Most Americans don't have an in-depth understanding of what factors impact their credit score, and how much their credit score can, in turn, affect their lives. They know a high score is better than a lower one, and it's not good to have a lot of debt that goes unpaid for a long period. Much of the "information" they get is from friends, family and social media, and it's often wrong. Many folks don't think much about their score until they try to get a loan and find themselves declined.
Following are some popular credit score myths that can actually harm your financial health and the truth that all consumers need to know:
-- Myth: The three major credit bureaus (Equifax, Experian and TransUnion) all have the same information on their reports. Truth: Because of differences in reporting to the bureaus, your three credit reports aren't necessarily identical. If you're concerned about information that can impact your score, get copies of all three reports to make sure they're accurate.
-- Myth: When you pay off a collection account, it's automatically removed from your credit reports. Truth: Although it's certainly good to pay off your collection accounts, these will stay on your reports for seven years.
-- Myth: Credit card debt is bad. Truth: Having credit card debt isn't necessarily harmful as long as you're paying it off each month. However, you don't want to be up near your credit card limit. The percentage of debt to your limit is your credit utilization ratio. Experts recommend not exceeding a ratio of 10 percent.
-- Myth: Closing your credit cards will improve your credit. Truth: Obviously it's good to pay down and pay off your debt. However, closing your credit card can actually hurt your credit score because it raises your credit utilization ratio. That's because you have less available credit. If you're afraid that keeping your card will be too tempting, cut it up or lock it away and don't use it.
Whether you're running into problems with debt or you have a pristine credit record, it's essential to keep an eye on your credit scores. Mistakes can happen in reporting, and you want to get them cleared up before a potential lender looks at them. You can get a free credit report once a year from each of the credit bureaus by going to AnnualCreditReport.com.
Source: Yahoo! Sports, "5 Credit Score Myths You Can't Afford to Believe," Oct. 21, 2016