If you’re a fan of TV’s “Mythbusters,” then you may already know the truth about many popular fictions – like how a heated Jawbreaker can explode when you bite into it, or that a home ceiling fan cannot decapitate you, or that your toilet seat is the cleanest surface in your house. While these are fun myths to debunk, knowing the facts of these fictional stories probably won’t affect your personal finances.
What can impact your wallet is what you know – and just as importantly, what you don’t know – about your credit score. Your credit score is a three-digit numerical representation of your credit-worthiness, or how likely you are to reliably pay back money you borrow. It may seem simple enough, but credit scores aren’t always intuitive. Even when you think you’re doing the right thing financially, you may be actually hurting your credit score.
When it comes to credit reports and scores, knowledge is power. Here are the real facts behind 10 common credit score fictions:
Fiction: The more money you make, the better your credit score will fare.
Fact: Your income has nothing to do with your credit score. It’s not reported to the credit bureaus or listed on your credit report.
Fiction: Once you’ve paid a past-due debt, it will drop off of your credit report.
Fact: Late payments and other negative information remain on your credit report for seven years from the date of the initial late payment. Bankruptcies typically stick around for 10 years from the bankruptcy filing date. While that black mark may continue to soil your credit report, however, its effect on your credit score will lessen over time.
Fiction: Credit bureaus never make mistakes.
Fact: Nearly eight in 10 credit reports contain a serious error or some sort of mistake, according to a survey by the U.S. Public Interest Research Groups. Because many errors can negatively impact your credit score, it’s important to check your credit report regularly and dispute any inaccuracies you find. To take a look at your credit report and score for free, and dispute credit report errors online, visit Quizzle.com.
Fiction: Practicing a cash-only policy will help your credit score.
Fact: Having good credit is a function of having credit available to you and using it responsibly. If you don’t have or use credit, you may have no credit history at all and if you do, your credit score won’t be as good as someone who consistently demonstrates responsible use of credit over time.
Fiction: All credit reports and credit scores are the same.
Fact: You have three main credit reports – one from Experian, Equifax and Transunion – plus a variety of credit scores. The information listed on each of your credit reports may vary and your credit scores – even if based on a single report – may also vary. No one credit report or score is better than the others. They all seek to document your credit history and assess your credit risk.
Fiction: How responsibly you manage your checking, savings and investment accounts will impact your credit score.
Fact: Like income, your checking, savings and investment account activity is not reported to the credit bureaus and does not affect your credit score.
Fact: When you close a credit card account, you may be affecting your “credit utilization.” Credit utilization is simply how much credit you use (balances) compared to how much credit is available to you (credit limits). Closing a credit card account lowers the amount of credit that’s available to you, which may increase your credit utilization percentage if you maintain balances on any of your other credit cards. A higher credit utilization may negatively impact your credit score.
Fiction: Pulling your own credit report will lower your credit score.
Fact: When you pull your credit report for your own educational purposes, it’s considered a “soft inquiry” and will not affect your credit score. On the other hand, when a creditor or lender pulls your credit report for the purpose of extending you credit or a loan, it’s a “hard inquiry” and may negatively impact your credit score. (Learn more about credit inquiries.)
Fiction: If a bill or debt isn’t generally reported to the credit bureaus, missing a payment won’t affect your credit score.
Fact: Any time you pay a bill late or don’t pay at all, that activity can be reported to the credit bureaus. Different companies have different policies about reporting late payments or negative information, but never assume that just because you’ve never seen a particular bill listed on your credit report that it can’t negatively impact your credit score if you don’t pay it.
Fiction: Disputing accurate information will remove it from your credit report.
Fact: You can only dispute information on your credit report that is inaccurate. When you dispute information on your credit report, the credit bureau has 30 days to investigate. If it finds the dispute to be valid, it will remove the inaccurate information. If, however, the dispute claim is found to be false, that information will not be removed from your credit report. Beware of credit repair companies claiming that they can get negative – albeit accurate – information removed from your credit report. This practice is illegal and these companies are generally scams.
For more tips and tools to help you manage your home, money and credit – including the most affordable credit monitoring on the web and complete identity theft protection – visit Quizzle.com.
Related articles from the Quizzle Wire:
- 4 Money Tips for New College Grads
- How to Build Credit from Scratch in 6 Easy Steps
- 12 Ways to Spring-Clean Your Finances
- When to Freeze Your Credit Report and How to Do It
- 10 Ways to Use Your Tax Refund to Improve Your Home
I had a Macy’s card. It was closed and put in collections. I’ve been paying the collection agency monthly should be done paying off the balance in June. I know that this is impacting my score. They have told me when it’s paid off they will send me a letter & Macy’s a letter saying the accounts been paid in full. Is this a mistake? Should I not pay them?
Your first mistake was reopening the information when you started paying them off. What you should have done is settled on a specific amount to take care of the full amount owed and also requested that when you pay this they remove(expunge) it from your credit record. But you would need to get that portion in writing so you have something to go back on in the event they didn’t remove it from your record.
It will be 8 years ago in July, when I had filed bankruptcy. All of the info/creditors had fallen off my credit report last year, but it is still listed in public records. How long will it show up in public records and will it always be there? Any info would be so helpfull!
Thanks so much, Ramie
I recently got hit out of the blue with a $10,000 collections back account from 10 years ago,the original lender didnt look familier.I emailed the collector for info about this account and they still have not got back to me yet.I am really stumped,WHAT should i do next?
I think the statute of limitations may apply if they have not contacted you at any time about this debt for 10 years or more. When a collection agency notifies you of a creditor they are collecting for, you have a certain period of time to dispute the debt. Whether it is legitimately your debt or not, you should request a full accounting of the amount they are trying to collect, which includes all of the contact information for the original creditor. They have a certain amount of time to answer your request. Check the laws in your state and follow through with a course of action, otherwise this will just keep resurfacing and could turn in to a judgement, if the statute has not yet run out on this. Keep me posted!