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credit-myths

Will Checking Credit Hurt Your Credit Scores?

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Will Checking Credit Hurt Your Credit Scores?

There are dozens, possibly even hundreds of credit related myths floating regarding the subject of credit scores. As a credit expert I spend a large portion of my time debunking these myths and educating consumers, Realtors, and even loan officers about the real impact which various actions will have upon a person's credit scores. Out of the many, many myths I encounter on a weekly basis one of the most frustrating credit misconceptions that I hear repeated is the idea that checking your own credit will harm your credit scores.

Let's set the record straight right from the beginning. There is a 0% chance that the action of pulling your own personal credit reports for review purposes will damage or hurt your credit scores in any way, shape, or form. In fact, you could even check your own credit reports 100 times per day if you desired and doing so would not have any negative impact upon your credit scores whatsoever. The reason this particular myth is so frustrating is because it deters many consumers from doing the very thing - checking their credit - which they should be doing on a regular basis.

What Are Inquiries?

Whenever you or anyone else pulls a copy of one of your credit reports a record of the credit pull is placed on the report. This record is known as an inquiry. Inquiries are placed upon your credit for multiple reasons, but perhaps the most important reason is so that you as a consumer can know who has had access to your credit. (Credit Tip: keeping an eye on who has accessed your credit reports can be an effective tool to help you monitor for potential identity theft.)

Hard Vs. Soft Inquiries

Inquiries which do not have any impact upon your credit scores, such as those which occur when you pull your own credit reports and those which occur when a creditor prescreens your credit before sending you a credit card offer, are known as soft inquiries. Not only do soft inquiries have no impact upon your credit scores, but they are also only visible to you when you pull a copy of your consumer credit report. If a lender pulls a copy of your credit report no soft inquiries will appear on it.

Hard inquiries are those which do have the potential to damage your credit scores. A hard inquiry can occur when, for example, a credit card issuer pulls a copy of your credit reports to review as part of an account application. Of course, not all hard inquiries will damage your credit scores - that is a myth as well - but they do at least have the potential to do so. (To learn more about how hard inquiries are calculated into your credit scores you can read "How Many Points Will an Inquiry Lower My Credit Scores?")

Why You Should Check Your Credit

Now that you know it is safe to check your own credit reports it is important to understand why you should check your credit reports. Credit report errors occur much more often than most consumers realize. In fact, the FTC released a study in 2013 which estimated there to be around 40 million errors on the credit reports of US consumers at the time.

Of course you have the right to expect accurate credit reports. You are even entitled to accurate credit reports under the Fair Credit Reporting Act. Yet, it is ultimately up to you and you alone to monitor your credit and to ensure that errors do not occur. When errors do occur then you have the right to dispute them - either on your own or with the help of a reputable professional.

Thankfully, you also have the right to access a free copy of each of your 3 credit reports every year at AnnualCreditReport.com. There are also many credit monitoring sites which all you the ability to view all 3 of your reports and your credit scores together conveniently. Here is a link to some of my favorites: CLICK HERE.





credit-expert-michelle-lambright-black

Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 



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Why Credit Avoidance Is a Bad Strategy

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Why Credit Avoidance Is a Bad Strategy

The title of this piece alone is enough to ruffle the feathers of the die-hard believers in the cash-and-carry lifestyle. So, before I even begin with my explanation of the many ways that swearing off credit can come back to bite you, let me begin by stating that you can still live a debt free lifestyle while building a solid credit score. Don't believe me? Has your favorite financial guru told you otherwise? Before you shake your head and move on to the next item in your newsfeed, take 5 minutes to hear me out. Trust me, you will be glad that you kept reading.

Your Credit Score Is NOT Your Debt Score

Despite what you may have heard, credit scoring models do not reward consumers for going into debt. In fact, the truth is quite to the contrary. The idea that you have to carry a lot of debt in order to have good credit scores is completely false. It is 100% possible for you to be debt free and still have very good credit scores.

Credit scoring models like FICO pay a lot of attention to a consumer's debt load. Many consumers find it surprising that a whopping 30% of their FICO credit scores come from what is known as the "Debt Category" of their credit reports. Credit scoring models are constructed so that the more you owe, the worse it is for your scores. This fact is especially true when it comes to credit card debt. However, if you have credit cards with zero balances you will be heavily rewarded in the credit score department. Having credit card accounts which you keep paid off shows the credit scoring models that you are a good credit risk. Conversely, charge up more credit card debt than you can afford to pay off in a month and not only will you waste money on interest fees but your credit scores will also suffer.

Credit Matters In More Ways Than You Think

If you have experienced a financial disaster, bankruptcy, illness, or just plain bad financial decision making in the past then the idea of swearing off credit all together and adopting a cash-and-carry lifestyle can be tempting. Deciding to close your accounts and never again apply for another credit card or loan is a drastic decision, but plenty of people have proven that it is possible to live a life free from these traditional "trappings" of the credit world. However, what followers of this cash-and-carry lifestyle fail to consider is the fact that pretending their credit doesn't matter can cost a lot of money in the long run.

Thinking that your credit will only have an impact on your life if you intend to apply for a credit card or a loan is completely unrealistic. Like it or not, we live in a very credit driven world. Here are just 7 of the negative consequences to not having good credit.

