15 misconceptions about credit scores

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Getting your personal finances in order takes time. And if you're hoping to save for retirement or support your children and grandchildren financially, every detail counts. Understanding credit and all it entails can be tricky, but the benefits of being on top of your credit score outweigh the challenges

Credit scores range from a low of 300 to a high of 850. Having a "high" credit score can make life much easier. A high credit score means fewer problems obtaining a loan for a new home or being approved for a credit card with a high limit. There are plenty of misconceptions about credit scores, but being able to differentiate between fact and fiction is the first step to getting your score right. Here are some common myths about credit scores debunked.


Checking your credit will lower your score

There are two different credit inquiries: hard and soft. Hard inquiries can lower your credit score by a few points, while soft inquiries cannot. An example of a hard inquiry is when a loan company checks your credit score when you're searching for a home or submitting a student loan application. But checking your own score is a soft inquiry. It doesn't affect your credit, it's free and it allows you to stay on top of your financial goals.


Employers will check your credit score

This is a common fear for many who think they have "bad" credit and are in the market for new job opportunities. Credit bureaus cannot share your credit score with employers. If information is requested, an employer can view a limited version of your credit report, but not the score. In fact, you will also know if they are looking. Under the Fair Credit Reporting Act, an employer must first receive consent from the potential employee.


Losing your job will lower your score

No matter the circumstances, losing your job can be tough. Luckily, this myth is a stressor you can remove from your list of worries. Losing a job does not affect your credit score. However, it can impact your score in another way. Not having a steady income may impact your ability to make timely bill payments. Missed payments can lower your overall score, but simply losing a job won't do it.


High income equals a high score

It's easy to assume that someone with a high income must have stellar credit. With so much money rolling in, it must be easy, right? Wrong. A high income isn't equivalent to a  high score. Achieving a high credit score requires making timely payments, paying off debts and having a few open accounts, such as credit cards, under your name. Just because someone makes more money doesn't necessarily mean they are doing everything to achieve a high credit score.


Library fines can affect your score

If you look in the back of the closet or under the car seat and find an overdue library book, don't fret. It won't affect your credit whatsoever. The three credit bureaus reached an agreement with 31 state attorneys general in 2015 that declared debts that weren't a result of a contract or consensual agreement would not appear on a credit score.


Paying off debt will erase it from your report

Paying off debt is a big deal. Finally, a recurring payment is off of your mind and those extra dollars can be applied to something different. Unfortunately, if during the re-payment process delinquency occurs, it can affect your credit score for up to seven years before being removed.


Paying your monthly credit card bill in full won't help your credit score

Credit cards can feel like free money. That is until the bill rolls around and you realize the funds used to pay for a fun vacation have to be paid back. One common myth believed by some credit card users is that paying an entire credit card bill off won't help your credit score. This is false. While most credit card companies offer borrowers monthly minimum payments, paying an account in full each month demonstrates financial responsibility and eliminates the possibility of interest tacking on extra dollars. Making the minimum payment is fine, but paying in full is always the way to go if your funds allow you to do so.


Debit and prepaid cards will boost your score

Having a credit card or two and paying off your debt in full is an excellent way to build credit. It shows lenders that you're financially responsible and it boosts your score. Debit and prepaid cards, however, do not have this same effect. Prepaid and debit cards may look and function like any other credit card, but the money being spent is 100% yours. Debit cards use cash connected to a checking account, and prepaid cards require your money to already be loaded into the account before use. Because the money used for both accounts isn't borrowed, any overdrafts or late fees won't be reported to a credit reporting agency.


Everyone starts with a perfect credit score

A misconception among people first establishing credit is that they start with the highest credit score, 850, and either maintain it or watch it fall as they miss payments and collect bad debt. This is false. If you've never had a credit card or applied for a loan, chances are that you don't have a credit score at all.


No credit equals good credit

Perhaps one of the most widespread misconceptions is that no credit equals good credit. And it totally makes sense: If you've never had to pay anyone back money, isn't that a great thing? Not necessarily. An established credit score is necessary when applying for a loan for a home, securing a credit card and even applying for student loans. If you don't have any credit, you may need a co-signer before you can apply for any of the former and interest rates may be higher. According to credit reporting company Experian, one of the best ways to begin establishing credit is to apply for a credit card.


You're not responsible for accounts you've cosigned

If you have a child or a partner with little credit or bad credit hoping to get a loan, chances are they may ask for you to cosign. If you have excellent credit and agree to be a co-signer, you boost their chances of approval. But the moment you sign on the dotted line, you are also agreeing to pay back the loan if the person you cosigned for fails to do so. Failure to repay the loan not only impacts their credit, but it also harms yours as well.


Bankruptcy "restarts" your score

Under the United States Courts, individuals are allowed to file for Chapter 7 or Chapter 13 bankruptcy.  A Chapter 7 bankruptcy is when an individual enables their nonexempt assets to be distributed and sold among creditors to pay off their debts. A Chapter 13 bankruptcy requires an individual to come to an agreement regarding a repayment plan to pay back creditors over three to five years. Filing for bankruptcy does not mean that your credit report is wiped clean and perfect credit is restored. This far from the truth. A Chapter 7 bankruptcy can stay on a credit report 10 years from the day it was filed, and a Chapter 13 bankruptcy remains for seven to 10 years, according to the Fair Credit Reporting Act.


Marriage means joint credit scores

After tying the knot with your significant other, almost everything that was made for two suddenly merges into one. You share a home, a car and everything in between. So, it makes sense to assume that you also share a credit score. The truth is, your partner's great (or bad) credit won't affect your score whatsoever unless you open a joint account.


Credit scores rarely change

Here's good news for some and bad news for others: Credit scores are constantly changing. In fact, a score can change a few times in one day. Billing statements and loan and credit applications can affect your score swiftly, and if you fall behind on a few payments or apply for multiple credit cards in one day, you will see the score move rapidly.


There is only one credit reporting agency

Experian, Equifax and TransUnion are three national credit bureaus all featuring credit reports for U.S. consumers with established credits. All three scores are relatively the same on each platform, but one score may differ from the other by a few points if it has unique information. There are plenty of free, safe platforms that provide updated credit scores from each bureau, making it easier than ever to stay on top of rising or falling scores. Don't let these credit mistakes or other popular myths stop you from succeeding on your financial journey.  

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