Most consumers aren’t clueless about their credit or the value of a good credit score. In fact, after the recent financial issues that plagued many Americans, research and knowledge of credit and credit criteria is on the upswing. Consumers want to understand how their creditworthiness is determined and how they can work to improve their rating.
But not everything that you read on the Internet is based on fact. There are some common misconceptions about credit that many consumers believe to be true. Understanding these few bits of bad information will make understanding your credit and improving your credit a very reasonable and attainable task.
The Real Inquiry Process
Less than 10% of the consumers surveyed knew that multiple inquiries will not lower your FICO score. The reason for this is that multiple inquiries submitted within a two week period or within 45 days for loans such as a mortgage, student loan or a car loan are considered to be a single inquiry. That makes perfect sense if you think about it because when you are making a major purchase it is always wise to shop around for the best financing option. So the powers that be look at the multiple requests as an avenue to select the one best lender for the coming transaction.
Who Can Make an Inquiry Request?
Less than 20% of millennials and only about 30% of older consumers were aware of who can make a request to verify credit. Most consumers believed that only credit card companies and mortgage companies used their credit score to determine eligibility for a loan. But the correct answer is that a credit card issuer, a mortgage lender, and landlord, a home insurer, a cell phone company and an electric utility can all view your credit score. The cell phone company and utility company normally look at your credit score to determine if they will require a large deposit to grant you service. In addition, some cable companies will also check your credit to determine if a deposit will be required and if so, then the amount of the deposit.
What Bad Credit Costs You on a Loan
When polled, only around 15% of the consumers grasped just how much more a person with poor credit would pay in interest on a $20,000 loan with 60-month terms. The choices were under $1,000, between $1,000 and $3,000, $3,000 to $5,000 or over $5,000 more in the form of interest. The answer is the astounding amount of more than $5,000! Part of this misconception about credit is contributed to consumers only taking into account the dollar amount of the monthly payments. A savings of $50 a month doesn’t sound like all that much to consumers but over the course of a 30-year loan (360 payments), that is an $18,000 savings. So it can be helpful to train yourself to think about how a small amount saved can add up to a much larger amount over a long period of time. Saving almost 20K is worth working to improve your credit a little bit.
Ways to Learn What You Might be Missing
Investing some time to learn about credit and your specific credit score can pay great dividends. Studies show that consumers who monitor their credit and regularly view their credit report have a higher credit score than those who do not request a copy and review it. You can request a free copy of your credit report from each agency once a year. This will let you see exactly what creditors see when you are applying for a loan. It will also let you check to be certain that all of the information is accurate. If you find mistakes, then you can correct them and expect a better score when you review your report after a few month. In addition, seeing your score is a good motivation to decide to pay down your loans and work to improve your score. If you are in the early stage of planning to purchase a home, then it is also the perfect time to focus on improving your credit score as much as possible. It seems foolish to miss out on savings of $20,000 to $30,000 over the lifetime of your mortgage just because you didn’t raise your credit score a few points.
What You Put in is What You Get Out
Credit is much like anything else that you will do in your life. The amount of effort that you put in will have a direct impact on the results that you see in the end. If you choose to ignore your credit score and just blaze through your life with no financial planning, then good credit will be very elusive. But if you decide to invest some time and learn about the process of determining a credit score and some of the most common misconceptions about credit, then you will be able to manage your credit score and improve it. As a result, you will have more opportunities to save when you finance a car, home or other major purchase. Referring to reliable publications, your bank or even a financial planner will ensure that you are gaining truthful and useful information about credit and your credit score. Don’t believe all of the so-called “warnings” about credit that are being spouted on the Internet. You can repair or rebuild your credit without the help of a costly credit repair firm; that is just a way to scare people into hiring the firm. Also, personally checking your credit score will not lower the score. That is what is called a soft inquiry and it won’t hurt your score. It is simply a wise way to monitor your score. And finally, don’t believe that your level of education has any impact on your credit score. It is not a factor, ever. All that matters is that you put in the time and effort to learn about the process and then choose to improve your score. Don’t fall into the trap of these common misconceptions about credit, you are in control of your own financial future.