Common Credit Score Myths

Best Credit Score

Technically, the "best" credit score is 850, but I have never known anyone who had an 850 credit score. If your score is north of 800, you can consider yourself in the "perfect" credit score club. There really is no such thing as "perfect" credit, although 800 and above is as close to perfect as you will likely get. Here are some other commonly held myths concerning credit score:

Myth: Higher income means a higher credit score. In fact, income is not factored in by the credit scoring formula. The system is designed to rank a borrower's probability of repaying a loan -- nothing more, nothing less. Paying your debts on time will boost your rating. Inheriting a fortune has no affect.

Myth: Employment affects score. While your job is listed on your report, it is not factored into your rating.

Myth: Age and sex affect your rating. This is a total myth. Age and sex are not included in the ranking algorithm.

Myth: Shopping around is harmful to credit score. There is some truth to this myth, although shopping around can also have no effect on your credit rating. Some inquiries are harmful to your credit rating whereas others are grouped together as one. Inquiries to your credit report that result from credit applications can drop your credit score. When it comes to auto and home loans, however, inquiries made within a 14-day period are lumped together as one inquiry. Inquiries are a natural part of economic life. You cannot buy a car or house without initiating an inquiry, so inquiries are nothing to be worried about. Too many inquiries can be very harmful to credit score, so do not make loan applications unless absolutely necessary. When it comes to home and auto loans, make sure to do all your shopping within a 14-day window. A single inquiry will often drop a score by 5 points. If a consumer has excellent credit, a single inquiry may not affect credit score at all. Multiple inquiries can have a dramatic impact on credit score. 

Myth: Charge card solicitations are harmful to credit score. "Hard" inquiries can be harmful to credit score, whereas "soft" inquiries have no effect. "Hard" inquiries occur when the consumer requests for their report to be accessed in order to apply for a loan. "Soft" inquiries can be the result of account reviews by current creditors, prospective creditors looking to send out pre-approved offers, checks originating from the credit bureau itself, or a consumer's own review of their report.

Myth: Checking your own credit drops your rating. Looking at your own credit information does not affect your score because it is considered a "soft" inquiry.

Myth: Married couples have a joint rating. The scoring model does not mix information after you get married. Your score remains individual, but if you open joint accounts, your spouse's behavior (such as paying the bill late) will place a blemish on both reports.

Myth: You can simply dispute any negative items. Accurate information will not be removed from your credit report unless your creditor agrees to a pay for deletion agreement. In a pay-for-deletion arrangement, you pay all of the debt or part of the debt in exchange for the creditor removing the negative item from your profile. Unfortunately, most big companies are unwilling to agree to this type of settlement because they rely on the accuracy of the reporting system to conduct business, making them leery of tampering with accurate information. In a pay-for-deletion arrangement, you must get the deal in writing from the creditor -- not from a collections agency. Debt collectors have no authority to agree to pay-for-deletion arrangements. Inaccurate information on your credit profile should be disputed. Accurate information will not be removed except in a pay-for-deletion settlement.

Myth: There is only one credit score. There are actually three major credit bureaus -- Equifax, TransUnion and Experian. The scores can vary from bureau to bureau because the agencies receive different information. For example, your landlord might report late payments to one credit bureau but not to the other two.

Myth: Paying off collections accounts will instantly fix my credit score. Sometimes the opposite can be true. Paying off a collections account can sometimes be harmful to credit score because it brings the date of last activity current. The scoring model primarily focuses on the previous 24 months. An account sent to collections last month will have a dramatic affect on your credit score whereas an account sent to collections 4 years ago may have little impact on your score. If you choose to pay off that 4-year-old account, the date of last activity on the account may be updated, and your credit score may be harmed. If a collections debt is more than 24 months old, it may not be hurting your score as much as you think it is. Focus on paying your bills on time every month over a 24 month period, and your credit score should be healthy even if you have a collection account that is more than two years old. Paying off recent bad debts will help to improve your score.

 

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