Top 5 Credit Misconceptions Debunked

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Top 5 Credit Misconceptions Debunked

We've all heard the rumors...from neighbors, relatives or friends. A wide variety of myths float around about what you should and shouldn't do to manage your credit. Credit Karma has exposed these urban legends to provide you with the truth about credit.

Myth #1: You only have one credit score.

The reality is that you can have a wide variety of different scores, not just one... or three. Why? This confusing fact can be attributed to a few different factors.

First off, there are three main national credit bureaus, and they can all have differing information about you. Most lenders aren't required to report to all three bureaus, so one bureau may have information about one of your loans while the other two don't. Differing information can understandably result in different scores.

Secondly, there are dozens of scoring models that could be used to calculate your score. If one model emphasizes your on-time payment history while a different scoring model puts more weight on your credit utilization rate, you could end up with different scores even if they come from the same bureau and are based on the same information.

Lastly, credit scores can change constantly. Lenders are regularly sending new information to the bureaus, so your credit report (and subsequently your scores) could change on a day-to-day basis.

Myth #2: Your score will drop if you check your own credit.

You don't need to be afraid of checking your credit score or report. While hard inquiries, which can be made when you apply for credit, could bring your score down, checking your own score usually results in a soft inquiry, which doesn't harm your credit. Feel free to look at your scores and reports with Credit Karma as often as you'd like -- you won't be penalized or charged a penny.

Myth #3: Closing old accounts is always a good idea.

If you're considering closing an old account, thinking it'll help your credit score, think twice. Canceling old credit accounts could lower your score because you lose the credit limit associated with that account, which can cause your credit utilization rate to increase if you don't cut back your spending. In addition, if it's one of your oldest accounts, it could lower your average age of accounts and damage your score when it falls off of your report.

Myth #4: Being a co-signer doesn't make you responsible for the account.

When you open a joint account or co-sign a loan, you are taking on legal responsibility for the account. Any activity on these shared accounts, good or bad, could show up on both people's credit reports. This means that if you co-sign for a friend's auto loan and he doesn't make the payments, your credit profile could be hurt by his actions and vice versa.

Myth #5: Your credit reports are always accurate.

In 2013, the Federal Trade Commission found that one in four consumers identified errors on their credit reports that might affect their credit scores. If you want your credit reports and scores to more accurately represent your credit history, you can regularly pull your reports and dispute any inaccuracies you see.

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All Comments

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2 Contributions
0 People Helped

Credit scores are so dang inaccurate, there seriously needs to be an entirely new system.

Example: My score is 640's and Ive NEVER missed a payment on anything in my life. I have had multiple Auto loans which were all paid off in full years before they were at the full terms. I have $15,000 plus credit lines and have Never had a higher balance than 5k ALL balances are paid in full inside a month period ever time. Bills have never been late, Mortgage is always OVER paid each month same with current car loan etc. etc. etc. Ive been managing my own finances flawlessly for over 10 years. BUT did I mention that 1 time when I was 18yr old I slipped, Broke my thumb, had a Dr. visit without treatment and never received a bill? Well... apparently a bill was sent to an address (not my Address) for $121.00 and I never knew about it... 6 years later I found out that this medical bill went to collections and THAT is the reason for 10 years Ive been in the 600's. I make about 75k a year... Would I really skip town on $121 bucks? Common, I don't think so. 

Now my wife on the other hand has all scores in the 770 range. She never had her own line of credit until after we were married. Never paid a single bill in her life or ever had any debt or real income before. Even now all credit lines Im listed as the primary. She has never had an auto loan, credit card or nothing and yet lenders are tripping over themselves to give her high credit lines and auto loans etc. 

Still to this day, If I were to apply for a low limit credit card Id prob be denied. If they only knew...

Talk about a messed up system huh?

Top Contributor

Reply by
theheat71

43 Contributions
112 People Helped
Helpful to 2 out of 2 people

Well what did CK say about your "GRADES" for your credit?? Where they all A's??? If they weren't then you need to check that out. Other factors you didn't mention could be numerous inquiries, credit cards over half their limit, new negative info from collection agencies e.t.c. Get on the ball and do something about it (smile).

