The Most Common Misconceptions About Credit ScoresTerohan Nula August 22, 2018 0 COMMENTS
Credit scores are extremely crucial when it comes to understanding your finances. Ironically, however, they are likewise very misunderstood. If you are one of those people who doesn’t clearly understand how credit scores work due to the many conflicting information out there, start your education by learning the truth about these common misconceptions.
You Have Only One Credit Score
Although this would make things simpler, it’s just not the case. Lenders, whether a mortgage lender, multifamily lender like Bonneville Multifamily Capital, or a traditional bank, utilize various credit models for verifying credit details, with FICO scores, Beacon scores, and Vantage Scores being the most popular. Individual credit scoring models likewise establish multiple scores for particular purposes like applying for a home loan or purchasing a car.
Your Credit Report and Credit Score is The same
While these serve a similar purpose, they’re not the same. Your credit score is basically a 3-digit number that credit agencies calculate according to information contained in your credit report. Your credit report, on the other hand, contains crucial credit-related details, which includes your debts and payment history. All lenders peruse both when trying to determine your creditworthiness.
Your Credit Score Will Be Better If You Have a Higher Income
Having sufficient money in the bank plays a vital role in lending decisions, particularly if you are planning on making a huge purchase like a home or vehicle. This is mainly because lenders want to make certain that you have sufficient funds to cover your monthly financial obligations comfortably, including debt repayments. However, this doesn’t directly affect your credit score.
You’ll Hurt Your Credit Score If You Constantly Check It
Every time that you apply for a loan or credit, each application would be indicated in your credit report and considered a hard inquiry. These inquiries make up approximately 10% of your FICO credit score, with each application capable of reducing your credit score by three to five points. That said, your credit score remains the same if you’re the one checking your credit report.
Credit scores go up and down, but it’s generally up to why and how. Now that you know about these common credit score misconceptions, you could take the necessary steps to help you raise your credit score and resolve issues should any arise.