Busting the Myth Bubble about Credit Reports and Credit Scores

“Credit” is a word shrouded in the dense clouds of misleading information, incorrect illusion and nonfactual fiction. To add to that, there are legends, myths and half-truths that envelope the formulas of the credit-score which is proprietary in character. Gliding smoothly out of it becomes a complicated task.
   
Credit cards, credit scores and credit reports- It’s high time we burst the bubble of a few general myths surrounding these.

1. One’s income is a determinant of one’s credit score-One may have a substantial income but that may not essentially mean that one has good credit. These are not interlinked. One’s credit score or credit report is not affected by the salary one earns.
2. Retrieving one’s credit shall harm one’s credit score- When someone retrieves his credit report to educate himself on it; his credit score is not affected as this is a “Soft enquiry” .On the contrary, when one’s credit report is retrieved by a lender or creditor for granting a loan or credit, it is considered a “Hard Enquiry” and may adversely affect one’s credit score.
3. One’s investment, checking and savings accounts may impact one’s credit score-Unless one has a failed or delayed payment on the amount owed, one’s investment, checking and savings accounts do not reflect on one’s credit report.
4. Pre-paid credit cards and debit cards aid in Credit-building- These are basically electronic checks, not credit-extension, hence they do not appear on one’s credit report. The best means for credit-building is to use an unsecured or secured credit card in a responsible manner.
5. One’s Credit-Worthiness is determined by a single credit-score, which is used by all lenders and creditors-The fact is that there are several credit-scores. Apart from these, there are numerous credit reports on the basis of which the credit-score is determined. 
6. Closure of a Credit card account would help one’s credit score- “Credit Utilization” may be affected when one closes a credit card account. Credit Utilization- it is simply the credit amount one uses (sum of all balances) in comparison to the amount of available credit that one has (sum of all credit limits).The percentage of Credit-Utilization might increase as the amount of available credit is lowered when one closes an account. A Credit-Utilization on the higher side may have a negative effect on one’s credit-score because it may seem to a lender or creditor that you are in a high-risk zone.
7. Checking of one’s credit report is not needed if all bills are paid on time-Regular checking of one’s credit report is essential to ensure accurate and updated information on one’s credit report. One’s credit score might suffer in the absence of regular checking as mistakes can be made and incorrect information can be reported. 
8. A good credit score is ensured by buying everything in cash, hence not incurring any debt on one’s credit card-Debt-management is considered to be an art in itself. People who have no debt or who do not use credit cards are found to be a tad riskier by lenders and creditors, than those who own credit cards and are responsible debt-managers.
9. Settlement of an account, past-due, will eliminate that article from one’s credit report-Any information negative in nature, like collections and late payments, remains on one’s credit report up to seven years, calculated from the date on which the initial payment was missed out. Some bankruptcy cases that are filed can stay on one’s credit report for up to ten years taken into account from the date the cases are filed.
   Settlement of an account, past due, will update one’s credit report to show that one is current on that account. As time passes, this negative information shall have lesser impact on one’s credit score. A record of one’s credit history and its effective management account is maintained by one’s credit report. This positive information will also show up for about seven years on the report.
10. Credit scores are not affected by smaller debts in the form of utility bills, library fines and non-payment of parking tickets-Credit bureaus receive regular reports from collection agencies and utility companies, libraries and shopping malls about unpaid debts, even as small as unpaid parking tickets which in turn show up on one’s credit report. This can significantly affect one’s credit score.

        
    Inculcate good habits to accumulate good credits. Build it up brick by brick, save it from tear and jerk and in return it will amazingly escalate your borrowing powers.