Don’t I Have the Right to a Credit Report?

Don't I Have the Right to a Credit Report? By Credit Expert John Ulzheimer - PinterestWhen consumers ask me questions about their credit reports it’s normally about how to get an item removed or corrected. Sometimes, however, I do get questions about having information added to a credit report. This type of question brings up an interesting concept, which is whether or not consumers have the right to certain credit report information or even the right to a credit report at all.

The Fair Credit Reporting Act

The Federal statute that governs the credit reporting agency’s actions, the use of credit reports, and the furnishing of information to the credit reporting agencies is the Fair Credit Reporting Act or “FCRA.” The FCRA is a consumer protection statute that has been around since the early 1970s and confers rights to consumers as it pertains to their credit reports. The Act has been amended dozens of times.

There is no language in the FCRA that affirmatively gives consumers the right to have a credit report. And, there’s also no language in the FCRA that gives consumers the right to demand that they do not have a credit report. The act is silent on those two issues.

The Voluntary System

What this means is you cannot demand that a credit reporting agency push a button, delete your credit report information, and then never again collect information about your credit obligations. Conversely, you also cannot force a credit reporting agency to reach out to your bank or other service providers, get information about how you manage your accounts, and then add them to your credit reports.

Your credit scores might not be the same.

Your credit scores might not be the same.

There are some very limited scenarios with federally guaranteed student loans and their servicers. The loan servicers may be required by the Department of Education to credit report debtor obligations, but that’s not the same as a lender choosing to report, or not to report. That’s entirely voluntary.

From a more granular perspective, you also don’t have the right to identical credit reports and certainly, you don’t have the right to identical credit scores across the credit reporting agencies and the various brands of credit scores. So, you cannot demand that your credit reports at Equifax, Experian, and TransUnion be the same and you cannot demand that your FICO and VantageScore credit scores are identical.

In fact, you don’t even have the right to a credit score, at all. There are certain minimum criteria that must be met before your credit report will even qualify for a credit score. When your credit report is created, a process that normally occurs the first time you apply for credit, it will not qualify for a credit score because there isn’t enough information to make it scorable.

Consistency, or Inconsistency

Another interesting aspect of credit reporting and our control (or lack of control) over what goes on and what does not go on our credit reports is the issue of consistency. For example, I can be added as an authorized user on Credit Card A and also added as an authorized user on Credit Card B, and there’s no guarantee that both card issuers will choose to report the account on my credit reports.

There’s also no guarantee that the issuer of Credit Card A will credit report all of their authorized users. They may choose to report some of them, and then choose to not report the rest. There’s nothing I can do about this. There’s nobody to complain to about the consistency issues and you can’t leverage your rights to consistency, because you don’t have any.

You also cannot control whether or not any of your lenders report to all three of the credit bureaus. For example, you may have a lender that reports to Equifax, but not to Experian and TransUnion. You can come up with any number of other combinations, and those would be true as well.

Not all credit card issuers report authorized user data to the credit bureaus.

Not all credit card issuers report authorized user data to the credit bureaus.

This can be an issue with the use of secured credit cards, which are a common tool used by consumers to build or rebuild their credit. Notwithstanding the fact that becoming an authorized user on a loved one’s credit card is a much better alternative, there’s no guarantee that your secured card issuer will report to any of the credit bureaus.

Users of Credit Reports

There’s one final issue to cover on this topic of consistency. The users of credit reports, as in lenders and debt collectors, also don’t have the right to use credit reports or to furnish information to any of the credit bureaus. All users of credit reports had to apply for service with the credit bureaus and then go through a process of consideration and evaluation by the credit bureaus before their accounts were approved.

And even if a company has an account with the credit bureaus, buys credit reports, and furnishes information to the credit bureaus there’s no guarantee that they will always have that account. The credit bureaus can choose to stop doing business with a lender or a debt collector. They can also choose to purge data provided by a former client. And like consumers, there’s nothing they can do to force a credit bureau to change their mind.

John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group and the author of four books about consumer credit. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has 27+ years of experience in the consumer credit industry, has served as a credit expert witness in more than 370 lawsuits, and has been qualified to testify in both Federal and State courts on the topic of consumer credit. John serves as a guest lecturer at The University of Georgia and Emory University’s School of Law.

Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of Tradeline Supply Company, LLC.

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Are Inquiries Really Killing Your Credit? What You Need to Know

People often point the finger at inquiries as the cause of their bad credit, but is this blame justified? Can inquiries really kill your credit score? Keep reading to find out.

Credit Inquiries Definition

A credit inquiry, also commonly referred to as a credit check or a credit pull, is a request by a business to check your credit report.

There are two different types of credit inquiries: a hard inquiry (or “hard pull”) and a soft inquiry (or “soft pull”).

The type of inquiry depends on the reason for the credit pull and the business conducting it.

