7 Common Misconceptions about Credit Reports

There are a lot of misconceptions about what information (about you) becomes part of your credit report.

Some of it is “urban legend”—passed on from person to person—but not necessarily true.  So here are 7 of them that I’d like to clear up for you.

• MYTH – Your free credit report includes your credit score.

TRUTH – most free credit reports do not include a credit score.  You usually have to pay to get one.  And, even if you pay, it may not be the type of score that mortgage lenders use.  There are many different types of credit scores—for auto loans, home improvement loans, credit card applications, etc.

• MYTH – Your race, income or medical history appears on a credit report.

TRUTH – Your credit report includes information that is debt related.  It does include your social security number, birth date, and address.  It COULD also include the name of your employer, and previous addresses.

• MYTH – Checking your own credit score will decrease your score.

TRUTH – You could check your own credit score every day—and it will have no impact on your credit score.  However, if you give permission to a lender to pull a credit report on your behalf, it may decrease your credit score by a few points.  However, you get a break if you are “shopping” around for a car loan or a mortgage.  If the credit bureau sees that you have many companies ordering a credit report (for the same loan) within a 30-day time period, it only counts as one inquiry.

• MYTH – If you pay off a past-due account, it will be removed from your credit report.

TRUTH – Time is the only thing that will clear up a negative account, judgment or collection from your credit report.  It can take up to seven years for it to completely disappear.  However, as time goes on, and you have minimal negative accounts, your credit score will eventually increase.

• MYTH – The credit report will merge when you marry, or split up if you divorce.

TRUTH – Everyone has their own credit report. Getting married does not cause the information on the credit report to be combined.  So, if your spouse has problems on their credit report, it won’t show up on yours.   However, if you and your spouse divorce and you have joint accounts—where both of you have signed to be responsible for the loan—it will appear on both of the reports.  Just because you split up and the judge says that one (or the other) person is “responsible” for paying the debt, both of you are still obligated to pay the debt.

• MYTH – If you pay your bills on time, you don’t need to check your credit report regularly.

TRUTH – Your credit report is changing all the time.  A creditor may make a mistake and report that you missed a payment.  Or a new loan may accidentally be added to your report.  Even though you know you pay on time every month, the loan company may not be reporting it correctly.

• MYTH – The credit bureau is the one who approves or denies your loan.

TRUTH – They are merely a reporting agency—gathering information from your creditors.  The lender is the one who makes the ultimate decision based on what’s in the report.

Also, by knowing your credit score, by knowing what’s in your credit file, you can avoid working with unscrupulous lenders who tell you that your credit score is “low” in an attempt to charge you a higher interest rate or unfavorable terms.