information only. This includes how many loans you have, how often you were late in making payments, and other credit-related information. If you are turned down for a loan, check your credit report first to make sure that there are not many problems with your credit history.
FICO Credit Score Myths About Loans
The biggest myths about credit scores are those about getting credit and how your credit report affects interest rates. This is where seedy loan dealers want to tell you their credit score lies to put you on a high interest rate.
I don’t use credit so I don’t need good credit
Your credit rating and score are used for much more than just a loan. Auto insurers are allowed to charge higher premiums for people with no or bad credit. Employers and prospective landlords often check your credit ratings to decide whether to give a job or rent a house.
Don’t be afraid of bad credit and stay away from credit. Everyone needs their credit score at some point in their life, so it’s best to get started ASAP and protect your score.
My credit score will determine if I can get a loan
Lenders only check my credit score to decide if I can get a loan. This credit myth is understandable, but still completely wrong. In addition to your creditworthiness, many factors play a role in the credit decision.
Lenders will test your ability to repay the loan based on your monthly income and current bills. You will also look at your credit report, which shows how often you are making payments on time and what types of loans you are outstanding. Some lenders may even look at your employment history, the type of job, and the length of time you’ve been with the same company.
After all, not all lenders use your credit score and these other factors the same way. Some banks may have very strict credit guidelines while others may also be able to lend to bad borrowers.
Check your interest rate on a loan up to $ 35,000 – it won’t affect your credit score
People who make more money have higher credit scores
Your monthly income isn’t even on your credit report and has nothing to do with your score. Where most people are confused is the debt utilization part of your credit score. This is the amount of debt you have borrowed compared to the total amount of debt you have available (not your monthly income).
If you have $ 5,000 on all of your credit cards but the limits are $ 10,000, you have a debt utilization of 50%, or ($ 5,000 / $ 10,000).
People are also confused because lenders ask them to fill out monthly income for loan applications. Your income may not affect your credit score, but it does affect whether you can get credit. Banks and other lenders look at your monthly debt payments versus how much you make to decide if you have enough money to pay back the loan.
My credit score goes down when I apply for a loan
It is true and false. Applying for loans will not affect your creditworthiness for a short period of time, usually less than a month. Lenders understand that you are only looking for the best deal on a loan, and multiple loan inquiries will not affect your score.
There are two ways that multiple loan applications can affect your credit score. More than 30 days after applying for multiple loans, your score may decrease slightly. Credit inquiries are a very small part of measuring credit scores.
Your score will go down a lot more if you take out multiple loans or if it is a large amount. The credit scores are based on how much you owe and how much you are making each month. When you borrow a lot, you owe a lot more for your solvency and your creditworthiness goes down.
Myths About Improving Your Credit Score
To improve your credit score, you need to understand the facts about your credit report and what you can do to improve your credit score.
A bad credit score will affect my life forever
Your credit score is based on all of the loans and history in your credit report. Since your credit report keeps changing as you get new loans and pay off old debts, so does your credit score. That means bad credit is not the end of the world or something you hold onto forever.
If you miss a payment for more than 60 days, it will affect your creditworthiness and will be a problem for a long time. Loan payments that are more than a few months late can stay on your credit report for years even after you’ve made the payment or paid back the loan. A bankruptcy can stay on your credit report for up to 10 years.
The fact that bad grades can stay there for a long time on your credit report makes it even more important to keep up to date with payments. If you miss a payment, contact the creditor to let them know it’s on the way and enter it before the end of the month. It is much harder to fix bad credit than it is to protect your good score.
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You cannot change your credit report
Loans and other credit information are reported directly to the credit bureaus, but sometimes a mistake is made. A survey by the US Public Interest Research Group found that eight out of ten credit reports had an error.
Since even a missed payment can affect your score by 20 or 30 points, which means thousands more interest payments, you need to check your credit reports for errors every year. You have the right to correct mistakes and improve your creditworthiness. All you have to do is write to the credit bureau and tell them how the report is wrong.
Equifax Credit Information Services, Inc.
Address: P.O. Box 740241
Atlanta, GA 30374
TransUnion LLC Consumer Disclosure Center
Address: P.O. Box 2000
Chester, PA 19022
Experian National Consumer Assistance Center
Address: 475 Anton Blvd.
Costa Mesa, CA 92626
If I check my credit report more than once a year, my score will be affected
Applying for many loans will ultimately affect your credit score, even though it doesn’t happen all at once. This is because applying for a loan is flagged as a request on your report and lenders should keep this in mind when deciding whether to provide you with a loan. Lots of credit inquiries make it seem like you are looking for money.
Checking your own credit report doesn’t affect your credit score. There are credit monitoring services that can update your score every month and alert you to identity theft. These are all good things because they will help you protect your credit score.
Don’t trust everything you hear about your credit report. FICO creditworthiness myths range from harmless to blatant falsehoods designed to take advantage of bad borrowers. Make sure that you have all the facts about your credit score so that you are not prevented from getting the money you need.
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