A hard inquiry occurs when a business who is considering issuing you credit gets your credit report from one of the bureaus.

A hard inquiry occurs when a business who is considering issuing you credit gets your credit report from one of the bureaus.

What Is a Hard Inquiry?

A hard inquiry is when a creditor who is considering issuing you credit pulls your credit report from one of the credit bureaus.

Hard inquiries typically occur when you are applying for loans, including mortgages or auto loans, as well as credit cards.

When you are “rate shopping” to look for the best interest rates on an installment loan, such as a mortgage, auto loan, or student loan, FICO doesn’t penalize your score for this. As long as the credit inquiries are within 45 days of each other, they will all be counted as just a single inquiry.

How Many Points Does a Hard Inquiry Affect a Credit Score?

Since a hard credit inquiry on your credit report means you are actively seeking to get new credit, this is seen as risky behavior by lenders. According to FICO, people with six or more inquiries on their credit files are eight times more likely to declare bankruptcy than people who do not have any inquiries on their credit reports.

For this reason, each inquiry may lower your credit score by up to five points. 

The specific number of points an inquiry costs you depends on other factors in your individual credit profile, such as the length of time since your last inquiry. If you do not have any other inquiries on your credit report, a hard pull likely won’t affect your score very much.

Depending on what else is in your credit profile, it may not even lower your score at all.

When Do Hard Inquiries Fall Off a Credit Report?

Hard inquiries are automatically removed from your credit report after two years.

How Long Do Hard Inquiries Affect a Credit Score?

While hard credit inquiries fall off your credit report in two years, they only impact your credit score for the first year.

What Is a Soft Inquiry (Soft Credit Check)?
A landlord may do a soft credit check when evaluating your rental application.

A landlord may do a soft credit check when evaluating your rental application.

A soft inquiry, also known as a soft pull or soft credit check, can happen for a variety of different reasons. Unlike hard inquiries, which are conducted by businesses considering offering you new credit for the first time, soft pulls are used by entities that are interested in your credit report for other purposes.

This could include potential employers or landlords pulling your credit as part of a background check, for example.

When you check your own credit report, this is also considered a soft inquiry.

Soft credit checks may also be used by businesses you already have accounts with who routinely check to make sure you are still a creditworthy consumer.

How Do Credit Inquiries Affect Your Credit Score?

Soft inquiries do not affect your credit score. Soft pulls are typically not used when you are actively seeking new credit, so they do not necessarily indicate risky financial behavior. Therefore, they are not factored into your credit score.

Since checking your own credit report is classified as a soft credit check, you do not need to worry that checking your own credit report will affect your score. It is a myth that checking your credit will make your score go down. You can actually check your own credit report as many times as you like without it affecting your score.

New credit makes up 10% of a FICO score.

New credit makes up 10% of a FICO score.

In fact, you can even get a free soft credit check of your own report using free sites like creditkarma.com.

When it comes to hard pulls, although people tend to fixate on the impact of these hard credit inquiries, the truth is that they are a relatively minor player in your credit score.

Of the factors that go into your credit score, the category that includes inquiries, “new credit,” is the smallest one, making up about 10% of your score. 

Within that small category of new credit, according to FICO, there are several different data points that are taken into consideration. These data points include:

The number of new accounts
The proportion of new accounts vs. seasoned accounts for each type of account
The number of recent credit inquiries
The amount of time that has passed since recent account opening(s) for each type of account
The amount of time that has passed since recent credit inquiries

As you can see, there are several variables in this category that can affect your credit score beyond the number of inquiries on your credit report.

Since inquiries are just one variable within one small piece of the credit score pie, they do not weigh heavily on one’s credit score. Therefore, as we mentioned above, each hard inquiry should only cost you a maximum of five points, and if they are done in a short period of time they often are only counted as one inquiry.

Inquiries typically only cause problems if you show new hard inquiries continuously over a long span of time, which makes you seem more risky to potential lenders.

One possible reason for this conclusion is if you continuously have your credit ran over an extended period of time, the lenders assume that you are being denied credit. As mentioned above, this is not the case as long as the inquiries are done in a short period of time. That is assumed to be the “shopping” period.

In the case of someone having continuous hard pulls over an extended period of time, a few points lost per inquiry can add up if there are a lot of them. If you have 10 inquiries on your credit report over an extended period of time and the average decrease in score per inquiry is 3 points, that’s a total loss of 30 points! If you are near the lower edge of the “good credit” range, this 30-point dip could take you into a lower credit score level.

This would be an example of a more extreme situation, but if this person were in the “bad credit” category after the hit from these inquiries, the inquiries may have tipped the scale on the credit score category, but they are not the original cause of being on the cusp of bad credit to begin with.