Reply by
rberlin

2 Contributions
0 People Helped

Grades are all A except Hard Inquiry is D. Even so this only makes a marginal difference. Ive studied credit scoring in college and would say I have a better than average understanding of how the credit bureaus gather information. The other factors I did already mention. I don't have any credit card balances, or negative info etc.

The point of my post wasn't because I don't know what to do, rather to illustrate how inaccurate our credit rating system really is. Where very financially responsible people's credit can be severely hurt for many years due to someone else's small mistake. 

Reply by
KFXYAM4000

1 Contribution
0 People Helped

you are correct,they screw you around you can complain even show them they are wrong!but to no avail i feel with you

3 Contributions
0 People Helped

Hello, I need some advise on having my paid collections removed from my credit report. Can anyone share some information on disputing paid collections?  

Top Contributor

Reply by
gatorman

12 Contributions
107 People Helped

to effectively remove paid collections, you must contact the originator of your creditl. informing them the collection has in fact been satisfied, since they are under no obligation to remove it. a well writen letter asking for their help removing it will go along way, they are the ones who can contact the collection agency to remove it. good luck hope my advice helps..

Reply by
atiqua1

3 Contributions
0 People Helped

Ok, I'll try that. Thanks!!!

Reply by
yellowbomber

1 Contribution
0 People Helped

u have to make a deal with the collection agency to remove it. they rarely do though. even though u paid it it still remains on ur report for up to 7 years

1 Contribution
0 People Helped

I had a bankruptcy 10 yrs ago and was just notified it will drop off my credit reports in October of this year..I am curious how much my score will rise when this drops off..Its been a long 10 years.

3 Contributions
0 People Helped

I found two mistakes on my credit report showing as in collections.  When these two debts wrongly

put in collections, one $29, the other approximately $59 , are remedied and taken out, what, if any, is the number pf points my score will improve? 

1 Contribution
0 People Helped

I co-signed for a loan with my gf for her schooling. My credit score was 722 and now it's 615, the next month. did a hard inquiry on my credit drop me 107 points? We did not get the loan. I had higher credit than she did.

1 Contribution
0 People Helped

Hi,

I don't have a lot of debt but my credit is in the toilet.  My husband and I filed for bankruptcy two years ago.  He had health issues several years ago which put us behind on the mortgage.  The mortgage company refused to work with us.  In the middle of all of that I got breast cancer so bills accumulated again.  Bankruptcy was the only way to save the house. I have very little credit card debt and student loans in deferment. And yes I know, we must pay our bills on time! Any suggestions how to begin the journey back to financial health?

1 Contribution
0 People Helped

just joined i like the info very much its truley free

bino

2 Contributions
0 People Helped

 I  have a redit score of 569. I aam currently trying to pay things off and get my score up to a reasonable one. How can I do this when it is hard to come up with the money to pay down on things? A lot of my bad credit history happened when I was married, now that I'm divorced I'm finding it hard to do anything. I would like a small loan like 5,000 or 6,000 to pay off the little stuff and then work my way up to the bigger things. Am I doing this the right way or what should I do?

1 Contribution
0 People Helped

I have had zip credit for years in the past. But I have found that not having any credit cards is enjoyable. If I don't have the cash to buy something I don't get it. :) Sure, I can't buy a house, I had to get creative lending to buy a car...

but now that I have paid off my car...

added 3 credit cards...

100% on-time payment history...

my score has since dropped 50 points. (okay, okay, I did buy stuff with my cc! But it will be paid off quickly in the New year!)

Student loan out the wazoo is hurting me tremendously. It's total is 50% of my annual income. It is in good standing, thank goodness. That is one thing I don't mess around with. Student loans suck. If you are in default of said loan you are out of luck as far as your score goes. If you are in good standing and make your payments on time, it does nothing positive for your score. It only hurts your score until it is paid off. It doesn't even count as a line of credit or loan in your score. 

My goal is to raise my score 150 points in 3 years. Has anyone done that? Wish me luck, I really want my dream house.

I will say, I miss the stress-free life of not caring about what my score is.

1 Contribution
0 People Helped

 I had a home mortgage loan with Country Wide for over 5 yrs. Then Bank of America bought them and my loan. When I refinanced my loan to take advantage of the lower interest rate, I was abruptly rewarded by having a drop in average age of my open accounts. That is not fair and accurate.

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