Last month I wrote about some of the myths of credit. This month I wanted to conclude with understanding the myths and knowing the facts. The more facts that you have the more knowledgeable and confident you are about managing your credit and money.
Here are some additional common myths you may have heard:
There Is Only One Score
There is no such thing as a universal scoring or rating model for credit. To be fair, there are several different models that do this and with that, you as a consumer can have very different scores. Understand, not every lender looks at the same score and scoring formula. This is why it is recommended to get your credit scores checked through www.annualcreditreport.com every 12 months. It pulls directly from the credit reporting agencies (Equifax, Experian, and TransUnion).
MYTH: If You Get A Better Job, You Can Get A Better Score
While having a better income can indirectly affect your credit score, your income/job status has no real overall bearing on your credit report and score. Your credit report and score are based upon how you manage your debt. In the Credit & Money Management Workshop, I teach participants that 80% of your credit score is made up of Payment History (35), Amounts Owed (30), and Length of Credit History (15). Your employment status and how much you make do not have a factor on your overall score.
MYTH: Getting Married Can Improve/Hurt Your Score
The fact behind this myth is ANY INDIVIDUAL accounts that you have and that your spouse has will remain solely your own. If you both have a joint account like a joint credit card, yes that does affect your scores. Anything that the two of you have as individuals will only affect your respective credit scores.
MYTH: If You Have Bad Credit You Will Not Get Approved For Anything
A bad or low credit score does make it harder for you to get approved but it is NOT the only factor that lenders consider when approving you for a loan. You can have a low score but you may end up paying a much higher interest rate or security deposit. Keep in mind too that the amount of debt you already owe is a determining factor for getting approved. Lenders are looking at how much risk they are willing to assume with lending the money and if your debt ratio is already high, they may not want to take that risk.
MYTH: Having No Debt Means You Will Have A Good Credit Score
Remember earlier I said that 30% of your credit score is made up of the amounts that you owe; this only secondary. The primary is your payment history which makes up 35% of your score. Are you making consistent, on-time payments to keep those amounts owed low to zero? You can pay off your debts just know that it isn’t an immediate fix or recovery of your credit. It is very good as it is important to pay down/pay off what is owed just know that it may take some time for a full recovery especially if you completed a bankruptcy.
Learn more about other myths and how to manage your credit by signing up today for one of the Credit & Money Management Workshops and or setting up an appointment for credit counseling and financial coaching. Let’s achieve your financial goals today!
Operation HOPE can help you with learning how to practice good credit management.