As opposed to common beliefs, there is no such thing as a tooth fairy; Santa does not creep into your house through the chimney and eating while standing does not mean the food will go straight to your legs.
Many myths are often believed to be true these days, and the same applies to the world of finances and credit. We would like you to read this article about most popular credit myths and make yourself comfortable with this sensetive topic.
Here are some popular credit score myths:
Credit myth #1: Earning more money increases your credit score and guarantees loan application to be approved
You might be one of those guys that earn a six-figure salary, but the fact that your statements do not show that you spend wisely, lenders will be skeptic about lending you cash. Many people tend to assume that a high income qualifies them for a credit approval.
The amount of salary you earn is not related to your credit score. Your credit score is based on some certain factors such as your total arrears as well as your payment history. The fact that you earn a good income does not help anyone if you do not settle your bills. A good income can also be a reasonable factor because it qualifies you for a larger loan but it is not the only requirement for a solid approval.
Credit myth #2: All credit reports are similar
You would notice a difference in your credit reports from Equifax and TransUnion if you look it up. It could even show a big difference. Each financial company reports to different credit institutions and so there might be inconsistency in the credit reports.
Credit myth #3: Early payments improve your credit score
Your payment history accounts for only about a third of your total credit score. So do not fool yourself into thinking that making early payments is the only requirement needed for a perfect credit score.There is a reasonable explanation for this. Having all your minimum payments settled on time when you have taken on a lot of debt will make your creditors to start viewing you as a ticking time bomb because you are one big mistake or expense for them.
Credit myth #4: Settling off outstanding debt payments at once changes your credit report.
Your payment history will always remain the same; there is no quick edit or cover-ups. If you are always falling in with your debt by not contributing any payments towards it, settling your accounts will not change the situation. There can only be changes when invalid or incorrect information is removed.
Credit myth #5: Making payments with cash improves your credit rating.
Many individuals often deceive themselves into thinking that not using credit proves that they spend money wisely. This is not true. Understanding an idea that your payment history is very important for your credit report should inform you that you need credit to form a credit score.
Secondly, making all your transactions with cash can seem shady. Especially, if they are large purchases such as cars or houses. You could not be making use of credit because you are wealthy, you are very prudent, or you might have some undeclared assets.
Credit myth #6: It takes a long time for your credit to go bad.
The truth is that it could only take a few months to ruin a good credit score. After a 6 months stretch without payments, your account will be charged. Multiple charge-offs and collections can seriously ruin your credit score.
Credit myth#7: Checking your credit hurts your credit score.
You can check your own credit scores as many times as possible, and it will not in any way affect your credit as long as you are using credit scoring services and not mortgage lenders to check your score.
Credit myth #8: Debit and prepaid cards help build a good credit score.
There is no credit aspect in debit or prepaid cards and your history with these cards is not factored into your credit score. Credit cards and loans are the primary financial products that affect your credit score.
Credit myth #9: A bad credit score lasts forever.
The truth is that if you start paying attention to your credit score, it will definitely improve with time.