March 26, 2019 – By Brittany Anas
Understanding what affects your credit score in order to rent an apartment or secure a mortgage shouldn’t be a mystery. After all, that three-digit number is what lenders use to determine your creditworthiness, so transparency should be the name of the game. Still, credit can be complex and there’s a lot of misinformation out there when it comes to how credit works and what drives your score up (and down).
Here are seven common credit myths—busted.
Credit Myth: if One Spouse Has Good Credit the Other’s Doesn’t Matter
While you don’t share a credit score with your spouse, your spouse’s credit score can affect your financial future. Creditors consider the credit reports of both individuals when a couple applies for any form of credit, including a mortgage, explains Katie Ross, education and development manager for the national financial education nonprofit American Consumer Credit Counseling.
“You may face higher interest rates or rejections if your spouse has a bad credit score, even if yours is good,” Ross explains.
Credit Myth: Income Affects Your Credit Score
Low income, in and of itself, does not damage credit, Ross explains. “Income only affects credit scores if it affects a consumer’s ability to pay bills,” she says. Meanwhile, having a lot of money in your bank account doesn’t necessarily translate to a high credit score, Ross says. A person can have thousands of dollars in their bank account, but still have a bad credit score if they haven’t been paying their bills on time.
Credit Myth: a Credit Score and Credit Report Are the Same Thing
Credit score and credit report aren’t synonymous. Rather, a credit report contains a detailed listing of all your debts and payments, and spans your entire payment history, says Freddie Huynh, vice president of credit risk analytics with Freedom Financial Network, a debt management company. Credit reports show creditors’ names, the amounts owed, the highest balance owed, available credit, whether the account is open or closed, the number of times a payment was past due and whether the account is in default, explains Huynh, who, formerly was a lead data scientist at FICO.
Credit Myth: You Have to Carry a Balance to Raise Your Credit
“One myth that I hear on a regular basis is that you need to carry a balance on your credit cards from month to month in order to raise your score,” says Adrienne Ross, an Accredited Financial Counselor in Spokane County, Washington. Rather, you need to make your payments on time each month, Ross says.
“Similarly, I often have clients tell me they don’t want to pay off their credit card, because they don’t want their score to go down,” Ross says. “Again, you do not need to maintain a balance on your credit card to have a high credit score.”
Paying off a card and then closing the card can sometimes have a negative impact on your credit score because credit history is a component of your score.
Credit Myth: Employers Can Check Your Credit Score
An employer may check your credit report—with your permission—but not your credit score, says Laura Faulkner, vice president of marketing at Credit One Bank. Also, the credit report they are allowed to pull is not the same report lenders see. It’s abbreviated and doesn’t contain certain personal information, such as your date of birth. A potential employer’s inquiry has no effect on your credit score, and only you, not other potential employers or lenders, can see that it ever happened.
According to a 2012 report from the Society for Human Resource Management, the leading reasons for credit checks on job candidates is to decrease and prevent theft and embezzlement. However, many states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington) and cities (New York City and Chicago) have banned the practice in recent years.
Credit Myth: Paying Less Than the Minimum Due Doesn’t Count as a Missed Payment
In reality, if you don’t make at least the minimum payment due, it technically counts as a missed payment, says Faulkner. Your credit card company may report the account past due.
“They will also likely hit you with a late payment fee even if your partial payment was on time,” she says.
If you find yourself in a situation where you can’t make the minimum payment, you may be able to work out an arrangement with your credit card company, she says.
Credit Myth: Checking Your Credit Will Cause It to Decrease
There are two types of credit checks—hard pulls and soft pulls, explains Michael Kern, a Certified Public Accountant and founder of Talent Financial, a personal finance and small business consulting company.
Hard pulls are inquiries from a lender or credit card issuer. When you apply for a credit card, your score may drop by a few points, he explains. Meanwhile, soft pulls occur when you check your credit score, and they have no effect on your credit. Similarly, you can get a free credit report each year without it affecting your credit score.