A credit score is a number that summarizes an individual's credit risk. In the United States, this is most often done as a three-digit number which ranges from 300 to 850. Higher numbers represent lower risk and vice versa. The two main companies in charge of generating these scores are Experian and TransUnion. With the rise in digital financial transactions, it has become more important than ever for people to protect their personal information so they don't run into any issues with identity theft or fraud-related incidents later down the line. Understanding what your credit score means and how you can improve it will help you make better decisions when it comes to your finances as well as land jobs that require background checks or security clearance screenings.
Top 10 Credit Score Myths Revealed
Myth #1: Running My Credit Score will Actually Lower My Credit Score
Your credit score is calculated based on your credit history and the information in your credit report. If you are running a Credit Score, it will lower your score by showing that you have taken out a new loan or opened up an account with a lender. To get more information about how to improve your credit score which help you for a better financial future.
Myth #2: I Have Only One Credit Score
Many people are unaware of the fact that they have more than one credit score. It is important to know which credit score you're looking at when analyzing your financial situation. Your FICO score, for example, is a number between 300 and 850. The lower your FICO score, the higher your risk in terms of borrowing money or even renting an apartment will be because lenders may question whether or not you'll be able to pay them back on time.
Myth #3: After Getting Married, My Spouse and I Will Share a Joint Credit Score
After getting married, spouses often choose to merge their finances and share a joint credit score. One of the most common questions we hear from consumers is whether or not they will retain their individual credit scores when merging with their spouses. The answer is that you can keep your individual score if you want to, but it may be worth considering opting for a combined one instead - especially if you have been working on building up good credit separately over time. There are many reasons why couples might want to do this: while both individuals need excellent credit in order to qualify for certain loans, mortgages, and other financial products, there are also benefits like raising each others' limits or lowering interest rates through some lenders which are only available by combining them into one account.
Myth #4: Getting a Personal Loan Will Hurt My Credit
You're adding to your debt-to-income ratio, which lenders factor into their decision on how much they'll lend you. This can be an indicator of whether or not you have enough money coming in to repay the debt. You're also hurting your credit score, as most creditors report payments and balances monthly to the three major national credit bureaus — Experian, Transunion, and Equifax — and each time you miss a payment it dings your credit score by 5 points up to 100 points for very late payments over 60 days past due (depending on what state law says). Your interest rate might increase because of this too;
Myth #5: Closing a Credit Card Will Improve My Credit Score
Closing a credit card account can be an effective way to improve your credit score. The average person has about 3-5 open accounts at any given time, with each having different balances and payments on them. Closing one will help bring the total balance of all your accounts down so that you are not paying more than 30% of your available credit limit.
Myth #6: Using a Debit Card Will Improve My Credit Score
Credit is important in today's society. And a good credit score can help you be approved for a loan, get lower interest rates on your car and home loans, and even give you better insurance rates. But what about when using a debit card? Is it worth the risk of hurting my credit score?
Many people are under the impression that if they use their debit card instead of cash, they're lowering their chances of having high debt or an outstanding balance. This couldn't be more wrong! In fact, by using your debit card to make purchases instead of cash, you're essentially giving yourself instant gratification without actually spending any money at all – and this could hurt your credit score in the long run.
Myth #7: Paying Off My Debts Will Improve My Credit Score
Paying off your debts will improve your credit score. The perfect way to do this is by using a debt consolidation loan, where you can combine all of your balances into one single monthly payment. For example, if you have $10,000 in balance and a 20% interest rate on each card; it would be better to consolidate that debt with a new loan at 10%. On the other hand, if there are two cards with different rates and balances for $1000 total then consolidating those two together may not make sense because they would both be paid off at the same time but now incur more interest than before. With these tips in mind, you should be able to pay down high-interest debts faster while simultaneously improving your credit score!
Myth #8: My Credit Score Doesn't Matter When I'm Young
"Your credit score doesn't matter when you're young." "Why is that?" "It's because your credit score isn't even calculated until you are 18. So, if you have a low or no credit score right now it doesn't mean anything. It will be calculated for the first time when you turn 18 and the only way to raise it before then is by getting a job, paying taxes, and building up a good payment history." "Do I need to worry about my credit at all when I'm younger?" "No! You don't need to worry about your credit rating until after high school graduation. Once you graduate from high school make sure you start establishing yourself as an adult with things like having your own checking account.
Myth #9: Only Rich People Can Have an Excellent Credit Score
"According to Equifax, the average credit score for Americans is 695. This means that only 20% of Americans have a good or excellent credit score." "The cost to get an Excellent Credit Score is high: you may need at least $5,000 in savings and investments and six months of expenses saved up." "So what can you do if your credit score isn't where it needs to be?" "One option is opening a secured line of credit with a bank or other lender. A secured line of credit will require collateral such as a car title or house deed which will act as security against the loan amount.".
Myth #10: My Credit Score Measures My Value as a Person
Every day, we are surrounded by risk. From the moment you wake up in the morning and take a shower to when you go to bed at night, there is always some sort of uncertainty. This extends into our finances as well. When it comes to measuring how risky someone might be with their money, credit scores are one of the most important that lenders have available to them. A credit score can measure your value as a person and dictate whether or not you qualify for loans or even employment opportunities down the line.
Conclusion:
In order to maintain a healthy relationship with money, you need to first understand how your credit works. Your credit score is important, especially if you are looking for more credit. Lenders and credit card companies prefer to give credit to people who have higher credit scores. Because of this, it is important not to fall for any of the credit score myths mentioned above.
Resources:
What credit score is needed for a home loan?
