5 Common Myths About Credit Reports and Scores

5 Common Myths About Credit Reports and Scores
GUIDE
Gina Roberts-Grey
By: Gina Roberts-Grey
Posted: March 10, 2015
BadCredit.org's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

It can be tough to sort fact from urban legend when it comes to your credit scores and reports, but experts say buying into credit-related misnomers can cost you a bundle.

“ID theft is one possible outcome of believing in credit-related myths,” said Robert Siciliano, an identity theft expert and certified security instructor for numerous industry associations.

For example, a subprime credit score will have your credit card interest rates skyrocketing and prohibit you from obtaining a new car loan or mortgage with decent terms.

Here’s a look at five menacing myths that can trip you up — and your credit score.

Myth No. 1: Your income is factored into your credit score

Income Not a Factor in Credit Reports

Luckily credit scores don’t take your income into account.

Making more money won’t send your credit score soaring. On the other hand, if you lose your job or earn low wages, your credit score won’t take a beating either.

Well, at least not directly.

Your income is not directly reported to the three credit bureaus Experian, Equifax and TransUnion said Wayne Sanford, a credit advisor who has analyzed more than 11,000 consumer credit profiles and author of “The Real World on Credit.”

So the size of your paycheck can not directly influence your score.

“But if you don’t make enough money to pay your bills on time every month, your credit score could wind up taking a hit because of late or missed payments reported to the three credit bureaus,” he said.

Myth No. 2: If collection agencies keep selling your debt, it will stay on your credit report forever

This common urban legend is frequently misunderstood. By law, a collection account can only hang around on your credit report for seven years from the last active date from the original creditor.

“Collection accounts stay on a credit report for seven years from the date of first delinquency, not seven years from when one particular collector got their hands on it, which is a common misconception,” said Bill Druliner, a GreenPath Debt Solutions group manager in Milwaukee, Wisconsin.

Review your credit report annually to ensure collection accounts drop off your credit report in a timely fashion.

Myth No. 3: You should carry one of each of the big cards (Visa, MasterCard, American Express and Discover) in your wallet

Too Many Credit Cards

You don’t need that many credit cards to establish a healthy credit score.

Although their advertising campaigns are attractive, it’s probably not great financial sense to have all these cards. As long as you have two of the big four, you’re not likely to have any problems renting a car, booking a flight, etc.

But you don’t need all four. Millions of people just get by with one; it’s much simpler. In fact, carrying too many cards could be harmful to your credit score if you carry a balance on all of them. That will lower your debt-to-credit ratio because you’re lugging around too much debt.

“Of course, having one of each card can also help your score if you don’t use them, but the temptation to do so could be too great,” Druliner said.

If you have a Discover or American Express card, it’s a good idea to also have a low-interest Visa or MasterCard, preferably one that offers rewards (cash back, air miles, etc.) that fits your lifestyle.

After all, you could be somewhere that doesn’t accept Discover or American Express, especially if you’re traveling overseas.

Myth No. 4: You can obtain your credit score for free

The Fair Credit Reporting Act allows consumers free access to their credit reports from each of the three major bureaus (Experian, Equifax and TransUnion) once every 12 months, but that report will not include your credit score.

There are multiple companies that will glean data from your credit reports to calculate your “credit score,” although this score will likely be different from company to company and still different from what lenders see.

FICO and VantageScore are the most popular consumer credit scores, but there are a number of other companies that provide their own scores that’ll give you a good idea of how your appear in the eyes of lenders.

However, many credit card companies are starting to offer free credit scores for their cardholders.

Myth No. 5: Checking your credit report frequently lowers your credit score 

While a flurry of potential creditors checking your credit score might cause those three little numbers to temporarily dip slightly, consumers viewing their own credit report — called a soft pull — has no impact on credit score.

In fact, viewing your own credit report daily won’t make a difference in your credit score.

However, the credit bureaus understand a consumer might shop around for the best mortgage or car loan rate. So if your report is hard pulled multiple times within a 30-day period, those inquiries are typically grouped together as one “pull” to lessen the impact on a credit score.

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