Some people believe that you cannot get a mortgage if you have recent inquiries on your credit report. However, inquiries themselves are typically not an automatic disqualifier, although you may have to give a few sentences explaining each inquiry. If you have enough inquiries on your credit report to lower your score, though, this could affect the terms of your loan.

Can You Remove Inquiries From Your Credit Report?

People with a lot of inquiries on their credit reports often want to know how to remove inquiries from a credit report fast. However, as with any credit repair process, there is no silver bullet that will instantly boost your credit score. It takes time, work, and patience if you want to see your credit score go up.

It’s also important to note that there is no legitimate way to remove timely and accurate inquiries from your credit report. If you really did get a hard inquiry, it would be fraudulent to lie and claim that the inquiry should be removed.

According to the Federal Trade Commission, “No one can legally remove accurate and timely negative information from a credit report.”

The same rules apply when you are working with a credit repair company. The FTC says, “The first rule of credit repair is that no credit repair company can remove accurate and timely negative information from someone’s credit report.” 

If you have inaccurate inquiries shown on your credit report as a result of identity theft or a reporting error, however, you can and should look into how to delete hard inquiries so you can get the credit inquiries removed.

How to Remove Inquiries From a Credit Report

Hard inquiry removal may seem intimidating, but removing credit inquiries from your credit report is certainly possible if they are inaccurate or fraudulent.

If you are interested in how to delete credit inquiries, the best way to go about it is by writing a credit inquiry removal letter. Write a letter to the credit bureau(s) that explains the errors and proving that you did not authorize the hard pull on your credit report. Also, attach a copy of your credit report indicating which inquiries are inaccurate. The FTC provides a sample letter that you can use as a template.

Once the bureau(s) receives your credit inquiries letter, they have 30 days to investigate the dispute and respond. If the creditor cannot prove that you authorized the hard pulls on your account, the bureau will delete the inquiries from your credit report, and the credit inquiry removal process will be complete.

Are Inquiries Killing Your Credit? Pinterest graphic

Conclusion on Credit Inquiries

We often hear people blaming their bad credit on the fact that they have too many inquiries on their credit. However, we do not believe that inquiries are really the cause of bad credit.

We believe the cause of bad credit usually comes down to missed payments, defaults on loans, and/or high credit utilization. These factors are much more significant than simply too many inquiries. 

We are aware that on many credit monitoring platforms, the system may mention that the person has too many inquiries. Perhaps this is one cause of the myth that inquiries are the cause of bad credit.

However, as illustrated in this article, inquiries are only one data point among several other data points within the category known as “new credit,” which accounts for around 10% of someone’s overall credit score. This does not mean that inquiries alone count for 10% of your credit score. It means that inquiries are one of several data points that combined account for around 10% of a credit score, so it should be fair to assume that inquires, in fact, count for less than 10% of a credit score.

It may be possible for inquiries to have a significant effect on one’s credit score in extreme cases such as someone having multiple hard inquiries pulled continuously over the course of a year. However, in more typical scenarios, inquiries most likely are not the cause of someone having bad credit.

 

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Credit Reports: What You Need to Know

Credit Reports: What You Need to Know - Pinterest graphic

Nearly half of Americans believe a credit score and a credit report are the same thing, according to a study by the American Bankers Association. That’s a big problem because it means many of us are seriously misinformed about how the credit system works.

Since credit is such an integral part of our financial ecosystem, it affects nearly all of us at some point in our lives. Your credit health can determine not only your access to credit and the cost of using credit but also employment opportunities, housing options, and more. Not understanding how credit works, therefore, can have serious consequences.

We want to help address this problem by making it easy to understand what your credit report is and why it’s important, the difference between your credit report and credit score, how to get a free credit report, and how to dispute errors on your credit report.

What Is a Credit Report and Why Is It Important?

A credit report is a detailed report on your credit history prepared by a credit reporting agency, also known as a credit bureau. The three main credit bureaus are Experian, Equifax, and TransUnion, and we’ll discuss each below. What is in your credit report can be different for each bureau, since they are private companies that do not share information.

What Is in a Credit Report?

Credit reports contain identifying information such as your name, social security number, and current and previous addresses. They also contain a detailed summary of your credit history, which includes items such as the following:

Credit reports include a list of your credit accounts and financial records.

Credit reports include a list of your credit accounts and financial records.

A list of current and past tradelines (credit accounts), along with the date opened, credit limit, balance, and payment history of each account
Inquiries into your credit history
Public records of bankruptcies, foreclosures, tax liens, etc.
Accounts in collections

How Far Back Do Credit Reports Go?

The information in your credit report usually goes back about 7-10 years.
Current accounts should show up on your credit report as long as they are open.
Negative information, such as collections, will fall off your credit report seven years after the delinquency occurred.
Closed accounts that were closed in good standing fall of your credit report in 10-11 years.

What Is the Difference Between a Credit Report and a Credit Score?

