Credit reports and Scores Frequently Confuse Consumers
Most individuals who are of an age to care about their credit realize that the three primary credit bureaus, Experian, Trans Union and Equifax, keep credit history on them. The agencies keep track of loans, bank cards and bankruptcies and make note of whether each consumer pays his or her bills promptly. Most individuals are also aware that their credit ranking is also available in the form of a credit score, which is, in essence, their overall credit health distilled to a three-digit number.
Beyond that, many people have, at ideal, a vague understanding about how their monetary dealings are viewed by the credit bureaus. There are numerous common myths and misconceptions about credit history and credit scores and how they are affected by things people do financially. Here are a few examples of these popular misunderstandings:
A consumer has only one credit score – Not true. Each bureau keeps track of monetary transactions separately from the others and may have more or less information to work with than the other reporting agencies. In addition, until recently, each agency used their own scoring system. In all likelihood, if a consumer were to contact each bureau to obtain his or her credit score, the result could be three completely different numbers.
Your salary affects your credit score – Your score is simply a representation of how well you handle the credit accessible to you. If you earn more cash, you might have more readily available credit, or not. Either way, the score is simply a representation of what type of credit you have and whether you repay your bills punctually. How much you earn is not part of the equation.
Eliminating a bank card increases your credit score – Not necessarily true. Credit agencies analyze how much of your readily available credit you’re making use of. Less is more; the bureaus like to see that you’re making use of as little of your readily available credit as possible. If you owe a lot of money on credit cards and you cancel an unused account, it may seem like you are using a larger portion of your accessible credit. That will actually raise your score!
Marriage merges credit reports – Your credit score is your own. That will not change if you get married. Jointly borrowed money will show up on both reports and will affect both of your scores. And just as marriage does not combine the reports, divorce won’t separate the joint items. If you get divorced and your ex does not pay on your joint loans, your score will decrease.
The process of compiling credit scores is a complicated one. It’s understandable that many individuals don’t entirely understand how the technique works. Possibly the best way to keep tabs on what is going on with your own finances is to check your credit score regularly. You can get a copy of your credit report at AnnualCreditReport.com.
