Myth No. 1: I shouldn’t check my credit score too often because my score will drop.
The Truth: There are two different kinds of inquiries — soft and hard. Checking your own score is a soft inquiry. Soft inquiries cannot be seen by creditors and do not affect your score. The same is true if a potential employer checks your credit. However, inquiries made for credit cards, loans, and mortgages on a new home will be shown to creditors and are counted in your score.
Myth No. 2: I should close all my credit cards because debt is bad!
The Truth: Debt should be managed carefully at all times, but it’s important to understand what makes up your credit score. Thirty percent of your credit score is based on your utilization – how much credit you are using compared to what is available. So if the card you are closing has a balance, your score will most definitely drop when you close the card. Plus, the average age of your credit makes up 15% of your score, so if you close a card it can drop your score in a big way! When thinking about purchasing a new home, it’s important to show good utilization and a long credit history.
Myth No. 3: Bankruptcy will follow you forever.
The Truth: In terms of credit reporting, bankruptcy is not forever. Filing a chapter 7 bankruptcy will remain on your credit report for ten years. A Chapter 13 bankruptcy lasts on the report for seven years. Bankruptcy doesn’t always prevent you from buying a new house, but it does affect your credit score.
Myth No. 4: Getting married to someone with bad credit will ruin your credit!
The Truth: This is only the case if you own something jointly, like two names on a mortgage or if you add that spouse to a credit card. A credit card held only in your name will not change your spouse’s credit score. The only exception to this is if you live in a community-property state. In these circumstances, all debt acquired during a marriage is joint debt, regardless of whose name is on it. Tennessee is not a community-property state.
Myth No. 5: It won’t affect my credit if I’m just a cosigner.
The Truth: Wrong! When cosigning, you accept just as much responsibility for the debt as the other party signing. This will show up on their credit AND yours, so be cautious when cosigning for a debt. If you plan on purchasing a new home in the next year, be very careful what you add to your credit history!
The contents herein are provided for informational purposes only. You should consult your own accounting, legal and tax advisors to evaluate the risks, consequences and suitability of any transaction.