Credit Report
Credit Score

Prepared by the three major credit bureaus
Many different credit scores

A list of all your credit accounts and related personal information
A three-digit number between 300 and 850 meant to represent your creditworthiness

Information in your credit report is used to calculate your credit score
Reflects the information in your credit report

You are legally entitled to get a free credit report from each bureau once a year
You are not legally entitled to check your credit score for free (although some credit card companies may offer this to customers)

Does not include your credit score
Does not include information on your credit history

Does Checking My Credit Report Hurt My Score?

While this is a common misconception, you can rest assured that checking your credit report won’t lower your credit score. Checking your own credit is what’s known as a “soft inquiry” or “soft pull,” which doesn’t hurt your credit. “Hard” inquiries can ding your score, but these are used by creditors when making lending decisions, not for checking your own credit report.

How to Get a Free Credit Report

By law, everyone is entitled to receive one free credit report from each of the three major credit bureaus once every 12 months. You can order all three at the same time or order each individual report one at a time.

Some people like to spread them out and get a free credit report from a different bureau every four months so that they can regularly check their credit reports for errors and inconsistencies. Each credit bureau is a private, for-profit company, and they don’t share information, so you could have errors on one of your credit reports but not the others.

Free credit report and score from CreditKarma

Free credit monitoring websites like CreditKarma provide free credit reports and scores.

The best way to check your credit report for free is to order your free credit report from annualcreditreport.com. In fact, this is the only website authorized to provide the annual free credit report you are legally entitled to, according to the FTC—so beware of other sites claiming to offer free credit reports or free trials, especially if they ask for your credit card information.

However, there are now several free credit report websites that earn money through advertising and are thereby able to offer free credit monitoring services. Sites that offer completely free credit reports include:

CreditKarma
CreditSesame
WalletHub
Bankrate

When Else Can I Get a Free Credit Report?

You can also check your credit report for free if you have been denied credit because of the information in your credit report. You are entitled to get a free credit report from the bureau who provided the report that the lender used to make their decision.

You are entitled to a free credit report if you are unemployed and applying for jobs.

You are entitled to a free credit report if you are unemployed and applying for jobs.

For example, if the lender who denied you credit looked at your Experian credit report, you can request your Experian free credit report. The adverse action letter informing you of the reason for your denial should have instructions on how to request your free credit report.

There are a few more cases in which you can qualify for an additional free credit report, including:

If you are unemployed and planning to look for work.
If you receive government assistance.
If you are a victim of identity theft.

Although experts recommend checking your credit reports at least once a year, the Consumer Financial Protection Bureau (CFPB) estimates that less than one in five consumers get copies of their credit reports each year. Don’t miss out on this opportunity to get your credit report for free so you can make sure your credit report is accurate and identify any problems before they get worse.

Can I Get a Free Credit Report Directly From the Credit Bureaus?

You can also get your credit report directly from each of the credit bureaus, but you may have to pay a fee if you go this route. If you want to get a credit report for free, your best bet is to order from annualcreditreport.com.

However, some people may want to check their credit reports more than once a year, so we’ll discuss additional options for obtaining your credit reports below.

Experian Credit Report

You can get a free Experian credit report that refreshes every 30 days through Experian’s website. They also offer paid options that come with additional information. The Experian free credit report does not include a free credit score.

Equifax Credit Report
You can get your TransUnion and Equifax free credit reports on third-party websites.

You can get your TransUnion and Equifax free credit reports on third-party websites.

While you cannot get an Equifax free credit report from the bureau directly, you can pay a fee to access your Equifax credit report and score. To get your Equifax credit report, visit their website.

You can also view your free Equifax credit report and score through CreditKarma, which updates once a week.

TransUnion Credit Report

Accessing your TransUnion credit report requires signing up for a paid monthly subscription service with TransUnion. However, you can get a free TransUnion credit report from CreditKarma or NerdWallet.

How to Dispute Errors on Your Credit Report

Unfortunately, studies have shown that as many as one in five consumers may have errors on their credit reports, and about one in 20 have errors that are significant enough to potentially lower their credit scores. This means it is crucial to monitor your credit reports regularly and be aware of how to fix errors on your credit report.

The credit bureaus offer online forms to submit credit report disputes, but experts warn against using this option, as it does not allow you to write a detailed explanation of why you are disputing the information or provide sufficient supporting evidence. This leaves room for the credit reporting agency to deny your claim because you did not provide enough information.

The best way to dispute a credit report is to write a detailed credit report dispute letter and mail it to the bureau along with plenty of documentation verifying your identity and supporting your claim.

Once a dispute has been filed, the bureaus typically have 30 days to investigate the claim. If they verify that the item is accurate, it will remain on your report; if not, they must either update the item with the correct information or delete it entirely.

Errors on your credit report can, unfortunately, lead to bad credit. For this reason, checking your credit report regularly and disputing any errors is an essential step in maintaining your financial health.

