Credit score myths are plentiful and could sway you off the right path. We bust four credit score myths you may have fallen for.
Published: Tuesday, January 17th 2017
There are many benefits of having a good credit score, which we only seem to take into account when we start looking to buy our dream car or home.You are given a credit score on your ability to pay back loans in the specified amount of time or less.A good credit score allows us to receive financial aid, such as a loan or a mortgage for a house, more easily and at a lower interest rate.Future employers may run credit checks if you are joining a financial or government job to assess whether you are efficient at handling your own finances. A negative score or history may be the reason you do not get hired.Furthermore, many fear they will not get their dream home because they believe their credit score is not nearly as good as it needs to be. But, is this just a myth?
Here Are Four Credit Score Myths Busted
1. If I Check My Credit Score, It Will Decrease
This seems to be conundrum across the internet with many conflicting thoughts. When your credit score is pulled, there are two types of inquiries, namely; a soft pull and a hard pull.A soft pull or inquiry is when you check your own credit score. This does not change your credit score. You are allowed a certain number of free credit reports annually.When a lender or creditor checks your credit report, this is known as a 'hard pull' or 'hard inquiry'. This may slightly lower your credit score. Do not fret, however, if you are comparing loans, your credit score will not decrease after every quote. Multiple loan queries over a period of a few weeks is usually seen as one inquiry.
A credit score indicates the likelihood of you repaying a loan on time. Historical data on your lending behaviour will be used when determining the success of a loan application. Your salary does not affect your credit score, but it does affect your likelihood of a successful application.
3. It Helps To Close Old Accounts
Another myth is to close all old and inactive accounts to hike up your score. This, unfortunately, may have the opposite effect as it makes your credit history appear shorter.
4. I Don't Have a Credit Card, So I Must Have a Good Credit Score
If you thought your credit score would be great because you do not own a credit card, you would be wrong. Just as point 3 suggests, if you do not have a history of properly managing your finances and paying off debt, your credit score will not be as great as you may have thought.Creditors and lenders feel comfortable when they can see that you have and can manage credit cards. You are even viewed as a higher risk above those with credit cards. It is wise to have at least one credit card as part of your financial management strategy. Think of it as your financial 'CV' that shows lendors and creditors how you have managed your finances in the past as well as your payment history.