6 Myths about Your Credit Report

Money, Tips & how-to

No money down and easy financing! How many times have you been tempted to sign on the dotted line and drive off in a new car? If you’re thinking about purchasing a car, house, smart phone, or new wardrobe on credit, then you need to know how to take control of your credit score and get in the driver’s seat. Here we debunk the Top 6 Myths About Your Credit Report to make the system work for you.

1.       It’s hard to get my credit score.

You can’t be in charge of your credit unless you know your score. You may not know this but you are entitled to a free copy of your credit report every twelve months from the big three agencies: Equifax, Experian, and Transunion, under the Fair and Accurate Credit Transactions Act. To make the process easy for you and the agencies, they set up a single website, mailing address, and toll-free phone number to take your request. All you have to do is go to www.annualcreditreport.com, 1-877-322-82281-877-322-8228, or P.O. Box 105281, Atlanta, GA 30348-5281, and ask for your free annual report. Do not use any other look-alike websites, unless you want to accidentally “ding” your credit score with a “hard pull.” I’ll tell you more about that below.

2.       I can’t make my credit score better.

A typical credit score is based 35% on your payment history, including whether you pay late or on time, 30% credit utilization, 15% length of your credit history, 10% types of credit used, and 10% recent searches for credit. You may be able to affect your credit score by lowering your credit utilization by increasing your credit limits. Let’s say your credit card limits are $10,000 with a debt of $2,000 owing, and you get a credit limit increase to $20,000 and keep your debt the same at $2,000 — now you have reduced your credit utilization and may receive an improved credit score for that factor.

Now let’s try another example starting with credit card limits of $10,000 and a debt of $2,000 owing. If you cancel two credit cards and your total limit goes down to $4,000 with $2,000 still owing, then you have increased your credit utilization. Your credit score may go down.

Take this lesson to heart to improve your credit utilization ratio by getting your debt down while keeping your credit limits up.

3.       Using a free credit report website won’t affect my credit score.

Most people know that if they fail to pay bills their credit score will go down. You can also negatively impact your score by requesting a free credit report from one of those websites with “catchy” songs and commercials. Those sites may actually be merchants in disguise, so your request may be considered the same as if you were applying for a credit card at Target or Sears. You might receive a “ding” or “hard pull” on your credit rating by using one of those sites.  The best advice is to make your free requests only through www.annualcreditreport.com.

4.       My score is the same at all three credit bureaus.

The truth is the top three credit reporting bureaus may have different information resulting in a different score for you. FICO scores – introduced by Fair, Isaac, and Company – are based on comparing your credit information to that of thousands of other people to figure out which people are most likely to pay their debts or fall behind. There are other scores but FICO is frequently used and the top three reporting bureaus set varying ranges that typically run 300 to 850 for your mortgage score or between 250 to 900 for your auto and bankcard score. When figuring out whether your score is good or should be improved, make sure you know which range is being used, and if you don’t like your score, check in with the other bureaus to see if the problem is across the board.

5.       They throw everything into my credit report including my age.

The truth is your credit score does not contain your age, gender, race, criminal record or income. The focus of your credit report is how much you owe and have paid and whether you have any past due credit card or loan accounts, and any defaulted utilities that have been reported.

6.       Paying my credit cards a few weeks early each month gives me a better credit score.

While it is a good habit to pay your bills early, credit reporting companies do not care if you pay a week or a day early, so that difference will not influence your score or repair your credit. In fact credit utilization is far more important than early payment.

If you want to affect your credit score, pay your bills on time, improve your credit utilization gap, and avoid making “hard pulls” for your credit score. Be in charge of your credit score and you’ll be in charge of your future.