I read a recent article in Forbes magazine entitled: “Top 6 credit score misconceptions.” I’ll provide a brief summary of the six misconceptions reported in the article.
1. FICO is the one true credit score – FICO was created by Fair Isaac & Company as a numeric measurement for reporting credit scores. It is a widely used method, but it isn’t the only method used by credit bureaus. The FICO scale ranges from 300 to 850. Even though different credit bureaus might use FICO as the method, your score may be reported differently among various credit bureaus.
2. Checking your score is bad for your credit – not necessarily true. There are two types of credit checks: hard inquiries and soft inquiries. Hard inquiries do knock a few points off your credit score and are initiated when a financial institution pulls your credit report to assess you for a lending decision, such as approval for a mortgage or credit card. Soft inquires do not affect your credit score and are initiated as part of a background check, such as for pre-approved offers or as part of a hiring process. When you check your own credit score, it is considered a soft inquiry and won’t affect your credit score no matter how many times you check.
3. My credit score affects future job opportunities – Actually, with your permission, prospective employers get a copy of your credit report, and they are more interested in the narrative aspects of the report than the numeric score.
4. It takes forever for a credit score to budge – Credit scores vary more than you would think. According to one report by VantageScore, roughly 70 percent of credit scores change by up to 20 points in a 90-day window.
5. Credit cards are good for your credit score – Yes, but only partially. Installment loans, like mortgages and auto loans, may have a greater impact on your score than credit cards.
6. I don’t have to worry, I already have an excellent credit score – That’s great. But those with high credit scores have a tougher time of improving their credit score than those with lower scores. One missed payment can drop your score 30 or more points.
Given the flailing economy and high level of unemployment, the importance of our credit rating is greater than ever before. Because the information in our credit reports is used to evaluate applications for credit, insurance, employment, and renting a home, we should be sure the information is accurate and up-to-date.
In addition, monitoring our credit ratings is one of the best ways to spot identity theft. TV ads, email offers, or online search results may tout “free” credit reports, but there is only one authorized source for a truly free credit report. The Fair Credit Reporting Act guarantees you access to your credit report free from each of the three nationwide credit reporting companies — Experian, Equifax, and TransUnion — every 12 months. You can request your free report online, by phone, or by mail. For online, go to www.annualcreditreport.com/ or call 1-877-322-8228 or fill out the request form available at
www.annualcreditreport.com/cra/requestformfinal.pdf and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
When reviewing your credit report, if you see accounts you don’t recognize or information that is inaccurate, contact the credit reporting agency and the information provider. Check your credit report at least once a year to correct errors and detect unauthorized activity.
Keep those letters coming, folks. Send your questions and ideas to: The Frugal Forum, P.O. Box 693, Huntley, IL 60142, or, by email to: thefrugalforum@gmail.com.
