By: Ann-Marie Murphy, Quizzle.com
Credit has its fair share of myths, legends and misinformation. But unlike silly tales of Pop Rocks and soda or sewer alligators, credit myths - and what you don't know about your credit report and score - can hurt you.
Get the facts about 10 common myths about your credit report, credit score and credit cards:
Myth #1: Checking your credit hurts your credit score.
When you pull your credit report for your own educational purposes, it's considered a "soft inquiry" and will NOT affect your credit score. On the other hand, when a creditor or lender pulls your credit report for the purpose of extending you credit or a loan, it's a "hard inquiry" and may negatively impact your credit score.
Myth #2: The higher your income, the better your credit score.
Your income has nothing to do with your credit report or score. If you make a solid living, that doesn't necessarily mean you have good credit.
Myth #3: Closing a credit card will boost your credit score.
When you close a credit card account, you may be affecting your "credit utilization." Credit utilization is simply how much credit you use (total of all balances) compared to how much credit is available to you (total of all credit limits). When you close an account, you're lowering that denominator - the amount of credit that's available to you - which may increase your credit utilization percentage. A higher credit utilization may negatively impact your credit score, as it suggests to a creditor or lender that you're a higher risk.
Myth #4: All creditors and lenders use the same credit score to determine your credit-worthiness.
The truth is there are a lot of credit scores out there. And on top of the different credit scores that are available, there are different credit reports on which a credit score can be based.
Myth #5: There's no need to check your credit report if you pay your bills on time.
It's important to check your credit report regularly no matter what your situation to make sure the information on your credit report is accurate. Mistakes are made, inaccurate information is reported and if you're not on top of it, your credit score may suffer.
Check your credit at least every six months using free services like Quizzle.com. Just beware of "free" credit report sites that require a credit card to sign up - if it's really free, a credit card shouldn't be necessary.
Myth #6: When you pay off a past-due account, it's removed from your credit report.
Negative information - like late payments and accounts in collections - can stay on your credit report for up to seven years from the date of the initial missed payment. Some bankruptcies can stay on your credit report for up to 10 years from the date the bankruptcy was filed.
When you pay off an account that was previously past due, your credit report will be updated to reflect that you're current on the account. And as time goes on, the negative information will have less of an effect on your credit score. However, as the purpose of a credit report is to keep a tally of your credit history and how reliably you've managed your credit, that information won't come off your report for at least seven years.
Myth #7: How you manage your checking, savings and investment account can affect your credit score.
What you do with your checking, savings and investments is your business. This information is not typically reported on your credit report and therefore doesn't impact your credit score.
Myth #8: Paying cash for everything and not having any credit card debt will ensure a good credit score.
Never using credit can actually hurt your credit score. Creditors and lenders often consider people with no debt and no credit cards a higher risk than those who have credit cards and have proven that they're able to manage their debt responsibly.
Myth #9: Library fines, unpaid parking tickets and utility bills don't affect your credit score.
It's not uncommon for libraries to turn over unpaid debts to collections agencies, which can wind up on your credit report and significantly impact your credit score. And more and more, utility companies are regularly reporting to credit bureaus.
Myth #10: Debit cards and pre-paid credit cards can help you build credit.
Because debits cards and pre-paid credit cards are not considered an extension of credit, they don't show up on your credit report. If you're looking to build credit, using a secured or unsecured credit card responsibly is the best way to go.
Check out the Quizzle Blog for more home, money and credit advice:
- 55 Money Saving Tips (Your Wallet Will Thank You)
- 8 Ways to Stretch Your Money as a Poor, Broke College Student
- Good Credit Saves Money: 7 Ways to Improve Your Credit Score
- From the Ground-Up: 5 Ways to Build Credit from Scratch
- Will Closing Credit Card Accounts Help Your Credit Score?
Don't forget to visit Quizzle.com, the only spot on the web that gives you both a free credit report and free credit score, no catches, no trial subscriptions, no credit card required.
Photo credit: http://www.flickr.com/photos/restlessglobetrotter