A good credit score is one of the basic building blocks to financial stability. What you don’t know about credit scores can cost you in more ways than one. “Poor financial literacy can hurt you for years, especially if you don’t understand what helps and hurts your creditworthiness”, said Heather Battison, vice president, global marketing at TransUnion. She says that the main problem many consumers have is that they still believe prevalent myths.
Being better informed about credit scores and how exactly they work can make it easier to improve your score and avoid damaging habits that can hurt your score. TransUnion estimates the average credit score to be around 645-700. The scoring is based on a scale of 300 to 850; the higher the number, the better.
In order to successfully build up a good credit score, you need to first educate yourself on the steps that you need to take to make yourself creditworthy. The second thing that you need to do is establish what credit score myths you are buying into. Let’s have a look at the top five universal credit score myths. You will then be able to establish whether or not you are falling for any of them.
#1: Late payments on utility bills are always counted
Most people believe that utility payments are always reflected in their score. The truth is, not all payments are reported. Some utility companies only report late payments or those that have gone into collection, while others report both late and on-time payments.
Play it safe and try to pay outstanding bills as soon as possible. Bills Organiser is a simple tool to control how much you want to spend each and every month. Essentially, it allows you to create lists with bills, and a calendar where you can see your overdue payments, planned payments, and check what has already been paid off.
#2: Credit reports include marital status
When you decide to get married, even though your vows tie you and your spouse together, the same cannot be said about your credit score. Your marital status is not included on credit reports, yet the majority of society thinks otherwise.
The only thing you should pay attention to is your individual scores as they matter when making a joint purchase or applying for a loan with your spouse. You need to understand that you can’t just choose the higher score; you will have to provide both scores.
Joint bank accounts need to be factored in as well. Make sure that your joint bank account is managed responsibly by both you and your spouse. Before even embarking on getting a joint bank account, you should consider whether or not it would, in fact, be the best option for you and your spouse. You can get the answer to this question from a certified financial planner on Business Insider.com.
#3: Checking your own credit has a negative impact on your score
When you check your own score, there is no impact. However, when a lender checks your score if you are applying for a loan, it generally has some effect. One enquiry generally reduces a score by five points or less, on average.
Furthermore, regularly checking your score is a good idea, because if you see a big drop and you didn’t apply for credit recently, that may be a red flag that somebody else did in your name. In this case, you need to determine whether or not you have fallen victim to identity fraud. To be on the safe side, you should do some research on credit fraud and how to avoid being a victim of it.
The question should not be whether or not checking your credit score will do harm to the actual score. You should only concern yourself with actively taking charge of your credit score by making sure that the numbers on the score add up. You want to also make sure that the numbers are adding up to a score that both you and the banks are happy with.
#4: Closing an account is bad for your score
The impact on your score from closing a card varies, depending on your available credit and account history. Yet more than one-third of society believes that closing a card decreases a credit score, with another 20 percent unsure about the effect it would have.
The answer to this dilemma depends on whether the card has a small amount of credit and a short history. In this case, closing it will have minimal to no impact on your score. On the other hand, if the card has a large amount of available credit and a long history, closing it could have a negative impact on your score. In order to prevent any harm being done to your credit score, rather leave any accounts open that have a long credit history. Even if you do not frequently use those accounts, rather keep them open.
#5: Scores impact your ability to travel internationally
A third of consumers worldwide think that a high credit score is required to travel to a foreign country. That would be a false assumption. Your credit score doesn’t affect your ability to travel out of the country. However, having a good score can help you finance that expensive overseas trip.
Travelling overseas does, however, stack up a lot of expenses and bills that could lead to debt impacting your credit score. You need to ensure that you have all of your travelling expenses in order. To make sure that you stay on budget while you travel overseas, you can utilise an app, such as Trip Expense Manager. It is an efficient app that manages your trip related expenses. The app will help you make sure that you pay off any debts that accumulated during your travels on time in order to avoid it affecting your score.
To sum it all up
You should not believe everything you hear when it comes to credit scores. You now know the truth behind these five myths, but with regards to other myths, you should practice caution and do some digging to see if they hold any truth.
At the end of the day, if you are spending your money responsibly and you pay your expenses on time, you should not have much to worry about. However, at the same token, you should not go through life blindly thinking your credit score is good without checking it from time to time. If you would like to know your credit score, you can try out our Compuscan My Credit Check Report. It will help you understand your credit data, show you how to monitor accounts, manage debt, and improve your credit profile.