Pimp Your Finances

Your credit score has an impact on every part of your financial life.  With so much riding on it, it’s important to know where it comes from and what it’s used for.

To help people understand better, the Consumerist recently debunked 5 common credit score myths.  Here’s my summary.

Myth 1: You only have one credit score

Actually, you have three - each  from different companies.  Equifax, Experian, and Transunion collect their data independently, so the scores can vary.  That’s why its important to check each of your credit histories.

Myth 2: Checking my score will hurt it

This is false.  Checking your own credit history is known as a “soft inquiry”, and does not impact your score.  However, hard inquiries – like when businesses check your history to determine whether or not to give you credit – can have an adverse impact.

Myth 3: Shopping around for the best loan will hurt your score

When making big financial decisions like choosing a mortgage or car loan, it only makes sense to shop around.  The credit reporting agencies recognize and understand this.

That’s why you’re allowed to make multiple hard inquiries (for mortgages, home equity, and car loans) in a short period of time.  As long as you make them in a two week window, they will count as one inquiry.

Myth 4: My FICO score dictates whether you will get credit and at what interest rate

I think that the article understates the importance of your credit score.  They claim that it’s just part of the evaluation process, but I think it’s a huge part of the equation.

They consider other data, like your income and outstanding debt, but having a good credit score is crucial to getting the best interest rates.

Myth 5: Getting married will hurt (or help) my credit score

You and your spouse still retain your individual credit scores.  The only time you affect each other is when applying for a joint line of credit.  In that case, you will be assigned an aggregate credit score which will be used for the application.

Their list ends there, but I’m going to add my own:

Myth 6: FreeCreditReport.com is the official web site for checking your score for free

This is completely false!  FreeCreditReport.com may have catchy jingles, but they are a private, for-profit company.  They try to make money off of you through deceptive practices.

To check your score for free, go to www.AnnualCreditReport.com.  That’s the official site for checking your credit history and scores for free. 

This is just a small sample of the credit score myths that are out there.  What are some of the others that people should be aware of?