We talk a lot about credit scores and credit reports. Why? They are very important when it comes to your personal finances. It’s just as important to understand what these numbers mean – confusion on your part can impede your ability to make savvy financial decisions.
Unfortunately, there’s a wealth of misinformation when it comes to credit reports and credit scores. Let’s take a look at six common credit report misconceptions and demystify the reality.
Misconception: My spouse and I have a joint credit score.
Reality: Your score is tied to your Social Security number, so it’s yours alone. Even if you file taxes jointly as a married couple, your credit scores will never be merged. If you and your spouse hold joint accounts (and joint debts) like a mortgage, a car loan, or shared credit cards, those elements will appear on both of your credit reports and will affect both of your scores.
Misconception: It takes seven years to repair bad credit.
Reality: While it’s true that negative information can stay on your credit report for seven years, the impact of a bad report significantly decreases over time. If you’ve had some bad financial luck, that information will stay on your credit history, but consistently making on-time payments and reducing your overall debt will begin to offset those lingering negative entries to some degree.
Misconception: Checking my credit report will make my credit score drop.
Reality: There are two types of credit checks. A hard pull, conducted by creditors when you’re applying for a new loan or a credit card, can cause your score to dip. A soft pull, when you check your report or score to keep yourself well-informed of your financial situation, will certainly not cause your credit score to drop.
Misconception: There’s no reason to check my credit report unless I suspect fraud.
Reality: You should check your credit report at least once a year, regardless of whether you suspect fraud or not. This is an important check-in that can not only find debts on the report that aren’t yours but will also let you know your financial position. You don’t want to be surprised if you go in to buy a new car or refinance your mortgage and hear from your lender that your credit is not in good standing.
Misconception: Closing an account with a zero balance will increase my credit score.
Reality: Have you finally paid off that substantial credit card balance? Congratulations! Now you might be tempted to close the account immediately to prevent yourself from racking up more debt. Don’t do it! Closing the account might cause a drop in your credit score because it suddenly increases your credit utilization ratio (the percentage of available credit you’re using) and decreases the average age of accounts on your credit report.
Misconception: I can just pay someone to fix my poor credit.
Reality: Never, ever believe promises of a quick-and-easy credit repair! Many unscrupulous companies prey on stressed-out folks in debt. They’ll regale you with tales of the financial freedom you’ll gain overnight… simply by paying them a small sum. Don’t fall into their trap. If it sounds too good to be true, it is. The real “fix” to poor credit takes time and effort on your part: paying down your credit card debt, curbing requests for new credit, and monitoring your credit report for accuracy.
The best way to boost your credit is by having responsible financial habits. Remember, your score won’t increase overnight, but you will see a positive change if you practice a routine of consistent fiscal savvy. Looking for ways to develop stronger financial smarts? Reach out to the friendly folks at DebtGuru.com. Our financial counselors are here to offer their expert guidance as you navigate your path to better credit.