10 Urban myths about credit score debunked.

Did you know that if you drink Coca Cola and eat Pop Rocks at the same time, your stomach will explode?  It happened to Little Mikey – you know, “Mikey likes it” from the old Life cereal commercials?

And that if you play the Beatles album “Helter Skelter” backward you’ll hear messages from the devil?  (On a related note, I tried listening to Britney Spear’s latest album forward and it sounded like the devil.) 

Or, how about this one…there was this family who drove down into Mexico for their family vacation and found a cute little scraggily street dog and took him back home with them.  When they got back and took the dog to the veterinarian, the vet told them that the dog was in fact a giant sewer rat.

Ok that one is actually true - my cousin’s friend’s brother’s auto mechanic heard it from his ex-girlfriend who worked at the vet’s office - but the rest of them are just urban legends, myths that float around but no one really knows where they came from – or if they’.  Today we’re going to cover a few urban myths that are still prevalent, but these rumors have to do with your credit score.  I know, not as exciting as a sewer rat as your family dog, but debunking these myths about your credit score will probably be far more helpful.

Here are 10 Credit Score urban myths debunked:

1. Previous occupants of your home could affect your credit score.

Your home address has nothing to do with your credit rating or credit score, and certainly no one else’s name, social security number, or credit history is tied to your own credit report through your address.  The bureaus do keep track of your current address, but that’s to track stability, not to conjoin you to anyone who’s lived there before.

2. Credit bureaus make lending decisions.

Credit bureaus like Experian, TransUnion, and Equifax don’t ever make decisions about if you get credit.  They do, however, collect data about your use of debt and compile a credit score to share that with banks, lenders, or retailers who are considering lending you money so they can better gauge risk.

3. If you don’t use your credit or don’t hold debt, your score will be good.

Not true – if you have blank credit history, that only shows future lenders that you don’t have an established history of managing debt responsibly and paying on time.  Sometimes, no credit history can be a big negative than a marginal credit score!

4. You could be on a credit score blacklist.

There’s no such thing as a list of people who are blackballed from getting credit.  Each company or bank makes their lending decisions independently based on the data in your credit history, your score, and other factors like income.  Credit agencies also don’t even register personal data like religion, race, gender, or political orientation – it’s just the facts.

5. You only have one credit score.

You have three credit scores because there are three major credit bureaus and they each have different algorithms for calculating your credit score.  There are usually similarities but each bureau reports independently so it’s important to monitor and manage each one.  Equifax may have something reported incorrectly while TransUnion has it right, so your scores will vary based on errors, duplicates, and their formulas. 

6. Items from your credit history stay with you forever.

Missing a payment or even something as big as a bankruptcy won’t haunt you forever.  Everything that posts to your credit report, positive or negative, will remain for approximately 6 years before dropping off for inactivity, depending on what type of item it is and the level of activity.

7. You should pay off and close your credit lines to increase your score.

It seems like common sense – pay off a credit card to $0 balance and close it down and you’ve just demonstrated financial responsibility so your credit score will go up.  Unfortunately, that’s not the case – what you just did was erase an established history of responsible payments.  Credit bureaus are all about assessing your risk, and the more evidence that you can manage your existing credit lines correctly, the better.  Some old accounts are worth closing, but for your oldest accounts, (length of history matters) you should pay the balance down below 30% of the total available credit limit and keep making monthly payments to improve your score.

8. Checking your credit will really hurt your score.

We’ve all been tackled by a concerned friend as they scream, “OMG! Don’t let them pull your credit – it will ruin your score!” at the car dealership.  (No?  Just me?)  But in reality, having someone pull your credit won’t harpoon your credit rating.  Sure, you want to be careful about who pulls it (rent-a-centers, retail credit lines, etc. are seen as irresponsible use of credit and therefore higher risk) and any grouping of frequent pulls could be seen as a desperate grab for credit to the bureaus, but having your credit pulled to shop for a home loan, a car, or even search for a good new credit card won’t by itself hurt your score.

9. Co-signing on a loan won’t affect your credit score.

You may think you’re “just” the cosigner, but what you did when you signed the paperwork was assume full responsibility for the debt obligation.  That means the trade line will show up on your credit report and you’re 100% accountable to make the payments if the first signer or loan holder defaults.  Sorry, but you can’t swim without getting wet, and if you’re a cosigner you’re on the hook for repayment of the debt. 

10. You automatically get a joint credit report when you get married.

Getting hitched means sharing almost everything, but merging credit scores is not one of them.  Different states have different rules for obligation of your marital partner’s debts but you’ll always still have your own separate credit report, not one that is combined between husband and wife.