There are a lot of myths out there regarding credit that many people believe. While some of these credit myths are relatively harmless, barely affecting you at all, some others can harm your finances significantly if you are not careful. Believing the wrong credit myths can cost you money and wreck your credit score. You should know these credit myths that can harm your finances.
Believing You Only Have A Single Credit Score
Most people are aware that they have a FICO credit score and believe that this is the score that lenders and other businesses that pull credit scores are looking at. Most people do not realize that there are multiple companies tracking their credit information and compiling credit scores on them that are then sold to the companies requesting them. Each of these companies may use slightly different formulas with your credit history information from one of the three main credit bureaus, resulting in different credit scores with different scoring companies. This makes paying for your credit score pointless, as there is no telling which credit scoring model was actually used to calculate your score.
Believing That Credit Bureaus Are Infallible
Another big mistake is believing that the credit bureaus are infallible and that any mistakes found will not be corrected. Many people do not check their credit reports because of this reason, allowing mistakes to drag down their credit score for years. Lower credit scores result in higher interest rates and fees, so people with mistakes on their credit reports pay more than they should be for credit products and insurance. It is important to go over your credit reports regularly to ensure that there are no mistakes on them that need to be corrected. You can obtain them for free once per year at www.annualcreditreport.com.
Believing You Need To Carry A Balance For A Good Credit Score
Many people make the mistake of believing the credit myth that they must be carrying a balance on a credit card or a loan for them to have a good credit score. The truth is that you could pay off your balance entirely every month and still have a good score. This is because the balance reported to the credit bureaus is typically the balance from your last statement, not the amount remaining after you have paid the bill. Believing this myth could result in you paying a significant amount in interest payments unnecessarily, which ultimately reduces the amount that you are able to save for your future needs.