We all know the importance of a credit score to one’s financial health and stability.
A 650 Credit score is a rarely understood topic, and there is a myriad of myths and misconceptions that exist regarding it. It’s absolutely ok to have questions, and we shall attempt to break through a few of these myths in the paragraphs that follow.
The top 25 myths of a 650 credit score
1. An Individual Can Have No More Than One Credit Score
This is the most common myth that exists. There are different credit bureaus and credit reporting agencies, and each one is updated by creditors on a monthly basis or sometimes more frequently. These credit agencies may not have the same credit information regarding an individual, so a similar credit score is not possible. Each agency will generate a different credit score, so you may have more than one credit score with each agency providing a unique score due to different scoring models and software.
2. A Good Job Makes for a Good Credit Score
An individual’s income and occupation are not included as part of the credit score calculating formula. Your credit report contains no information on your income, which may be of vital importance to your lenders but is unrelated to a credit score and credit report. A credit report carries information related to your payment history and credit behavior, and nothing beyond this.
3. Bankruptcy Leaves Your Credit Score Irrecoverable
Bankruptcy will only stay on the credit report for a period of 6-7 years. After that, this information will be removed, allowing you to start fresh. Bankruptcy will impact your credit score for as long as it is showing on your report, but this damage is not permanent. You can improve your credit score after this period of 6-7 years and apply for credit. It’s nothing beyond recovery!
4. Zero Debt Equals Perfect Credit Score
Another major misconception in the minds of people regarding credit score is that becoming debt-free will suddenly lead to a perfect credit score of 800. This is not true! A credit score is not based on the amount of debt you have; rather, it is a summary of your credit behavior. Without active credit, your credit scoring mechanism will not be aware of how you have been managing all your obligations. However, with just one credit card used responsibly, your credit score can significantly improve.
5. Closing Credit Cards Will Improve Your Credit Score
This is thought to be a quick fix for bad credit score, but it’s not. There is a total of five determinants of credit score, one of which is the utilization ratio. This measures the amount of debt one has relative to their available credit. If one credit card is closed in the hopes of achieving a higher credit score, the available credit goes down and the debt utilization ratio increases. This makes you all the more risky in the eyes of your lenders, so do not close credit cards to improve credit score. It’s all a hoax!
6. Closing a Credit Card Deletes Its Credit Report History
Payment history and defaults stay on the credit report for up to 10 years, so if you had thought that closing a credit card could erase payment defaults, you are wrong! All the late payments will stay on there. Closing a credit card will only reduce the already available credit which, as previously mentioned, will increase the utilization ratio. You are essentially just worsening your credit score.
7. Co-Signing Won’t Make You Responsible for That Account
If you co-sign for loans and credit cards, you voluntarily participate in sharing the responsibility for them. Thus, if you have co-signed your child’s credit card, in case of late payments, your credit score will be impacted along with the credit score of the actual credit cardholder. If you thought co-signing is nothing beyond a signature, you are absolutely wrong. The penalty of this credit card account falls on you equally.
8. Checking Your Credit Score Will Lower It
This is not true; you are allowed to check your credit score as many times as you wish. There is no limit on the number of times one can check their credit score during the year. Hence, checking your credit score more than a few times does not hurt it in any way. While you are charged every time you wish to review this score from one of the credit reporting agencies, the score remains unaltered.
9. A Bad Credit Score Can Never Be Repaired
Another myth that we all need to let go of is this one. Bad credit has its drawbacks, and it may remain bad for quite some time, especially if you keep defaulting on monthly payments. However, a bad credit score is not beyond repair. There are several ways to repair a bad credit score, the first and foremost being honoring monthly payments. All it takes is a little willpower, and you can get your credit score from 350 to an amazing 800 in no time!
10. Marriage Will Merge Your Credit Score with Your Spouse
When you get married, all individual accounts will impact your credit score separately. Marriage does not mean credit scores become one. However, if the debt is joint, the impact of late payments will affect both credit scores. The same is true for any and all joint accounts. If all your accounts are jointly owned, you could have similar credit scores, but that’s too rare of an outcome, even with joint accounts.
11. Employers Must Check Credit Score
An employer, by all means, can review your credit report, but a credit score is not of substance when it comes to hiring an individual. The screening process remains unaffected by one’s credit score. If an employer is insisting on reviewing your credit score which will ultimately influence their hiring decision, you can seek legal assistance immediately. The law does not permit this.
