Most individuals who are of an age to care about their credit are aware that the three primary credit agencies, Experian, Trans Union and Equifax, maintain credit reports on them. The agencies continue to keep track of loans, credit cards and personal bankruptcies and make note of whether each consumer pays his or her bills on time. Most people are also aware that their history of credit is also accessible in the form of a credit score, which is, in essence, their overall credit health reduced to a three-digit number.
Beyond that, a lot of people have, at ideal, a hazy understanding about how their monetary transactions are viewed by the credit agencies. There are numerous myths and misconceptions about credit reports and credit scores and how they are affected by things individuals do financially. Here are a number of good examples of these popular misunderstandings:
A consumer has only one credit score – Not true. Each agency keeps track of monetary transactions separately from the others and may have more or less information to work with than the other credit reporting agencies. Plus, until recently, each bureau used their own scoring technique. In all probability, if a consumer were to contact each bureau to obtain his or her credit score, the result would be three totally different numbers.
Your salary affects your credit score – Your score is just a representation of how well you handle the credit available to you. If you earn more cash, you might have more readily available credit, or not. Either way, the score is simply a reflection of what type of credit you have and whether you repay your bills on time. How much you earn is not part of the formula.
Canceling a bank card raises your credit score – Not necessarily true. Credit agencies examine how much of your available credit you are using. Less is more; the agencies like to see that you are making use of as little of your readily available credit as possible. If you owe a lot of money on charge cards and you cancel an abandoned account, it may look like you’re making use of a larger portion of your accessible credit. That will literally increase your score!
Marriage merges credit reports – Your credit profile is your own. That will not change should you get married. Collectively borrowed money will show up on both reports and will affect both of your scores. And just as marriage doesn’t merge the reports, divorce will not separate the joint items. If you get divorced and your ex does not pay on your joint loans, your score will go down.
The process of compiling credit ratings is a complex one. It is understandable that a lot of individuals do not entirely understand how the technique works. Perhaps the ideal way to retain tabs on what is going on with your own financial situation is to check your credit score regularly. You can get a copy of your credit report at AnnualCreditReport.com.
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