Your credit score is one of the most important numbers in your life, and it is surrounded by myths and mysteries. In some cases, separating fact from fiction can be a little bit difficult. Here are some of the most common myths that people believe in credit scoring.
A Bad Score is Permanent
If you have bad credit, it can hurt you in many ways, but it’s not permanent. Your score is simply a view of what your credit looks like at a particular moment in time. It is a dynamic number that continually changes based on the things that you do. If you start making better financial choices, you will improve your score substantially over time. This should offer hope to those who have poor credit scores based on the poor decisions that they’ve made in the past.
It’s the Sole Determinant of Credit
While it is very important, it is not the only factor that lenders look at when they are approving you for credit. Lenders will look at your score, your income, your employment, and many other factors to determine if you can be approved. This should not discount the importance of your score, but you should know that it’s not the only thing that creditors are going to look at when approving you for new credit.
Minorities Are at a Disadvantage
In reality, the credit scoring model does not take into consideration what race you are. It is based purely on the decisions that you’ve made in regards to your credit. The race that you are has no impact on what your score is. This makes it equally as likely that a person from a minority group will have a good score as someone from the majority group.
The Process Invades Your Privacy
Another common misconception about credit scoring is that it somehow invades your privacy. In reality, it does not delve any deeper into your privacy than the credit bureaus already do. Credit scores are simply a number that is derived by combining all of the information in your credit report. The score is basically like a summary that is based on a complex formula. The information that it needs to come up with this number is already present in your report. The credit bureaus are the ones who accumulate this information with the help of your creditors.
Applying for Credit Will Hurt My Chances of Getting Approved
There is a big misunderstanding about what happens to your credit score when you apply for credit. If you apply for credit from several different similar places within a short period of time, this is the same as applying at one place in regards to your score. However, if you are continually applying for different credit cards, mortgages, need cash now, and other credit, then it can affect your credit. If you’re going to apply for credit, it’s important to make sure that you group your activities together. This way, it will not have a negative impact on your credit report at any time. This makes it possible for you to shop around for the best terms and conditions on a loan before agreeing to anything. You don’t have to pick the first deal you come across just to avoid hurting your credit score at all. You may also want to do a background check.