10 Myths and Facts About Credit You Should Know About
If you have newly entered the world of credit accounts or are a seasoned user, the evolving world of credit reports, scores, and bureaus can often be confusing. How much do you truly know about credit facts and myths? What you may know as a fact might only be a myth, and vice versa. However, we recommend not freaking out about this small tidbit, as well will take you through common facts and myths to help you better navigate the world of credit.
In this article, we will discuss 10 facts and myths about credit that you should know before dipping your toes in real estate.
1. Getting Close to the Limit of Your Credit Won’t Have Negative Impacts on Your Credit Score.
False. Even if your credit cards are paid off every month, if the credit utilization ratio is higher, there is a significant chance that your credit scores will be impacted. The credit utilization ratio represents how much revolving credit you have been using compared to the amount that is available for your use. Revolving accounts like credit cards or different lines of credit don’t come with a fixed number of payments. When paying for your vehicle loan in full, the account will be marked as paid and closed. There are, however, plenty of different credit scoring models with many different ways of calculating credit scores.
2. Items Can be Disputed on Your Credit Report.
True. If there is information on your credit report that you believe is incomplete or inaccurate, it is important to always contact the creditor lender. A dispute can be filed on the grounds of your credit report being furnished by another credit bureau with that particular bureau.
3. I Should Close Paid-in-Full Accounts to Help My Credit Scores.
False. If you have a rarely used or old account that has a strong payment history, it will reflect in your credit history if the account’s activity is reported to the nationwide credit bureaus. It is more important how your accounts are used and the amount of credit that is available you are using. Closing the account entirely can affect the debt-to-credit utilization rate, which is the total amount of credit that you are using compared to the amount that is available to you, as well as the average age of the credit accounts and the age of the oldest credit account. Both are factors utilized when calculating credit scores, depending upon the credit scoring model used.
4. When It Comes to Credit Scores, Behaviors, and Reports, There is No One-Size-Fits-All Solution
True. The financial and credit situation is unique for everyone. The same will go for how every lender or creditor will evaluate the information to ensure the decision whether or not to extend your credit. A common ground when uncovering the importance of awareness is the more you know about how credit works in general, the more familiar you will be with your situation and the more informed you will be.
5. You Have an Overall Credit Score.
False. There are plenty of different credit scores, and each might be calculated differently. Your creditors and lenders might report data to all three nationwide credit bureaus, one, two, or none at all. That is why your credit score might be different among three different credit bureaus.
6. Checking to See What Your Credit Score is Won’t Impact Them.
True. Checking to see what your credit scores and reports will not impact your credit score. It is a good habit to get into and is important if you are planning on making a large purchase like a house or a vehicle, as you will more than likely have a better understanding of your credit position before applying for a loan.
7. There is Such Thing as a Credit “Blacklist.”
False. Credit bureaus are not usually the ones who will decide your creditworthiness; it is up to creditors and lenders. Credit reports only usually contain information about the credit accounts you have had or currently have, along with any inquiries from companies when applying for credit or collections accounts or bankruptcies that were had or currently have. Both creditors and lenders use and interpret information in your credit reports their way and might have additional criteria to evaluate the credit application you put in. If you are rejected by tons of lenders, there are common factors in your credit history that will drive that type of decision; there is no such thing as a “blacklist.”
8. Library Fines and Parking Tickets are Not Included in Credit Reports.
True. Things like library fines and parking tickets don’t show up on your credit reports–even if the accounts are sent to a collection agency.
9. Your Relationship Status Can Impact Your Credit Scores.
False. The information on your credit report relates to you personally, no one else. Living with another person or your family will not have any impact on your credit scores–and it is against the law for lenders to count a relationship to take into account status when making a credit decision. Should you apply for a joint account with someone, like a mortgage or a credit card, a lender will use both credit data from two parties to determine creditworthiness. Your relationship status does not need to factor that into the decision. Accounts that have been co-signed with another person can affect your credit scores.
10. A Good Credit Score Does Not Mean Your Application for Credit Will Be Approved.
True. Having a good credit score does not mean that you are given a golden ticket. A lender might use the information from your credit reports and different information that was put on your application, like your income, to factor in deciding whether to grant you credit. Good credit scores are a great start; every application is unique, and it isn’t always wise to consider a loan, mortgage, or credit card a given based on credit scores solely.
11. If a Debt is Paid Off, Late, or Missed Payments On the Account is Removed.
False. Late payments can remain on a credit report for up to seven years from the date the payment was missed. Late or missed payments will remain on the report even after the debt is paid in full.
Bottom Line
Credit scores, reports, and credit bureaus can seem complicated at times, but they do not have to be. Educating yourself on what each term means and actions you can take is a good first step before dipping your toes into the world of real estate. If you are ready to find the home of your dreams in Silicon Valley, we recommend speaking with the professionals at Homeowner Experience Real Estate to guide you in finding and settling down the perfect home for you in the many beautiful urbanized neighborhoods in Silicon Valley today.