Without good credit:

  1. It can be hard to qualify for an apartment.
  2. Getting a cell phone contract can be very problematic.
  3. Higher insurance premiums are probably in your future.
  4. Getting a job or a promotion may be difficult.
  5. Security deposits on utility accounts are higher.
  6. Receiving a security clearance for a job could be very tough.
  7. Qualifying to purchase a home might be impossible.

The Truth About Credit "Temptation"

Again, I agree with those who believe that debt is bad. Excessive debt will waste your hard-earned money, it will lower your credit scores, it can be bad for your marriage, and it can cause you a lot of worry and stress. However, the idea that swearing off credit cards in order to avoid the temptation to go into debt is an overly simplistic approach to a complicated problem.

The root of the problem which people who are afraid of credit need to address is the fact that having credit cards is not what caused their financial and credit problems. Problems of this nature are almost always caused by poor money management habits. Saying that credit cards cause people to go into debt is like saying that spoons make people fat.

Closing your credit card accounts is not going to eliminate the temptation to over spend. In fact, for the person who has truly mastered proper money management habits, the temptation to charge more than he/she can afford to pay on a credit card is no greater than the temptation to spend too much on a debit card. Cutting up your credit cards is simply not the answer to your financial problems.

If you have made credit or money mistakes in the past, you are not alone. Don't allow the mistake of your past to define you. Instead of feeling defeated and ashamed you can challenge yourself to try again.

You should not allow let fear or misguided advice cause you to believe that a life free from the world of credit is your answer. After all, in reality there is no such thing as leading a life which is unaffected by your credit. You can embrace this knowledge or you can try to hide from it. Either way, your credit is always going to have a big impact upon your life.  


michelle-black-credit-expert

Michelle Black is an 12+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 




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3 BIG Myths That Can Hurt Your Credit

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3 BIG Myths That Can Hurt Your Credit

3 Big Myths That Can Hurt Your Credit

Let's face it, there is a lot of bad information floating around the internet about the subject of credit. Credit myths abound and blindly following information or advice from someone who is not truly qualified to give credit advice can cause some serious damage to your credit scores - not to mention it could cost you a lot of money. Even many financial "gurus" give alarmingly bad advice on their television programs, radio shows, and in books which can backfire on the consumers who follow the bad advice. Here are 3 big credit myths which you need to be aware of in order to avoid getting burned.

Myth #1: Closing Unused Credit Cards Will Help Your Credit Scores

Closing unused credit cards can potentially cause your credit scores to take a nose dive, though perhaps not for the reason you may think. You may have heard the idea that closing a credit card account causes you to lose the value of the age of the account, thus lowering your credit scores. Thankfully for consumers, this idea is a complete myth. Closing credit cards does NOT cause you to lose the value of the age of the card (at least not until the card has been closed for a full 10 years). In fact, closed credit card accounts even continue to age on your credit report.

However, closing a credit card account does have the potential to have a negative impact upon your balance to credit limit measurements - aka your revolving utilization ratio. When you close a card you no longer have access to the credit limit on the account. Therefore, especially if you owe a balance on the card which you close, it will appear to the credit bureaus that you owe more than you are authorized to use on the card which will have a very bad impact upon your credit scores.

Even if you do not owe money on the card you close it could still very likely harm your scores to close the account. Credit scoring models also care about your aggregate revolving utilization ratio (the relationship between the balances on all of your credit cards and the limits on your open credit cards). Closing an unused credit card will cause the limit on that account to no longer be included in the calculations for your aggregate revolving utilization ratio thus raising your aggregate utilization ratio if you have a balance on any credit card account. If your aggregate utilization ratio goes up, your scores will almost certainly go down.

Myth #2: You Should Carry a Balance On Your Credit Cards

Many people believe that it is wise to carry a balance on your credit cards from month to month in order to earn higher credit scores. This is another stubborn credit myth which simply refuses to die. In reality, credit scoring models reward consumers who do not carry any debt, especially those who carry zero credit card debt.

Having open credit cards on which you do not revolve balances from month to month is a huge plus in the credit score department. Consumers who only charge what they can afford to pay off on a monthly basis show the credit scoring models that they are responsible and a low credit risk for future lenders. Plus, as an added bonus, consumers who pay off their credit card balances every month do not waste a lot of money on interest fees.

Myth #3: Checking Your Credit Reports Will Lower Your Credit Scores

Whenever you or anyone else obtains a copy of your credit report a record of the credit pulled, known as an inquiry, is placed on your credit report. Some inquiries do have the potential to lower your credit scores, but when you pull a copy of your own credit report it is impossible for that inquiry to harm your scores. In fact, if you wish you can check your own credit reports and credit scores 500 times a day and it will not harm your scores in anyway whatsoever.

It is wise to be very selective about allowing a lender to pull your credit reports so that you do not have an excessive number of "hard" inquiries which do have the potential to lower your scores. However, you should never feel nervous to check your own credit reports and scores. Don't forget, every consumer has the right to access a free credit report from each of the 3 credit bureaus annually at annualcreditreport.com. If you want to access your credit scores from though, it will cost you a separate fee from each credit bureau. Check out GreatCredit101.com for cheaper options to access all 3 of your credit scores. 


michelle-black-credit-expert

Michelle Black is an 12+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 



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