Disregard The Following Myths The Next Time You Hear Them

by John S. Pubisher

Most people already know that a credit score is the litmus test which lenders and service providers like landlords and employers use to determine which level of trust to engage in with an individual. A good credit score which is a result of good credit cards habits and debt repayment discipline is an indication of a responsible borrower who will pay loans and other credit facilities if they are given to them. Amid the reality and the facts on how a good credit score is gained and how it works, there are also myths that put borrowers in a panic mode all the time. The actual considerations made by the three major credit bureaus when calculating credit scores are not general knowledge and it may not be possible to tell what was factored in an individual’s score just by looking at it.

What is, however, straightforward regarding the use of credit cards for good credit is that provided a debt is paid in time, then the credit score will be within the good range. While the calculation may involve a complex matrix, it is important for a borrower to understand it for the purposes of making sound financial decisions. It is no secret that most people are anxious about owning a credit card and the rumors and myths that surround the use, payment, cancellation, and application just seem to make matters worse. There is no way of avoiding the myths but in one way or the other, they could affect one's judgment regarding credit cards. The following are some of the myths that credit card holders and aspiring holders must be paying a keen ear on so that they are disregarded with immediate effect;

Checking the credit score makes it drop

If someone is checking their own credit then that is considered as a soft inquiry and will not have any effect on the score. A hard inquiry refers to the reports requested from creditors and lenders and which are mostly needed at the time of loan application or co-signing. While the score will reduce a few points, it is a necessary move anytime a new credit facility is being sorted.

Paying off a negative entry on the credit report removes it from the report

This definitely sounds like a consolation price for those in deep credit card debt. Provided that a late payment or missed payment has been entered into the credit report, it must remain there for up to 10 years when the record is revised. Even if the borrower were to pay the entire amount owed to them before this period is over, the record will still be there only that it will be marked as paid.

A bad score remains that way forever

Forever means indefinitely and just like a good credit cards report changes over a period of time, so does a bad one. If an individual has a bad credit score, then that is a reflection of their credit status at that particular time and if they were to embark on repaying their debt, or obtain credit cards for good credit, the score will gradually improve.

Debt completion improves the credit score by 50 points

This might have been told to someone to motivate them to pay their credit card debt in totality but it is not true. Arriving at a particular credit score involves complex calculation and consideration of certain values and factors which differ from one individual to the next. While any effort at reducing current debt earns points for an individual, it is not possible to predict how many will be earned.

Closing down an old account improves credit score

There are various ways which different people advocate as the secret to improving a credit score but the cancellation of old credit cards for good credit is not one of them. Most lenders consider a debt to credit ratio of 30% to be an indication of borrower commitment to repay a loan. By changing this ratio as a result of closing an account, the overall credit score might actually go down because there is an artificial short tenure associated with such debts.