Credit Reporting Myths, De-mystified
Your credit report contains information that has an impact on everything from where you live to what you drive and even where you work. During the last few months, I have fielded many questions about some of the information that may or may not actually be in the credit report, and what effect the information might have on a report or even credit score. The following are just a sample of some of the more common questions and concerns that I hear and what truly happens.
- Checking your credit report (or credit score) will hurt your credit
Most people have that inquiries into your credit report can have a negative impact on your credit. Fortunately, that does not include your own review of your credit file. Two types of credit inquiry exist. A hard inquiry, which is when you are actually applying for a line of credit or a credit based service. In addition, a soft inquiry, which is when you or a business reviews your credit to prescreen you for credit products or services. These soft inquiries do not hurt your credit score. The hard inquiries will have an impact on your score, since you are attempting to obtain additional credit.
Going through a lender to check your credit may affect your score. By checking your credit report yourself directly with one of the three major credit bureaus, you can avoid that impact. The easiest way to obtain a report from all three bureaus at the same time is to order your one free credit report each year through AnnualCreditReport.com. This site is for ordering the free credit report granted by federal law. If you order each report individually from each of the reporting agencies, there could be a small fee involved.
Because it will not hurt your credit, you can check your credit as often as you need to. That leads directly into myth number two.
- You do not need to check your credit report unless you are applying for credit.
Prior to applying for a major loan, a check of your credit can help you improve your chances for approval. By reviewing your credit report before completing a credit application, you have to opportunity to clean up errors and other potentially negative information that could result in a denial.
It is really important that you check your credit report at least once a year to search for reporting errors, negative items, signs of identity theft or fraud, not just when you are applying for a loan. By taking a proactive approach to reviewing your credit, you can catch these items and deal with them before they get worse.
Review your credit report if you are searching for a job or are up for a promotion. Most employers will look at credit reports (not credit scores) as part of their screening process so you need to be prepared for what they may find. This becomes much more important for jobs dealing with finances or executive level positions, but still essential regardless of the job so you are aware of the employer might see or question. If you are unemployed and plan to look for a job in the next 60 days, you also have a right to a free copy of your credit bureau.
Anytime an application for a credit based product or service (credit cards, loans, etc.) is denied because of information in your credit report, you should check the copy of the credit report used in that decision to confirm the information is correct. You have the right to a free credit report in this instance. If reporting errors caused the denial, you can dispute those errors with the credit bureau and request the creditor to reconsider your application.
Remember as discussed in myth number 1, you will never hurt or affect your credit score by checking your own credit. So take advantage of those opportunities to see what others may be looking at even before they do!
- Getting married will merge your credit report with your spouse’s credit report.
You will continue to maintain your own separate credit report from your spouse, even if you change your last name when you get married. Those accounts which may appear on both spouses’ reports include certain joint accounts, co-signed accounts and authorized user accounts. The individual accounts for each spouse will continue showing on each respective person’s credit bureau.
In our next posting, we will review some additional “credit myths” that we hear about regularly.
Geoffrey Stam, Director of Default Management and Financial Literacy