10 Common Myths About Credit Scores

This is one of the most pervasive myths about credit scores, but there's very little truth to it. There are two ways to check credit scores -- hard inquiries and soft inquiries. Hard inquiries are the ones that creditors run before signing off on final approval for a loan or line of credit, and too many of those can lower your score. Soft inquiries, on the other hand, are just a basic look for educational purposes. You can do as many soft checks as you want without hurting your credit score.

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While paying off debt and not maintaining a balance on your credit cards does generally help your score, getting overzealous about closing all your accounts can actually hurt it. Creditors like to see that you can use credit responsibly, so it's a good idea to keep at least a couple of lines of credit open. Choose no-fee cards and pay off your balance every month to avoid paying interest. If you do need to close some accounts, try to close newer ones. Older accounts are more helpful to your credit score.

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After struggling for many years living paycheck to paycheck, you finally land a great job with a high salary. Your credit score should increase accordingly, right? Wrong. Credit bureaus do not factor in assets or income when determining your credit score. Individual lenders typically do, to ensure you can pay your debt back, so you may still find that you're able to get more lines of credit than in the past, but this is not due to a higher credit rating.

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You've probably heard that you should check your credit report at least once a year, but most people struggling with bad credit tend to skip that step.  However, even if you know your score is bad, it's still a good idea to check your reports. Credit bureaus make mistakes sometimes, so you might find you're being penalized for someone else's problems if their debt wound up under your name. You can report any errors or incorrect information to the credit bureau and have them removed.

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Credit reports are a long-term study of your ability to pay your debts, so items remain on them for seven to ten years. This includes debts you've paid off, so lenders will still be able to see any delinquencies or other problems. However, the more time that passes, and the more good items that show up on your report due to wise use of credit, the less important those mistakes become. And after that seven- to ten-year period, they'll generally fall off your credit report entirely.

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While there are many for-profit companies that offer to show you your credit report for a small fee, the law requires each of the three major credit bureaus to provide a free copy of your report to you at no cost. This is limited to one copy per credit bureau per year, however, so use it wisely. Many experts suggest requesting each report at a different time of year so you can keep an ongoing eye on your credit score.

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It seems like your credit score and information should be the same no matter what report you look at, but unfortunately, it's a little more complicated than that. Experian, TransUnion, and Equifax all rely on creditors to report information about you, and not all creditors report to all three bureaus. In addition, sometimes just one or two will have received incorrect information. It's important to check your report from each of the three organizations to get an accurate idea of your credit score and catch any mistakes.

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There is some truth to this one, but it provides a somewhat inaccurate picture. If you have good credit and marry someone with bad credit, your score won't drop. However, many credit mistakes that happen during the marriage have the potential to impact both spouses' scores. In addition, you may find it difficult to get loans or lines of credit even if your score remains high because most lenders require information about both spouses and consider it a joint loan.

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It would be nice if only credit card debt and loans could affect your credit score, but the reality is much more complicated. Almost any type of debt can be reported to the credit bureaus, and once it is reported, it will have an impact on your score. This can range from unpaid parking tickets and library fines to medical bills. Even paying your rent or utility bills late can cause your score to drop if the company reports it.

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If you've made some bad financial choices or simply found yourself in a tough spot due to unforeseeable circumstances, you may feel a bit hopeless about that low credit score. However, don't give up. Your credit score is just a quick reference to help lenders determine your eligibility. Think of it like a snapshot of your current reliability. Scores can change and improve in less time than you might think, as long as you're careful about how you use your credit.

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