Credit Score Myths: What Really Hurts You and What Doesn't
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Most Americans apparently believe that unpaid traffic tickets can affect their credit score, according to a recent survey conducted by DriversEd.com, a service that provides online defensive driver education.
There's just one problem: It's not true, according to credit experts.
Similarly, a report on Credit.com tells library scofflaws they could have a stain on their credit history if they don't pay their overdue book fines. Also not true.
Your credit history is key to so many aspects of your financial life, from getting a good interest rate on a car loan or mortgage to passing muster with an employer or landlord.
It’s a shock, then, to discover that there's a lot of misinformation about what actually affects your credit report, which determines the three-digit score that sums up your creditworthiness.
Here is a guide to what's true—and what's not—about what goes into your credit report, according to experts at the credit reporting agencies that put the reports together.
Lingering Library Fines
But library fines aren’t among the types of debt that wind up on your credit report, says Rod Griffin, director of consumer education and awareness at Experian.
“Library fines were reported through municipalities and municipal court records,” Griffin says. “We no longer collect that information.”
The Credit.com article suggests it's possible that a fine could go to collections, and that the collections information could end up on your credit report. Griffin refutes that.
"A library may work with a collection agency, but municipalities have relationships with collection agencies that prohibit them by contract from reporting," he says. "To my knowledge there are no exceptions. We’ve removed all of that information."
Unpaid Bills, Late Payments
Other unpaid bills—even the ones that don't go to collections—can affect your credit.
“Just one late payment can hurt your score and will remain seven years from the date of the missed payment,” Griffin says.
The solution: Follow up on old accounts to make sure they're really closed—and don't end up in collections because of a small amount of debt left on them. And pay all your bills on time.
With a revolving credit account like a credit card or home-equity line of credit, at least pay the minimum required by the end of the bill's grace period. Timeliness of payments counts for 35 percent of your credit score, says FICO, the company that generates credit scores used for a majority of consumer credit decisions.
Unpaid Parking or Traffic Tickets
Eric Ellman, senior vice president for public policy and legal affairs at the Consumer Data Industry Association, which represents credit reporting agencies, says he was once interviewed by a television reporter who’d received a speeding ticket with a warning that drivers who didn’t pay would be reported to a credit reporting agency.
Turns out that threat was an empty one. “It’s not true,” Ellman says. “Those don’t show up on a credit report.”
Griffin explains that tickets, like library fines, come from municipal records. They’re no longer collected by any of the credit reporting agencies.
A Soon-to-Be Ex's Credit Card Debt
You may think you’re off the hook if the judge presiding over your divorce says your soon-to-be-ex spouse must pay all the debt on your joint credit card. The card company sees it differently.
While you are still husband and wife "you are both jointly and severally liable for 100 percent of the card debt,” Ellman says. Even if one spouse is responsible for paying back the debt, the other spouse could start receiving collections calls and letters if the debt isn’t paid, he adds.
Ellman says those going through divorce should to work with lenders. “If, for example, the husband is responsible for the debt, the couple will need to work with the lender to take the wife’s name off of the card," he says.
Liens or Judgments Against You
These infractions rarely make it onto credit reports, Ellman says.
“Liens and other judgments don’t show up on credit reports very often,” he says. In part that's because in order for those public records to appear on your credit report, certain personal information from those sources must match what the credit reporting agency has on file about you.
“We’ve found that public records will almost never have both a Social Security number and date of birth,” Ellman says. “So as a general rule, most liens or judgments are not showing up on credit reports.”
As for unpaid and paid tax liens, those no longer appear on credit reports.
“Neither paid tax liens nor unpaid tax liens are part of a credit report any longer,” Griffin says. “They were removed from all credit reports almost a year ago.”
Griffin confirms, though, that negative information in general stays on your credit reports for seven years from the time of the first delinquency.
“If you fall behind on an account and never again become current, the consecutive late payments will be deleted seven years from the date of the first missed payment,” he says. “That date is called the original delinquency date.”
Checking Your Credit Report Frequently
Ellman says a common misconception is that each time consumers check their credit reports, their credit scores go lower.
“If I had a nickel for how many times I heard that, I could retire today,” he says. “It’s an urban legend.”
You’re entitled to look at your credit reports as often as you like. Consumer Reports maintains that you should do it several times a year, if only to ensure that the information is accurate.
And you don’t have to pay a credit-monitoring service to do that for you. Instead, because you are entitled to three free inquiries a year—one from each of the credit reporting agencies—go to annualcreditreport.com and stagger your inquiries. Every four months, ask for one of the reports—say, Equifax in April, Experian in August, and TransUnion in December.
It’s also a good idea to check all three of your credit reports simultaneously before shopping for a major loan like a mortgage. Do it even if you've used up your free reports and have to pay a bit to get new ones.
That way, you can correct errors before applying for the loan. A 2013 report by the Federal Trade Commission found that about 5 percent of credit reports had errors that could result in less favorable loan terms.
If you find mistakes on any of the reports, you’ll need to ask for corrections from each of the credit-reporting agencies showing the error.
Inquiries from Potential Employers or Insurers
Increasingly, consumers’ credit reports are being accessed by entities with no plans to lend you money. Employers, insurers, and landlords can check on your credit, but these inquiries have little or no impact on your credit report.
“If your prospective employer wants to look at your credit report, you have to sign a consent,” Ellman says. “The law also requires that the inquiry show up on your credit report. Similarly, if an insurer is looking at your credit report as part of the application process, you are almost always going to have to consent to letting the company pull your credit history.
“But inquiries from an employer or an insurer won’t have an impact on your credit score,” he says.
Applying for a Lot of Credit Cards
Opening up a lot of credit cards in a short period of time can have a negative impact. “That could have a downward effect on your score because it suggests you’re in credit trouble,” Ellman says.
Freezing your credit reports is a way to curb the urge to take on more debt—and, after a data breach, to foil scammers from opening credit lines with your stolen personal information. It’s free to freeze your credit report.
Go to each of the three credit-reporting agencies and click the link mentioning a credit or security freeze. Consumer Reports recommends doing such a freeze rather than a credit lock. That’s because a freeze’s promise to guard your credit accounts is guaranteed by law, notes Christina Tetreault, a staff attorney on the financial services team at Consumer Reports. A credit lock is simply an agreement between you and the credit reporting agency.
“Having a contractual agreement is not as strong as having protections under law,” Tetreault says.
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