Check your credit report for errors regularly.

It’s important to check your credit report for errors regularly.

Check out additional tips in our article about do-it-yourself credit repair.

If you have a lot of errors on your credit report or if you have been the victim of identity theft, it may also be worth considering hiring a reputable credit repair service to assist you in the dispute process.

Which Errors Can You Dispute?

The law requires that the information in your credit reports must be accurate, complete, timely, and verifiable. Anything that does not meet these requirements can be disputed.

Technically, you can dispute anything in your credit file, but that doesn’t mean you should try to dispute things that you know are accurate. The credit bureaus are allowed to ignore “frivolous” claims, and if they verify something to be true, it will stay on your credit report.

For more tips on how to dispute a credit report, check out this article from creditcards.com.

Quick Credit Report Facts

A credit report is a detailed report on your credit history prepared by one of the credit bureaus: Experian, Equifax, and TransUnion.
The information in your credit report is used to calculate your credit score.
Checking your credit report does not hurt your score.
You are entitled to a free credit report from each of the three bureaus once a year, which you can order from annualcreditreport.com.
You can dispute errors on your credit report by mailing a credit report dispute letter and supporting documentation to the credit bureau.

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Let’s Get to the Bottom of These Credit Myths

Myths and misinformation about credit scores, credit reports, and credit repair are extremely common. Unfortunately, many people believe these myths, and their credit suffers as a result of taking incorrect actions. 

Let’s get to the bottom of these credit myths and learn the truth about them so you can start improving your credit the right way.

Credit Myths - Pinterest

Myth: Everyone automatically has a credit score.
Fact: 1 in 5 adults in the United States do not have credit scores.

A report by the Consumer Financial Protection Bureau (CFPB) found that one-fifth of adults in the United States do not have enough credit data to calculate a credit score by traditional methods. These consumers are called “credit invisibles.”

Low-income consumers are particularly susceptible to credit invisibility due to lack of access to traditional credit products. Some consumers may be credit invisible for other reasons, such as a voluntary decision not to use credit.

For those that do not use credit for whatever reason, it is likely that they do not have enough of a credit history to generate a credit score.

Consumers that are credit invisible may be able to generate a credit record by piggybacking on the good credit of others, but don’t assume that everyone has a credit score just by virtue of existing.

Myth: Checking your credit report will hurt your credit score.
Fact: Checking your own credit will not hurt your score.

Checking your own credit report results in what is known as a “soft pull,” which means the inquiry does not affect your credit score. 

To understand the difference between hard and soft inquiries and how they affect your credit score, see our article, “Are Inquiries Really Killing Your Credit?

Myth: Your income affects your credit score.
Fact: Your credit score does not look at your income.

However, your income can affect your credit indirectly in that it influences the “five C’s” that have been shown to predict credit performance: capacity to pay off debts, the collateral backing a loan, capital available to repay a loan, conditions that affect income and expenses, and the character of the borrower.

Your capacity to pay off debts as well as the collateral and capital they have available to repay loans may all have a relationship with your income. 

That’s a big part of the reason why low-income consumers are 8 times more likely than high-income consumers to have no credit score at all. In consumers that do have credit scores, those who reside in low-income areas have lower credit scores. In addition, low-income consumers are 240 percent more likely to have their credit file originated due to derogatory items such as collections.

So while your income is not technically incorporated into your credit score, it can definitely influence your ability to repay debts, which is the basis of a credit score.

Myth: You only have one credit score.
Each consumer can have dozens of different credit scores.

Each consumer can have dozens of different credit scores.

Fact: There are many different credit scores.

There are two general types of credit scores: FICO scores, developed by Fair Isaac Corporation, and VantageScore, developed by the three major credit bureaus (Equifax, Experian, and TransUnion).

FICO 8 is the credit score most commonly by lenders today, but in some industries, older models or industry-specific models are used instead. For example, there are FICO scores tailored specifically toward auto loans and credit cards, and mortgage lenders are known to use the older FICO score versions 2, 4, and 5. Plus, FICO scores are different for each credit bureau.

VantageScore, which is increasingly used by some lenders as well as for consumer credit education, also has a few versions. The latest version is VantageScore 4.0, but VantageScore 3.0 is still the most commonly used version today.

Altogether, between the many versions of FICO scores and VantageScores, consumers can have dozens of different credit scores.

Myth: Paying half of your minimum payment twice a month counts as two full payments and tricks the system into giving you twice the credit score boost.
Fact: Dividing your bill in half and making two payments is the same as paying the full amount once.
Screenshot of a tweet that says: "Pay half of your payment 15 days before the due date then pay the remaining half 3 days before the due date. It'll boost your credit score. You trick the system into thinking you made two full payments which helps boost your credit score."

This credit myth is unfounded yet often repeated.

