Credit Score Fact and Fiction: 10 Common Myths debunked.

Posted On May 15, 2019

Credit Score Fact and Fiction: 10 Common Myths debunked.

Excerpt from Canada Living May 2019 and Mymoneycoach.ca

I don’t want to take credit for being the author of this information and although I knew most of this information it is very well put together so “If it Ain’t broken – don’t fix it”

I am going to do this in 2 parts so it can be more fully absorbed.

PART 1:

10 Common Myths Debunked:

1. Credit Reports and Scores are the same thing.
   FALSE: Your credit report is a detailed history of your credit products, like credit cards and how you manage them.
   Your Credit Score is predictor used by the lenders to gauge how likely you are to pay back your debts. The higher the score the lower the risk.
   **My Comment: “ The score is calculated by the Credit Bureaus and it is impersonal. It does not care what happened in your life ton get behind it just cares that you are behind.”
   
   
2. Skipping payments (or being late) doesn’t impact your credit if it’s just once in awhile.
   FALSE: Thirty five percent (35%) of your credit score is based on your payment history, so take care that you are paying all your bills on time.
   ** My Comment: “Also make sure you NEVER go over your limit. Again the computer is impersonal so it will knock you score down even if you are over limit by $1. The reason is the computer feels you are not taking your responsibility to your creditor(s) seriously. Your beacon score can be impacted by 10-15 or more points by a simple overage.”
   
   
3. Carrying a Balance on your credit cards builds a good credit rating.
   FALSE: All this does is cost you unnecessary interest: in fact how much debt you have accounts for about thirty percent (30%) of your credit score.
   My Comment: “Your beacon score is a point in time – when does the card holder report your balance? So it is best to pay your cards in full and pay no interest. The credit bureau receives reports from different lenders on different days and usually only once a month. “
   
   
4. Putting all my monthly expenses on my credit cards and paying it off in full every month doesn’t impact my credit.
   FALSE: Once you exceed 50 – 60 percent (50-60%) of your credit limit , you start to negatively impact your score because it looks like as though you MAY be experiencing financial difficulty, even if you aren’t.
   My Comment: If your decision is driven by accumulating loyalty points you can accomplish the same thing by making more frequent payments to keep the balance down and still get your points. If you don’t trust your bookkeeping skills to do this probably not a good idea to charge everything. You may earn loyalty points and lose your credit rating.
   
    
5. Buying something today and paying it off immediately builds credit.
   FALS: While this may be a great money management strategy, if you are interested in building your credit, wait until you receive a bill (Mail or electronic), then pay it off before the due date.
   My Comment: This is great for moderate credit users but if it takes you over the 50% of you limit you could negatively impact your score. It is not a game and it is a balancing act as you never know hen a card holder reports to the bureau. And that is the information the bureau computer uses to calculate your score.

And this is the reason I have decided to re-write the article in 2 sections – it is a confusing story to be sure and you have to have a solid ongoing plan to ensure you maintain a solid credit score.

Check back in two weeks for PART 2