How much do you know about credit? Between websites and fraudsters who are trying to trick you to people who just don’t know any better, there is a large amount of misinformation out there. Understanding credit and how it works can not only help save you time and money, but it can also keep your information and your finances safer.
Here are five common credit myths and the truth to set the record straight.
- Your education, race, gender or nationality can affect your score. This is absolutely not the case. The factors that go into your credit score include:
- Payment history
- Outstanding debt
- Length of history
- New credit
- Type of credit
- Your score goes down when you check it. If you check your score yourself through one of the main reporting agencies, your score will not go down. This is what’s called a “soft inquiry."
- It doesn’t matter how often you apply for credit. This is sort of a half-truth. If you apply for multiple accounts in a short period of time, your score can be lowered. These are known as “hard inquiries,” and they happen when you authorize a lender to pull your credit report. Your score like likely go down only a few points due to these inquiries, so it’s not a huge factor and certainly isn’t the score-killer it used to be.
- Credit counseling is bad. Counseling itself isn’t bad. Actually, a credit counselor can help you look at your finances objectively, suggest some budgeting tips, and help you fix some issues within your credit report. Where some people run into trouble is with debt management services that takeover the debt -- it’s important to read the fine print on these arrangements.
- You have to pay for credit reports. Untrue! AnnualCreditReport.com will provide free credit reports every year. You can get them from all three credit bureaus (Equifax, TransUnion, and Experian) one at a time or all three at once.
Separating fact from fiction isn’t always easy, but knowing how to manage your credit score can make a big difference in your financial future.
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