Credit Report Myths

There are several myths about credit reports and credit scores that make rounds in the business world. It is time that you know the truth that lies behind these myths that often adversely affect your financial decisions.

Busting the myths

• The biggest mistake people make is to use the terms credit report and credit score interchangeably. But in reality these two are quite separate and people should know when to refer to which one.
  
  Credit report is a permanent record which contains a wealth of information. It contains details about how you acquired and paid off your debts, utility bills, et al. It also contains personal, like social security number. On the other hand, the credit score is a three digit number calculated on the basis of the information present in the credit report and is not a part of the free credit report that is made available to you yearly from the government.
  
  Credit reports can be obtained from credit bureaus for free, once a year. But to get the credit score, one has no option but to obtain it by paying a small fee to the credit bureaus privately.

• People strongly believe that employers check for credit scores. This is nothing but a myth. Credit score is a static data and does not reflect your detailed payment habits. So, employment screenings always involve inspecting the credit report which reveals a lot about your financial condition and past history.


• People also suffer from the misconception that having no credit score is a good idea, as they stay away from the hassle of good credit score and bad credit score. But this thinking cannot be more wrong. The truth is - having no credit is as bad as having poor credit. Your credit report must show how responsibly you handle your finances. If you have no credit then how will you prove your financial prowess? So, it is better to have credit and pay them off timely.


• People harbor a notion that asking for their credit reports will eventually hurt their scores. This is nothing but a misconception. You must check your credit report regularly. Your creditor or the reporting agencies can make mistakes which may affect your score in the long run. It is better to behave responsibly and check the report for such errors. This will in no way affect your score. Only frequent hard inquiries, i.e. the request to access your credit report by lenders, when you apply for any loan or credit approval, affects your credit score negatively.


• People avoid credit counseling fearing that it will destroy their credit score. Attending credit counseling will not lower your score. But you must be aware of how the counselor negotiates a payoff or lower payment. The credit score system does not incorporate credit counseling. The credit report reflects this information which some lender may not like.

Credit is a sensitive issue and should be handled with prudence. It is essential that you know the truth about it and take appropriate measures to have an impressive credit report.