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Credit Myths: Fact or Fiction?

October 9, 2020

3 MINUTE READ


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1. Does a credit check hurt your credit score?

The idea that a credit check can hurt your credit card can potentially be a destructive myth as it prevents people from being aware of what is going on with their score and report. There are two different types of credit checks: soft and hard. Pulling a credit check at home is considered a “soft” inquiry and will not hurt your credit. When a lender pulls your credit, it is considered a “hard” inquiry, which might have a small impact on your credit. If a lender sees that you have had multiple inquiries for a car loan in the last 30 days, they know you’re out shopping, and this won’t count on your credit. 
Overall, running soft credit checks once a year is important. You could end up being turned down for an error on your credit report if you are unaware of or are paying high interest rates. Just be wary of having your credit run every time a Banana Republic cashier offers you 15% percent off for opening a card.

2. Does bad news comes off my report in 7 years?

Some bad credit information can fall off in seven years, such as late payments, Chapter 13 bankruptcy, and other dings on your report. Chapter 7 bankruptcy (exoneration of all debt) can stay on up to 10 years. However, good news(!), if you close an account that had no late payments associated with it, it would show up on your report above the bankruptcy information. This information can also be on your report for 10 years. This means that good credit information hangs around longer than the bad!

3. Does paying off credit cards improve my credit score?

You can’t change the past, and your credit report is not a single shot of where you are at this moment but a history of your payments and open and closed accounts. Paying off debts will improve your score, but it can also hurt it. It can reduce some of your available credit limits, which can make the balance seem higher in comparison to that limit. If you are set on closing an account, close the one with the lowest limit, and make sure you keep some other accounts open as well.

4. Are all credit scores are the same?

There are three major companies that provide credit reports: Equifax, Experian and TransUnion. The information that these companies receive and process can vary and is interpreted differently. For example, some lenders might not report information to all three companies. Sometimes the credit scoring formulas are different for each company due to the computer systems they use. Your score can even be affected daily, meaning that TransUnion might process your information today, but Equifax will process it tomorrow. Therefore 99% of the time, all three scores will not be the same.

5. Does a divorce impact my score or report?

A divorce does not directly impact individual credit scores. However, dealing with joint accounts can lead to confusion, miscommunication, and late payments. A divorce decree might divide up your credit card, house, and car payments, but the lenders themselves don’t see this. If both parties of the divorce are responsible for the repayment, despite what the decree says, missed and late payments will show up on both reports and have a negative impact on both scores.

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