Finances are complicated; we aren’t taught about how they work in high school. They’re made much more complicated by the prevalence of absolute falsehoods. Some of the most dangerous myths about finances are told about credit scores: what they mean, how they work and how to best manage them. Here are the three worst offenders.
- Checking Your Credit Score Hurts It
It’s commonly believed that checking your credit score damages it. This frequently leads people to avoid checking their credit score unless they deem it absolutely necessary. This is a dangerous practice. Not everything on your credit report should be on your credit report. You can have various strikes on your report even if your financial behavior is flawless. The people that make a business of credit reporting are only human. Mistakes can be made. Getting them fixed requires knowing they are there.
This is a myth. Checking your credit report does not necessarily mean you will take a credit hit.
This myth is a misunderstanding of how credit reporting works. Credit checks come in two forms: “soft” pulls and “hard” pulls. Soft pulls are surface-level checks of your credit report. They simply look at your credit score and any major notable activity. The information returned by a soft pull varies between the three credit reporting agencies. Hard pulls are deep-level checks of your credit report. These turn up every little detail about your credit history.
Soft pulls do not affect your credit score in any way. Services that allow you to check your credit report and many credit card applications do soft pulls of your report to determine eligibility. Hard pulls occur for things of much heavier financial weight; mortgages and major loans are good examples of this.
You should make a happy of checking your credit report. If you are ever worried about damaging your credit report in this fashion, simply ask the business or agency that will be doing the check to verify that they are doing a soft pull.
- All Credit Hits are Dropped After Seven Years
It is commonly believed that anything that has damaged your credit must be removed from your report after seven years. While this would be inordinately convenient, it is a myth.
The origin is fairly simple. Declarations of bankruptcy will haunt your credit report for seven years at a minimum. Most other credit hits follow this in kind. However, removal is not always automatic. This is why the myth is so easy to perpetuate. It is often true that you will see credit hits vanish seemingly-automatically after seven years but it is often necessary to advocate for yourself to have the damaging aspects of your credit report removed.
It is important to understand that automatic removal after seven years is not the only way to have your credit report improved following past issues. It is often possible to have resolved issues removed from your report sooner. This isn’t always the case but it can nevertheless be worth the effort.
- Debts Can Only be Counted Once
Many people believe that your credit report can only be damaged by a debt once. This is true after a fashion. If an account is sent to collections, that’s that for the debt holder.
Unfortunately, there is a frequent misunderstanding about what happens after that. The collections agency that owns your debt can transfer your debt to another agency or note your lack of payment just as the original debt holder could. This effectively turns it into an entirely new debt that can damage your credit.
This is simply a misunderstanding of the mechanics of debt. People are unaware that a transferred account can frequently be a new account altogether. Accounts may feature the same dollar values and similar payment terms but will still be separate accounts for the purposes of one’s credit report.
This is yet another reason to check your credit report frequently. You need to stay appraised of who holds different debts and when those debt change hands. You may overlook certain details or be charged erroneously if you aren’t careful to manage your report.
Finances aren’t easy for anyone. The mechanics are never clearly explained in any compulsory terms. The only way many people learn about certain financial mistakes is if their parents have personal experience to pass on in that regard. It’s very easy to land yourself in trouble you simply didn’t know was there even if you are as responsible as you know how to be with your finances and debts.
Don’t jump at shadows and buy into common financial myths. Understanding how your finances work will take time, patience and research; a good first step is to get acquainted with your credit report. Once you understand what the moving parts in play are you can start to make better decisions about your credit usage and debt management.