It’s amazing how little people know about credit, considering the fact that most of the population uses credit routinely. But large swathes of the population know very little about credit, and credit scores in particular.
Everyone should know how credit works so that they don’t get stung by it and so that they can manage their financial affairs more confidently, which is why we’re going to bust some common credit myths for you right now…
The Myth: If you check your credit score it will fall.
The Truth: Checking your credit score will not affect it in the slightest. This is what is generally known as a ‘soft inquiry’ which is of no consequence to you. Some lenders would even see you checking your credit score as a good thing because it shows that you are being responsible. It is only when a lender checks your credit history, usually because you’ve made an application, that it becomes a ‘hard inquiry’ which might affect your credit score, especially if a lot of them are made in a short period of time.
The Myth: it’s better to close old accounts that you don’t use anymore.
The Truth: Closing your old credit card account because you’ve found the best credit card for balance transfer and you no longer use it, for example, could actually make things worse for you. Why? Because older credit accounts show that you have a long credit history, so even if you don’t use the card, keep it open and use it occasionally, even if you pay it off immediately, to protect your credit score.
The Myth: Settling a Negative Record Removes it.
The Truth: Unfortunately, it is not the case that negative records will immediately be removed from your credit report when you pay them off – it can take as many as seven years for that to happen. Of course, you should still make good efforts to do so because it will improve your score dramatically in the long-term.
The Myth: Co-signing doesn’t make you responsible.
The Truth: It’s kind of unbelievable that people think they can co-sign someone’s loan or credit account and not be responsible for the balance. If you co-sign, of course, you can be held responsible – that’s the whole point of co-signing. So, never do this for anyone unless you’re absolutely sure you can, and you’re willing to, take over their debts should they be unable to do so themselves.
The Myth: Paying Utilities on Time Will Boost Your Credit Score
The Truth: Although it’s true to say that not paying your utilities can get your debts sent to a collections company, which will have a negative impact on your credit score for sure, it doesn’t follow that paying on time will boost your score. Why? Because very few utility companies will report a good payment record, although they will almost certainly flag up a bad one.
I hope this helps you better understand, and therefore manage, the credit process. It will make your life so much easier to have a good credit score!