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Myths about credit reports and scores
Credit score misunderstandings are common
In part one of this article, we discussed some common misconceptions about credit scores and credit reports. Here in part two, we will examine some other things people often misunderstand regarding their financial health and what they can do about it.
Continued below
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Credit health is simple. Just manage what you have and pay on time
In part one of this article we examined a few common misunderstandings about how the credit bureaus manage our financial information. We pointed out that you may have more than one score, depending on which bureau you contact. We pointed out that applying for a lot of credit in a short time may, or may not, impact your report. We will now look at a few more things that are frequently confusing about how the documentation of your financial transactions works.
- Getting married merges your credit reports - Not true. Your reports are tied to your Social Security number. They belong to you. Your history is yours, and your spouse’s belongs to your spouse. Should you take out a joint loan, that loan will show up on each of your reports. And just as marriage doesn’t neatly tie everything up, divorce doesn’t automatically separate, either.
- Canceling credit cards raises your credit score - There’s a fine line with this one. It is possible, in theory, to have “too much credit.” Lenders don’t want to see that you could run up a lot of debt. But those thoughts are tempered by your history of how you handle that debt. And if you have outstanding balances, canceling a card, even one you aren’t using, could actually hurt your score. Lenders don’t look at how much credit you have as much as they look at the percentage of your credit that you are using. Canceling an account that isn’t being used may increase the amount of available credit you are using, and that may lower your score.
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- Paying cash raises your score - Cash is cash, and credit is credit. If you are paying cash, the credit bureaus won’t even know you bought it. Cash doesn’t count. If you want to build a solid, trackable financial history, you will have to take out loans or use credit cards. Cash leaves no record.
- Cosigners aren’t responsible for debt by the primary party - Sorry, but if you cosign on someone else’s credit card or loan, you are responsible if they don’t pay. That’s what it means to cosign; you are agreeing to take responsibility. That’s the downside. The upside is that if the other party does pay on time and you don’t have to do anything, your credit score will probably increase. If you have little or no credit and you are added as an authorized user on an account, your score will be affected by that account even if you don’t use it. This is known as making use of “seasoned credit.”
The industry is good about making it known that their documentation about consumer credit is important. But many myths still persist. We hope that this two part series of articles has made it a bit more clear just how the things you do and don’t do can affect your financial health.
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