Because the top secret formula has never been released there are common myths that are floating around about the ones credit score, here are the top 5.
1. Too Many Credit Cards Will Hurt My Credit Score
Actually, cancelling healthy active cards or accounts hurts more as all of the payment history is lost along with the type of credit granted. The average Canadian has 10 credit sources, having more does not hurt as long as you pay on-time. Along with paying on-time you should observe the rule of maintaining a balance at no more than 75% of the limit, but less is best. Applying for new credit every week will lower your score more.
2. Using Credit to Build a Credit Score
Remember to keep your balances low and manageable. The credit bureau only receives reports regarding your balances and payments. Making your payments on-time builds your credit history strength and score.
3. My Utilities and Internet are Paid On-time Every Month
These providers only check your credit to determine creditworthiness. They don’t report your payment history to the bureau. On the flipside, they only report when you DON’T pay. The other organizations that only report upon default are municipalities and ICBC. Pay your traffic tickets and bylaw infractions.
4. Checking My Score Will Decrease It
There are two types of inquiries, soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull soft inquiries when marketing pre-approval offers. A hard inquiry happens when submitting a loan or credit card application. A hard inquiry is one that is triggered by the applicant. Soft inquires do not affect the credit score. A consumer can pull their own credit score as many times as they wish without repercussions. Hard inquires affect the score slightly. These inquires are included in the calculation done for credit scoring. Recording the number of inquires a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit. This can be a precursor to someone facing credit difficulty.
Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquires is identity theft. Hard inquires not made by you could possibly be an identity thief opening accounts in your name. Inquires are required to remain on the credit report for at least a year. Hard inquires remain on the report for two years. Soft inquires only appear on the report that you request from the credit bureaus and will not be visible to potential creditors. Hard inquires appear on all credit reports. All inquires disappear from the report after two years. Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.
5. There is Nothing I Can Do Once a Payment is Late
Creditors are always willing to work with you if there is a late payment. If notified in a timely manner a late payment can be easily removed, just don’t make a habit of it. Some is better than none.
Thank you to my DLC colleague Michael Hallett for this article.