If this “credit hack” sounds a little too good to be true, that’s because it is. It is simply not true that you can “trick the system” into thinking you have made two full payments by making two half payments.

Making a payment on a credit account affects two main factors of your credit score: payment history and credit utilization. Let’s discuss each factor individually.

When it comes to your payment history, making a partial payment that is less than the minimum amount due does not satisfy the requirement and will not count as an on-time payment. Only once you have made the second payment for the other half of the amount due will you have satisfied the requirement to be considered paid on time. Therefore, you do not gain any extra benefit to your payment history from dividing your payment into two parts instead of paying the full amount at one time.

As an example, let’s say you have a bill due on the 30th and the minimum amount you must pay is $50. We have laid out the two payment scenarios in the table below.

Scenario 1: Pay the full amount in one payment
Scenario 2: Make half of the payment twice

Date
Amount Paid
Payment Status
Date
Amount Paid
Payment Status

15th

15th
$25
Insufficient payment—$25 still due

30th
$50
Paid on time
30th
$25
Paid on time

 

As you can see from the table, in both scenarios, you only get the benefit of paying your bill on time once per billing cycle, not twice.

Now let’s discuss the utilization factor. Continuing with the same example, the total amount you are paying toward the account is $50 in both scenarios. Therefore, the overall improvement in your utilization ratio is going to be the same either way.

Now, if the reporting date for that account is in between the first and second payments, since you have already sent a partial payment, you may temporarily get a small boost from having a slightly lower utilization ratio when the account reports to the credit bureaus. But at the end of the billing cycle, the result will be the same.

If you don't have any credit history, you can being building credit by piggybacking on someone else's good credit.

If you don’t have any credit history, you can being building credit by piggybacking on someone else’s good credit.

If you decide to make extra payments in addition to your minimum payment, which is ideally what all responsible borrowers should be doing, that can certainly help your credit score by speeding up your debt repayment. But simply splitting the minimum payment into two payments won’t do anything to boost your score.

Myth: If you don’t have credit history, you’ll never be able to get credit.
Fact: You can start building credit by piggybacking.

While it can definitely be more difficult to get credit when you don’t have any credit history to begin with, it’s not impossible. There are credit products out there designed for people with no credit or bad credit, such as secured credit cards and credit-builder loans.

Another way to start building credit fast is by piggybacking off of the good credit of someone else. You could have someone you trust cosign on a loan or open a joint account with you, or you could become an authorized user on someone else’s seasoned tradeline.

If you are not lucky enough to know someone who has a seasoned account with perfect payment history that they could add you to, consider purchasing tradelines from a reputable tradeline company.

Myth: Paying off a collection will “re-age” the debt because the account falls off your credit report based on the date of last activity.
Fact: Collections fall off your credit seven years after the initial delinquency and cannot legally be re-aged.
It is illegal to "restart the clock" on collections.

It is illegal to “restart the clock” on collections.

If you’ve read our article about collections on your credit report, then you know that it is the date of first delinquency (DOFD) that determines when the collection will be removed from your credit report, not the “date of last activity” (DLA). 

The reason why some people may believe this myth is because shady debt collectors sometimes illegally change the date of first delinquency to the date of last activity in an attempt to re-age the debt.

As we said, this practice is illegal. If you notice that a debt collector has improperly changed any information about a collection account on your credit report, you have the right to dispute the inaccurate information.

Myth: Paying off a collection will boost your credit score.
Fact: Paying off a collection may or may not raise your score depending on which credit score is used.

While it makes sense to assume that paying off a collection should increase your credit score, that is not always the case. In fact, more often than not, this is not the case, although it depends on which credit score is being used.

With FICO 8 and all previous FICO scores, both paid and unpaid collections are categorized as major derogatory items on your credit report. Therefore, paying off the account will not change how it is considered by the credit scoring algorithm, which means your score may not go up at all.

On the other hand, FICO 9, VantageScore 3.0, and VantageScore 4.0 ignore paid collection accounts, so your score should recover after paying off a collection if one of these credit scoring models is being used.

Myth: You should close accounts you’re not using.
Fact: You should keep accounts open and use them periodically.

While you might think that closing accounts you don’t need will help your credit score, the opposite is actually true, especially when it comes to revolving accounts such as credit cards. 

The main reason for this is that credit utilization is an important part of your credit score, and closing credit card accounts will hurt your utilization ratio by decreasing your credit limit.

It could also hurt your mix of credit, although that’s a less important factor.

In addition, payment history is the number one factor that helps your score. It’s better for your credit to keep the account open, use it for small purchases here and there or a monthly subscription, and pay it off every month to keep building more positive payment history.

The exception to this is if an account comes with an annual fee that’s no longer worth the price or if you can’t resist the temptation to overspend.

