Debunking the Credit Score Myths

When it comes to personal debts, banks and credit card companies have devised a numerical and statistical analysis of the consumer’s creditworthiness through the implementation of credit scores. This rating is based upon the credit report and data mining information gathered by credit bureaus (like Veda Advantage in Australia, Experian in the United States, and Equifax in the United Kingdom) on stores, financial institutions, and other businesses where consumers have made small to big transactions. FICO and other prominent credit scoring systems are used to evaluate the financial risk posed by lending money to consumers. Therefore, a low-income consumer with a history of delinquent paying of bills may get a low credit score as compared to a high-income individual.

Aside from banks and other financial institutions, mobile phone providers, insurance firms, real estate agencies, and other businesses use credit scoring to determine approved credit and set credit limit. Even though paying the bills on time would mean better credit scores, many of us don’t know how the scoring system works. Besides, we don’t know all the factors involved in determining credit score. Some consumers get bad credit scores especially if they can’t identify fact from fiction. Here are the common myths on credit score:


Many Credit Cards, Low Credit Score

Most of us believe the common myth that our credit score drops if we get too many credit cards. The fact is that by cancelling one of your credit cards, the rating drops as you reduce the number of healthy accounts. The score drops drastically as the amount of credit limit and the average length of credit history drops. Another thing that consumers should know is that too much credit inquiries and loan applications can also affect the score. Whimsical thinking can go nowhere.

Building Credit Line With Credit Cards

Another classic credit score myth is when people using their card once a month to show activity in their account. You really don’t have to use it at all considering the fact that a typical consumer has a balance of 30% on their credit line and your score takes a big hit when you go over it. Ideally, getting the most points can be achieved when you have zero balance.

Paying on Time Translates to Good Credit Score

The bad news is that paying your bills on time does not guarantee you favourable credit rating because everything that you do won’t reflect on your ability to pay your bills. Credit bureaus check your credit history and the companies asking for your monthly utility bills. Besides, these companies report to credit bureaus if you fail to pay your phone or gas bills.

Checking Credit Score is a Bad Idea

It should be clarified that there are two ways of inquiring credit scores: soft inquiry and hard inquiry. The former is when you personally need to know your credit score while the latter is done when a company (mobile phone provider, utilities, and vehicle dealership) potentially grants you a credit line. Hard inquiry lowers your credit score but soft inquiry doesn’t.

Late Payment? Nothing You Can Do On Lowered Credit Score

We always think that when fail to pay our bills on time, there is no way we can prevent a free fall in our credit rating. Debunking money issues and personal credit problems can be done! Removing a late payment in your credit history can be done by just calling your credit card company. The logic is simple, these companies want you to keep using your card but it doesn’t have to mean that you have to be late in your payment all you want.

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