You should already know that your credit score is the lifeblood of your financial potential. Earn and maintain a great score, and you can rest assured that you’ll qualify for the lowest interest rates being offered at the time of any approval. But if your score is low, then you’ll be sweating it out to even see if you’ll be approved for any sort of loan.
While many people are familiar with the basics when it comes to credit scores and how they’re calculated, there are still a lot of misconceptions out there. We’ve decided to take a closer look at a few credit score myths that we’ve been hearing a lot lately — and tell you why they’re false:
Myth 1: My Credit Score is Better if I Carry a Balance on My Credit Cards
Not only is this false, but it can be expensive. Being that credit history is an important part of your credit score, many people incorrectly think they need to carry a balance to score well in this category. Wrong!
Just having a line of credit open will help you build history. How much you spend, however, has a mostly negative impact. For instance, when you carry a balance, you’re being socked with hefty interest. This only goes to increase what you need to pay back. Furthermore, you want to be watching your credit utilization ratio, which is how much debt you have versus how much your total credit allotment is. Ideally, for the best possible credit score, you want to keep this ratio at or below 30 percent. The higher you get over that 30 percent mark, the more your score will decrease.
Bottom line: For the best possible credit score (and to save money), always try to pay your credit card balance in full by the payment date.
Myth 2: The More Money I Make, the Better My Credit Score is
Many people confuse credit allotments with credit scores when it comes to the role that personal income plays. For instance, the higher your income, the more credit you’ll be awarded with.
Think of it this way: Those who make $100,000 a year might get a credit limit of $25,000 when applying for a new card, compared to a limit of $12,000 for those making $45,000 a year. But in terms of your credit score, income has absolutely zero impact on it. Your credit score is based off of credit history, payment history, amounts owed, credit mix and new credit.
Your personal income can perhaps help you manage debt and money better, but it has no impact on your credit score.
Myth 3: You Share a Credit Score with Your Spouse
This one is partially true, and it only applies if you and your spouse are on a joint account. If that’s the case, then your history with said account – both good and bad – will reflect on each of your credit reports and be reflected in each of your credit scores. If an account is only open in one person’s name – even if you’re married – then the history of the account will only be recorded on that particular individual’s credit report.
Myth 4: Credit Reports Always Reflect Accurately
This might be the biggest myth of all…
It’s estimated that as many as one out of every five credit reports contain some sort of error. This is why all consumers are highly encouraged to take advantage of the one free credit report they’re entitled to receive from each of the three major credit bureaus each year. Take advantage of this as an opportunity to ensure that the data on your report is accurate, and you’re not left with any surprises when you go to apply for that mortgage loan or auto loan.
If all of the information is not correct, dispute it as soon as possible. Disputing any inaccuracy involves writing a letter to the credit bureau highlighting detailing what you believe is inaccurate information, and backing your claim up with proof. The credit bureau will then begin an investigation into the matter. If it’s determined that the matter was indeed inaccurate, then they’ll pass along the results to all the other credit bureaus so that they can update their records as well.
Regards,
Ethan Warrick
Editor
Wealth Authority