12. It Will Take a Long Time to Fix Your Credit Score
It is usually assumed that a credit score can take up to 7 years to improve since negative information remains on the credit report for at most 7 years. However, a credit score can be improved while this information is displayed in the credit report by honoring all payments, using credit cards responsibly, and paying off all loans on time. You don’t need to wait for the negative credit history to disappear. You may begin to improve your credit score from today!
13. New Credit Lines Will Hurt Your Credit Score
Each inquiry made when you apply for a new card makes 10 percent of your credit score, so essentially, new credit lines do affect a credit score, but so does other information. There have been cases where an application for a new credit line left the credit score unaltered. Thus, this should not limit you from applying for a much-needed credit line extension.
14. Only Late Payments on Debt Hurt Your Credit Score
A credit score is affected by many factors, not just late payments on mortgages, car loans, and credit cards. Your landlord could report you to the credit bureau or agency for payment defaults. Even your library could report an unpaid fine to the agency, which will hurt your credit score eventually.
15. Inactive Credit Cards Can Improve Credit Score
An inactive credit card is simply making you more of a mystery to potential lenders since your credit card activity is not reflecting your credit behavior. It is not improving your credit score in any way; it’s simply making lenders more curious and skeptical about whether or not you are a good risk.
16. Spouses Have the Same Credit Score
This has already been discussed in one of the previous points. Spouses do not have the same credit score. Their individual scores may be impacted in the same way in case of a joint account, but they always have their own credit scores.
17. You Can Check Your Credit Score for Free
A credit report can be accessed from a credit bureau or credit reporting agency free of charge, but in order to get your credit score, you need to pay for it. There is a way you can access your credit score for free. You can do so while opening a new bank account if the banker requests permission to review your credit report.
18. Having a Big Bank Balance Equals a Good Credit Score
A correlation between savings and credit score is a possibility, but your bank balance does not dictate your credit score in any way. Even with a huge bank balance, you can still end up with a poor credit score of 350. Bank balance is not accounted for when calculating an individual’s credit score.
19. The Credit Score You Check Is What Your Lenders Will See
The credit score that you can view online or have received from a credit reporting agency will be an educational credit score. This score is different from what your lenders will have access to. The purpose of an educational credit score is to provide you with a general idea about where you stand. The score made available to lenders is more detailed and serves a greater purpose.
20. Check Your Credit Score Only When Applying for a Loan
This is not a mandatory condition. You may check your credit score whenever you deem fit. It is usually recommended that you check your score periodically throughout the year to know where you stand. This will help you stay on track to improving your score.
21. Age, Race, and Sex Affect Credit Score
Age, race, and sex are not determinants when calculating a credit score. Lending decisions are not to be based on an individual’s sexual orientation, race or age. If you had this misconception, get rid of it ASAP.
22. You Must Go into Debt to Get a Good Credit Score
Credit products are necessary to build a good credit score such as getting a new credit card. However, there is no need for additional debt if you aim to improve your credit score unless you believe you can manage it well. Too much credit is difficult to manage, so keep debt to a minimum and ensure timely payments. This is likely to boost your credit score!
23. A Bad Credit Score Will Never Get You Approved for a Loan
A bad credit score may not make it easy to get approval for a loan, but it’s still possible. Your credit score is just one factor that lenders take into account to make a decision. This is coupled with other factors such as income and debt level. Hence, there is no limitation when it comes to taking out debt, as it is unrelated to your credit score.
24. Debit Cards Will Improve Your Credit Score
Debit cards are not related to credit, so they will not improve your credit score. If you aspire to improve your credit score, look up financial products such as credit cards and loans. This is also true for prepaid cards; they cannot be used to improve credit scores owing to the lack of credit attached to these financial products.
25. Your Financial Situation Affects Your Family’s Credit Reports
This is again only possible if you have a joint account with your family members. Otherwise, your financial position will not impact their credit scores. Their individual credit scores will be determined by their creditworthiness and credit history alone. This is a case similar to the one where spouses were believed to have the same credit scores.
These were just a few major myths regarding credit scores that have been identified and debunked in quite some detail. We are hoping that you wouldn’t succumb to despair just because your credit score is bad. There are multiple ways of improving your score, and it won’t take a period of 7 years to do so.