Your credit history and credit score are how a lender determines your creditworthiness. A good credit score shows the lender that you have a lower risk. And a poor credit score implies otherwise.
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Today, there is a ton of information about the importance of your credit scores and the need to check them regularly. But you don’t have to check your score daily. That’s just a myth. There are other credit score myths out there, but this article will debunk the top seven credit myths.
Top 7 Credit Score Myths and The Truth
Here are the top 7 credit score myths and the truth about credit. Check them out and increase your awareness.
Myth #1: One Missed Mortgage Payment Doesn’t Impact Credit Score
Fact: Every missed payment counts! Yes, various factors count when it comes to your credit score. But a missed payment is one of the most influential. And a missed mortgage payment is significant since your mortgage tends to be one of your largest monthly payments.
Missing a mortgage payment can negatively impact your credit score for months.
Myth #2: Student Loans and Personal Loans Negatively Affect Your Credit Score
Fact: In some cases, student loans may appear on your credit report before you graduate or while you’re in deferment status. Deferment status just means your loan payments are not currently due. However, student loans in deferment do not negatively impact your credit score.
However, once repayment on your loans begins, don’t miss a payment! If you have to miss a payment for any reason, contact the leader to see what arrangements can be made. A missed payment could decrease your credit score and impact your ability to qualify for other loans like a mortgage in the future. Lastly, paying your student loans on time will help you build credit.
On the other hand, low-interest personal loan repaid on time also increases your credit score.
Myth #3: Credit Scores Increase by Closing Inactive or Old Accounts
Fact: False! The old and unused accounts are a part of your credit history. When you close them, you cut your credit history short. But a more extended credit history is better for your credit score. It’s rather preferable to keep your oldest credit cards active by making small transactions and paying them off in full every now and then.
Keeping these accounts open also increases your debt-to-credit ratio, directly affecting your credit score.
Myth #4: Your Credit Score Goes Down by Checking it
Fact: It doesn’t work like that! It takes hard inquiries to lower your credit score. Those inquiries are generally conducted by lenders when you apply for a loan. Your request for a copy of your credit report is considered a soft inquiry. These types of inquiries don’t affect your credit history or credit score.
You must check credit reports from time to time to know where you stand. This way, it can be corrected in case of an error. You can access a free credit report for each credit bureau once a year. Visit Annualcreditreport.com to see your latest reports today. Just note you may have to pay to see your credit score.
Myth #5: Once a Low Credit Score, Always a Low Credit Score
Fact: Credit score is not forever! It keeps changing with your payments and non-payments. You can repair your credit history anytime by getting a low-interest personal loan or a credit card and repaying it on time.
You can also get different types of credit to improve your score. For example, you could get a mortgage, car loan, or other installment loans to diversify your credit. Once you start paying this debt off lenders will be able to see your ability to successfully pay off different types of debt.
Yes, significant events like bankruptcies are on your credit report for several years. But eventually, even bankruptcies fall off your report. It’s never too late to adopt good financial practices.
Myth #6: Your Age Impacts Your Credit Score
Fact: Age has nothing to do with your credit history or credit score. Your credit behavior is solely responsible for increasing or decreasing your credit score.
Any personal loan or credit card you get is based on your credit score and credit history. So you need to differentiate these credit score myths from the facts to manage and maintain a healthy credit score. Hopefully, debunking these credit myths helps you build a good credit profile.
Myth #7: Passive Income Affects Your Credit Score
Fact: Passive income and credit scores are not tied. These two things don’t rely on each other. However, good credit allows you to build passive income streams far faster.
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