Myth: Closed accounts don’t affect your credit.
Fact: Closed accounts can have a significant impact on your credit.

Although we just discussed why you shouldn’t necessarily close old accounts, that’s not to say that closed accounts don’t impact your credit. They certainly can, particularly when it comes to your credit age.

Closing an account does not remove its payment history or age from your credit report, so closed accounts still contribute to your credit age. In addition, accounts can continue to age even after they have been closed.

So although it’s best to keep accounts open if you can, having closed accounts on your credit report is not a bad thing. If the account was closed in good standing, it will likely continue to help your credit.

Carrying a balance on your credit cards is expensive and does not help you build credit.

Carrying a balance on your credit cards is expensive and does not help you build credit. Photo by Hloom on Flickr.

Myth: Carrying a balance on your credit cards will help your credit.
Fact: Carrying a balance will not help you build credit and it will cost you interest fees.

While it is important to use credit regularly when building credit, it’s not necessary to carry a balance on your credit cards from month to month. If you do this in an attempt to build credit, you will be wasting money by paying unnecessary interest. 

The best way to build credit using your credit cards is to use them responsibly and then pay the full balance due each month, or even make multiple payments each month to keep your utilization ratio as low as possible.

Myth: Shopping around for the best rates on a loan will hurt your credit score.
Fact: Getting loan estimates from multiple lenders will not hurt your score if you complete the process within a specific time window.

Credit scoring algorithms understand that it’s smart to shop around for the best rates on a loan, not risky. Therefore, credit scores typically have ways of preventing the series of multiple inquiries that result from this process from hurting your score excessively. 

If you are applying for student loans, mortgages, or auto loans, FICO scores allow a certain time frame for you to shop around, only counting one hard inquiry to your credit report for this time period. For older FICO scores, the time window is 14 days; for newer FICO scores, the time window is 45 days.

In addition, FICO scores have a 30-day hard inquiry “buffer,” meaning that the algorithm ignores any inquiries that occurred within the past 30 days when calculating your score. 

VantageScore uses a simpler method: it groups all inquiries made within a 14-day window of each other together and counts those all as one inquiry, regardless of what types of accounts the inquiries were for.

Myth: You can fix your credit by disputing everything on your credit report.
Fact: Disputing everything on your credit report could get you in legal trouble and may not even help your credit.

If there is information on your credit report that is inaccurate, outdated, incomplete, or unverifiable, of course you would want to dispute those items with the credit bureaus. But it’s not necessarily a good idea to dispute negative items on your credit report that are accurate.

First of all, the derogatory items won’t necessarily get deleted from your credit report, especially if you don’t provide proof that they are inaccurate. They might just get updated with the correct information, or they may get deleted temporarily until an investigation determines the items are valid and they go right back on your credit report.

Furthermore, the credit bureaus don’t have to investigate disputes that are deemed “frivolous,” and they could decide that some of your disputes are frivolous if you are disputing every item in your credit file, regardless of accuracy.

Plus, lying on a credit dispute could be considered fraudulent. According to the FTC, “No one can legally remove accurate and timely negative information from a credit report.”

Even if you were to get away with disputing everything on your report, this might not necessarily help your credit as much as you hoped. If you’ve gone through an aggressive credit sweep and have nothing left on your report, then you essentially have no credit history and likely no credit score, which could be just as problematic as having bad credit.

Myth: CPN numbers can be used in place of social security numbers to create a new, clean credit file.
Using a CPN to apply for credit is a federal crime. Photo via seniorliving.org.

Using a CPN to apply for credit is a federal crime. Photo via seniorliving.org.

Fact: CPNs are illegal and using one to apply for credit is a federal crime.

Although you might have heard some people claim that “credit profile numbers” or credit privacy numbers” are a legitimate way to protect your privacy or wipe your credit slate clean, in reality, there is no legitimate or legal source for CPN numbers.

Most of the time, these numbers are either fake social security numbers that have not been created yet or real SSNs that have been stolen from children, the elderly, deceased people, people who are incarcerated, and people who are homeless. Either way, using a CPN means getting involved in identity fraud, which is a federal crime.

The Social Security Administration and the Federal Trade Commission have both explicitly stated that applying for credit using a CPN is illegal and that those who sell CPNs are scamming consumers.

Learn more about the dangers of CPNs in our article.

Myth: The credit score you check online is the same one lenders see when they pull your credit.
Fact: Lenders often do not use the same credit scores that are provided for free online.

When you check your credit score for free online, the credit score you see is most likely going to be a VantageScore. This is the score most commonly used by free online services such as Credit Karma.

The majority of lenders, however, primarily use FICO scores, although some lenders are now starting to use VantageScore. Just keep in mind that the score you see online may not be the same as the score lenders see, as there can often be a significant difference between your VantageScore and your FICO score. 

If you want to check your FICO score for free, check with your credit card issuer, since many now offer this service.

