An individual's credit risk is summed up by their credit score. In the United States, this is most usually accomplished as a three-digit figure between 300 and 850. Higher numbers indicate lesser danger; and vice versa. Experian and TransUnion are the two primary firms with the responsibility of producing these ratings. People now more than ever need to guard their data so they avoid running into problems with identity theft or fraud-related events down the road as digital financial transactions grow. Knowing your credit score and how you may raise it will help you make wise financial choices as well as get employment requiring security clearance or background checks.
Top 10 Credit Score Myths Revealed
Myth #1: Running My Credit Score Will Actually Lower My Credit Score
Your credit score is determined by your credit history and credit report contents. Running a credit score will reduce your score as it indicates that you started an account with a lender or taken out a fresh loan. To learn more about how to improve your credit score, therefore benefiting your financial future.
Myth #2: I Have Only One Credit Score
The reality that many individuals have more than one credit score is unknown to many. Analyzing your financial status calls for knowing which credit score you are looking at. For instance, your FICO score is between 300 and 850. Your risk in terms of borrowing money or even renting an apartment would be greater the lower your FICO score as lenders would wonder if you would be able to pay back them on schedule.
Myth #3: After Getting Married, My Spouse and I Will Share a Joint Credit Score
Many times after marriage, couples decide to combine their money and credit jointly. Whether or not customers will keep their separate credit scores after combining with their spouses is among the most often-asked inquiries we get from them. If you choose to preserve your score, you may; however, it might be worth thinking about choosing a combined one instead, particularly if you have been working on gradually improving excellent credit independently. While both people need outstanding credit to qualify for some loans, mortgages, and other financial products, there are also benefits like raising each other's limits or lowering interest rates through some lenders which are only available by combining them into one account. Couples may wish to do this for many reasons.
Myth #4: Getting a Personal Loan Will Hurt My Credit
You are increasing your debt-to-income ratio, which lenders consider in deciding how much you could be loaned. This might show whether or not you have adequate income to pay back the loan. Most creditors report payments and balances monthly to the three main national credit bureaus — Experian, Transunion, and Equifax — and each time you miss a payment your credit score suffers by five points up to one hundred points depending on what state law says. This also may cause your interest rate to rise;
Myth #5: Closing a Credit Card Will Improve My Credit Score
One approach to raising your credit score is closing a credit card account. At any one moment, the typical individual has three to five open accounts with varying balances and payments on each. Closing one will assist reduce the total amount of all your accounts down so you are not paying more than thirty percent of your authorized credit limit.
Myth #6: Using a Debit Card Will Improve My Credit Score
In the modern world, credit is crucial. A good credit score may also help you get accepted for a loan, obtain reduced interest rates on your auto and house loans, and perhaps even result in better insurance quotes. What about, however, while using a debit card? Does the chance of compromising my credit score make sense?
Many believe that using their debit card instead of cash reduces their likelihood of having a large debt or an outstanding amount. This is just incorrect! Actually, by using your debit card to make purchases rather than cash, you are effectively providing yourself fast satisfaction without really spending any money at all – and over time this might damage your credit score.
Myth #7: Paying Off My Debts Will Improve My Credit Score
Clearing your debts will raise your credit score. Using a debt consolidation loan will be the ideal approach to do this as it will allow you to consolidate all of your liabilities into one monthly installment. For instance, it would be wiser to combine that debt with a new loan at 10% if you had $10,000 outstanding and a 20% interest rate on every card. Consolidating two cards together may not make sense, on the other hand, if two cards have different rates and balances for $1000 total both would be paid off simultaneously but now result in higher interest than before. These ideas should help you to pay off high-interest debt quicker and concurrently raise your credit score!
Myth #8: My Credit Score Doesn't Matter When I'm Young
"Your credit score is meaningless while you're young." "Why is that?" "Your credit score isn't even computed till you are eighteen, hence this is why. Thus, it makes little difference if your credit score is low or nonexistent right now. When you reach 18, it will be computed for the first time; the only way to increase it before then is by working, paying taxes, and establishing a solid payment history. "Do I have to worry about my credit at all while younger?" "NO! Your credit score should not cause you concern until after high school graduation. Once you graduate from high school, make sure you start projecting an adult image with things like opening your bank account.
Myth #9: Only Rich People Can Have an Excellent Credit Score
"Equifax estimates that Americans' average credit score is 695. Thus, only twenty percent of Americans have a decent or outstanding credit score. "You may need at least $5,000 in savings and investments and six months of expenses saved: the cost to obtain an Excellent Credit Score is high." "Thus, if your credit score isn't where it should be, what can you do?" One option is establishing a secured line of credit with a bank or other lender. Collateral like a home deed or vehicle title will be needed for a secured line of credit, acting as security against the loan amount."
Myth #10: My Credit Score Measures My Value as a Person
Every day we live in danger. There is always some kind of uncertainty from the time you get up in the morning and shower until you go to bed at night. This also affects our money. Credit scores are among the most crucial tools lenders have at hand for determining someone's possible level of risk with their money. Your worth as a person may be gauged by your credit score, which also determines whether or not you will eventually be qualified for loans or even job possibilities.
Conclusion:
First of all, you must know how your credit operates if you want to have a good connection with finances. Particularly if you want extra loans, your credit score is crucial. Higher credit scores individuals are preferred by lenders and credit card firms to be credit-worthy. This means that one should avoid falling for any of the credit score rumors above.
Resources:
What credit score is needed for a home loan?