Dispelling 7 Credit Myths: Fallacy versus Fact

Dispelling 7 Credit Myths: Fallacy versus Fact

When purchasing a home, credit reports and credit scores play an important role in the home buying process. Buyers, as well as consumers in general, are constantly attempting to discern facts from fiction when it comes to this topic. So let’s dispel seven fallacies with the truth.

Myth 1. Credit bureaus are sanctioned with governmental authority.

FACT: No credit bureau is empowered by any kind of governmental authority, although the credit bureau will tell you otherwise. Credit bureaus are for-profit companies and are in the business of selling information that is obtained through subscribers who in turn buy that compiled information from the credit bureau.

Myth 2. The information on your credit report is unchangeable and cannot be changed by the consumer.

FACT: The Fair Credit Reporting Act allows you to change your credit report. The Fair Credit Reporting Act requires items that are not 100% accurate be removed if there is no verification of the item within a certain time limit. The consumer can challenge the credit bureau about information in their credit report but be aware doing so can be costly in time and money.

Myth 3: Closing a lot of credit cards will improve my credit score.

FACT: While that might seem to be logical, that’s not the way it works. One of the major factors of your credit score is your debt-to-credit ratio, and closing too many cards at one time can drastically change your ratio, which can cause your score to drop.

Myth 4: Checking my credit report or credit score will reduce my score.

FACT: This depends on how your credit report is pulled. A “soft pull” does not impact your credit score because it only involves a creditor examining a certain part of the report. On the other hand, a “hard pull” may impact your credit score because it involves the entire credit report when you are applying for some type of loan. But no worries. It only has a very minimal impact. When you apply for similar loans with several creditors within a 30-day period, it only counts as one inquiry.

Myth 5: With a bad credit score, I can never get a loan.

FACT: There are companies willing to give loans to people with poor credit. However, the loans will most likely have higher interest rates and require you to either put up collateral or put money down. Beware of predatory lending offers, where loan amounts and repayment terms (i.e. interest rates) are extremely high.

Myth 6: Disputing an account will make it come off of my report.

FACT: Disputing an account with the credit bureau will result in them investigating your claim. However, if they find the account or the information to be accurate, the information will not be removed.

Myth 7: My score will drop if I apply for new credit.

FACT: If by chance it does, it probably won’t drop much. If you apply for several credit cards within a short period of time, multiple inquiries for your credit report information will appear on your report. Trying to get new credit can equate with higher risk. But most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Usually, these are treated as a single inquiry and will have little impact on the credit score.

I hope you have found this information helpful and remember you’re entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.