Myth: If you don’t have any debt, you will have a good credit score.
Fact: You need to use credit to build your credit score.

Having good credit doesn’t just come down to the amount of debt you have—that’s just one part of your credit score. Payment history is the most important part of a credit score, so if you’ve never had debt and you don’t have any payment history, you might not even have a credit score at all.

To get a good credit score, you have to use some form of credit and demonstrate that you can use credit responsibly by building up a positive payment history over time.

Myth: There’s no need to check your credit report until it’s time to apply for a big loan.
Fact: It’s important to monitor your credit regularly.

Waiting to check your credit score until you need to apply for credit is a mistake because there could be errors on your credit report bringing your score down. Studies estimate that about one-fifth of consumers have at least one error on their credit report, some of which could be serious enough to result in higher interest rates, less favorable loan terms, or being denied credit.

It’s important to keep an eye on your credit so that you can correct errors and fight fraud as soon as possible instead of waiting until it’s too late.

Myth: A late payment will make your score go down by 50 points.
Fact: There is no set amount of points that is associated with any particular item on your credit report. 

While it is certainly possible that a 30-day late payment could cause a 50-point drop (or more) in someone’s credit score, this is not always going to be the case. There is no fixed number of points that your score will go up or down by for each item on your credit report. Rather, the way in which a late payment affects your score is always going to depend on your individual credit profile.

There is no set amount of points associated with missing a payment.

There is no set amount of points associated with missing a payment.

Credit scoring algorithms are very complex and they incorporate hundreds of variables, such as how recent the late payment is, whether you have other late payments in your credit history, and how severe the delinquency is, not to mention the myriad other variables associated with the other categories within a credit score.

Because delinquencies on your credit report are always going to be relative to whatever else is in your file, there is a “diminishing returns” effect where the first late payment hurts your score the most and each subsequent late payment tends to have a smaller impact. Someone who has a high credit score and has never missed a payment before is going to experience a severe drop from their first missed payment, whereas someone who already has lates on their record and a lower credit score is going to be hurt less by a subsequent late payment.

According to credit expert John Ulzheimer in a blog article, “Delinquencies, like inquiries, do not have independent value… It is entirely inappropriate and incorrect to say that ‘X’ lowered my score by ‘Y’ points.”

He continues, “The late payment didn’t lower your score but because adding a late payment to a credit report moves other things around it caused your score to be different than it was before the late payment was added. If your score is 50 points lower it’s not as if the new late payment lowered your score 50 points…but because the addition of that item caused a different evaluation of EVERYTHING on your credit reports…the new reality for you is 50 points lower.”

The same principle goes for other items on your credit report as well, not just late payments.

Myth: You don’t have to worry about your kid’s credit.
Fact: You should keep an eye on your kid’s credit report, too.

The proliferation of scammers and hackers stealing people’s private information means even your kid’s credit profile could be at risk of identity theft. When people use “credit profile numbers” (CPNs), for example, these numbers are often real social security numbers stolen from children.

Make sure you monitor your kid's credit in addition to your own.

Make sure you monitor your kid’s credit in addition to your own.

You don’t want to wait until your child is grown up and ready to apply for credit to realize they have bad credit as a result of identity theft. Consider freezing your kid’s credit to prevent fraudsters from opening accounts in their name. 

Myth: Everyone’s credit score is calculated in the same way.
Fact: Credit scores have “scorecards” that categorize consumers and score them differently.

You already know that credit scoring algorithms are extremely complex, but what many people don’t know about is the “scorecards” or “buckets” within each credit scoring model. These  “buckets” consist of different categories of consumers.

For example, according to John Ulzheimer, “There are scorecards for thin files or those with few accounts, bankruptcy, derogatories, and those with clean credit files… Comparing like populations gives this population an opportunity to be considered based on [the] behavior of that group rather than a comparison to another, better group.”

The credit scoring formula is different for each bucket. In other words, items on your credit report can be treated differently based on which scorecard you fall into.

Sometimes your credit score changes in a way that you don’t expect. For example, perhaps an inaccurate collection account got deleted off of your credit report and your score went down, instead of up. This could be because you changed scorecards as a result of the deletion, causing your credit score to be calculated in a different way. Essentially, you might now be at the bottom of a different bucket instead of at the top of your previous bucket.

It’s always good to keep the concept of scorecards in mind, especially when trying to predict any kind of change to your credit score. You can never guess exactly how your score will change because of all the complexities and trade secrets that go into credit scores.

Conclusions

Unfortunately, there are tons of credit myths out there, and believing them may lead you to mismanage your credit and eventually end up with poor credit. We hope that this article helped to dispel many of the misconceptions about credit and helped you get started on the path to better credit.

What credit myths have you heard of? Did you use to believe any of these? We’d love to hear from you, so share your experience with us in the comments!

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