It’s rather ironic that for something as important as the credit report, not a lot of people are fully aware as to what it’s really all about. In fact, it is even more common to find that most folks cannot actually distinguish what is myth from fact when it comes to it.
There are plenty of assumptions, miscalculations, and wrongly interpreted facts when it comes to truly understanding credit standing, both good and bad. To start off, however, it is even more important to know that a credit score is not the same as a credit report.
Defining credit score and credit report
These two terms are actually related to each other. Because they essentially share the same context, it becomes common that people loosely interchange the two. The truth, however, is that they are two separate matters. Your credit score is the representative quantity of your credit standing. It’s like your grade in relation to how you manage your finances.
The credit report, meanwhile, is where you find your credit score. This is provided by credit reporting agencies, which can be requested anytime you may need it. Ideally, to make sure you keep on top of your finances, you should check out the information in your credit report at the very least once a year. But if you are really smart you will do it a lot more. A lot can go wrong in a short space of time.
So how do you get bad credit, exactly? It’s easy enough to know what will put you in good standing with financial institutions: make sure you pay your debts and bills on time, maintain a healthy credit line, and generally just maintain good financial transactions.
Given that, what then will put you in trouble with your credit reports? That’s where the line tends to get blurred and confusing. To help you clear out the air, here are six of the more popular myths explained into facts.
1. Cash-only policies will help your credit score
This is a very common misconception: if you don’t want bad credit, then don’t have credit at all. Transact using cash alone, and you’ll never have to worry about credit ever again.
The thing is, in order for you to be able to get loans, you will need credit. Financial institutions will need to see that you can handle the obligation, after all. They will therefore base it on your credit score and corresponding report.
2. Bills and rental dues not normally sent to credit bureau’s do not affect your credit score
If you think you can get away with not paying your rent on time, you thought wrong. There are now systems put in place allowing your landlord to report to the credit reporting agencies whether or not you settled your dues promptly. As you may expect, that will inevitably affect your credit score. To be safe, therefore, pay your bills on time.
3. More income equals higher credit score
Your credit rating has got nothing to do with your income. Conversely, it doesn’t mean that if you have low income, you automatically have bad credit. What does give bad credit is your inability to balance your bills and dues. So even if you’re earning six figures annually, if you are delinquent with your payments, then you will still have a negative rating.
4. Settling your debts will delete it from your credit history
It doesn’t matter if you finally managed to get your credit card bill to a flat zero today. If you’ve had long, outstanding and significant debts, you can expect that to stay in your record for as much as several years.
That’s the thing with credit history. Although you are able to correct it in reality fairly quickly, the documentation for it can take a while. That is why you want to be very careful about what goes in it in the first place.
5. Disputing accurate items in your credit report will delete it from the record
Yes, you can dispute the items in your credit report. The presumption to that, however, is that you are disputing an item because it is erroneous. You cannot dispute an entry simply because it is a negative rating.
You’re better off just trying to improve your score than trying to outsmart the system. See, the credit bureau has 30 days to investigate your dispute upon filing. If it is found to have basis, then your record will be corrected. If, however, it is not, then the only thing you would have accomplished is to further diminish your credibility with your false claims.
6. Checking your credit report lowers your score
This is a very curious misconception. For some reason, there are a lot of people wondering if doing credit checks affects credit scores. How they are convinced that credit inquiries affect a credit score, we cannot really explain. This is probably why only a handful of Americans regularly bother to check their credit reports.
The truth is, checking your credit report is an advantage to you, not a liability. You’re just going to check your own information, in the first place. It does not make sense for you to be penalized for it. Regardless of how many inquiries you personally make, there is a difference between soft vs. hard inquiries, so it still would not hurt you.
For your information, a soft inquiry is when you pull your credit report only for your own satisfaction, such as, you just want to check your credit score. A hard credit inquiry, on the other hand, is when your credit report is obtained by a financial institution to determine whether your application for a loan should be approved. Now that you know a hard credit inquiry done by a creditor is what could affect your score, doesn’t it make sense to check it yourself first?
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