A great deal of false information about finances is widely available. Many misconceptions about finances and their function may be read about on the internet. Your credit score is one of the topics where common misconceptions are most apparent (and your credit report, alongside it).
Efforts have been made by the banking sector and government authorities to make credit ratings less mysterious. They’re trying to inform buyers about their nature, function, and value. Nonetheless, a large portion of the population continues to be clueless about what a credit score is and how it is calculated. Or where they may get a copy of their credit report. This critical issue hinders you from exercising complete control over your financial situation.
A look at five of the most widespread misconceptions about credit ratings. These claims have been disproven. We hope that by reading this, you’ll have a deeper appreciation for your credit score and learn how to use it to your benefit.
Myth #1: Inquiring about one’s credit rating may lower one’s rating.
We can’t pinpoint the origin of this rumor or why it has lasted this long. However, the misconception that monitoring your credit report would negatively impact your score is entirely false. The opposite is true; customers are strongly advised to verify their credit history on their own. Try to schedule this every year. Or whenever you’d want.
Don’t stress over it. Get your credit report and score as frequently as you want. A lower credit score is not a result. Ever. Every individual has the legal right to a free credit report once per year from each of the three major credit reporting agencies (Equifax, Experian, and TransUnion) by the Fair Credit Reporting Act. Yes, absolutely no charge. It won’t cost you anything and won’t lower your credit score if you decide to examine your credit report. Those are two reasons why you shouldn’t put off checking your score.
Myth #2: Canceling a Credit Card Will Raise Your Score
A credit card cancellation might be the best decision you ever make. Credit improvement is not one of them, however. This myth is just as bogus as the others on this list. To tell you the truth, it’s quite the reverse. A credit score reduction is a short-term consequence of closing a credit card account. Stay calm. In the grand scheme of things, it won’t have much of an impact on your score.
There are several reasons why canceling a credit card might hurt your score. As a first consequence, it might shorten the duration of your credit history. In addition, it raises your credit utilization ratio (the proportion of available credit that you are really using). Both of these might have a negative (though short-term) impact on your credit rating. More than that, it limits the amount of credit you may use.
Credit scores often recover within two months, so you shouldn’t worry too much if you cancel a card. On the contrary, eliminating a credit card won’t help your score. You should cut up a credit card if you didn’t keep from using it to its maximum limit. Or you’re switching to a new account because it offers more excellent perks or a cheaper interest rate. Don’t try to boost your credit rating by doing this.
Myth #3: Your Credit Report Includes Information About Your Job and Salary.
Your employer’s information is utilized only for identification purposes on your credit report. Your employment information will appear on your credit report, like your name and address. You’ll need it to prove your identity. A person’s credit score has nothing to do with their employer, position, or length of service. Similarly, your income level does not significantly affect your credit score.
No matter how much money you make, you might still have a good or terrible credit score. Remember that your credit score reflects your track record of making timely payments and not going beyond your credit. It has zero correlation to financial success. It is still possible for the wealthy to make poor financial choices and wind up with a low credit score. Similarly, those with less money may make intelligent choices and do quite well.
Although your salary has no bearing on your credit score, it may affect your ability to get a loan. Banks’ typical method to determine whether you qualify for a loan is to look at how much money you bring in each month. Your capacity to repay the loan is directly proportional to your income level. But that’s not the same thing as your actual credit rating.
Myth #4: Your Credit Score Is the Same as Your Spouse’s
We can’t explain why some individuals have this idea. Many married people make the mistake of thinking that their credit scores and report are combined. The similarity between them stems from the fact that they both have the same surname. Weird.
In reality, your credit score stays with you for the rest of your life. The three major credit bureaus do not combine the credit ratings of married couples. Why? Think about all the effort and time wasted trying to merge credit reports after a couple gets married. After the divorce is final, they will be legally separated. Just isn’t feasible in the real world.
After getting married, it’s acceptable to share financial responsibilities. It’s common for couples to do things like purchase a home, create bank accounts, and share vehicle ownership. Although you and your partner’s financial lives may become more interwoven, you will always have individual credit profiles. Having a high score when your spouse has a low one is absolutely conceivable. Also, likewise. Both of your credit ratings will be affected by the joint accounts. However, they continue to exist independently.
This urban legend borders on paranoia. But many individuals have a false belief that their employer may easily view their credit record. No, that’s not how it works. Anyone at work will not be able to see your credit report unless you give them permission to do so. Actually, no employer can see your credit record without your express consent. That must be confirmed in writing with one or more of the three major credit bureaus.
If you give your employer permission to see your credit report, they will only get a summary. Because of this, they wouldn’t get the full effect. When you apply for a job, a prospective employer may request your credit report. You must inquire as to the need to provide such details. Maybe they are curious about your reliability. No matter how much you need the money, stealing from the firm is never acceptable. You are entitled to respectfully reject them if they cannot provide a rationale that meets your expectations. Your credit record and score are always in your exclusive and complete control. This is strictly confidential and not meant to be shared.
We have included some of the people’s most widespread misconceptions about credit scores.
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