DID YOU KNOW: Five "Scary" Credit Score Myths
In honor of Halloween 2021 my good friends at VantageScore had a fantastic suggestion. Instead of my normal Credit 101 style article for October I’m going to pretend-scare you with five credit related myths that are, thankfully, entirely untrue. So, in no particular order:
Pulling your own credit reports will lower your credit scores – No, no, absolutely not true. In fact, it’s absolutely untrue when done right. There are a variety of places where consumers can get free copies of their own credit reports. The most high-profile is the centralized source for free annual credit report disclosures, which is www.AnnualCreditReport.com. Normally you can get credit reports disclosed via that website once every 12 months. However, until at least April 2022 the credit reporting companies are allowing consumers to access their credit reports weekly, if they so choose.
The type of credit inquiry that is posted to your credit reports when you use AnnualCreditReport.com is a “soft” consumer disclosure inquiry. Soft inquiries are not only not seen by credit scoring models but they are also not seen by lenders or any other party, other than you.
Employers can see your credit scores – This myth has been around for what seems like forever. Employers can see your credit reports but only if you give them overt written permission. And, if you choose to withhold that permission then employers cannot access your credit reports.
I believe the reason some consumers believe employers can see credit scores is the terms “credit report” and “credit score” are often used interchangeably as if they are the same thing. They are, of course, not the same thing at all. The credit reporting companies have gone on record numerous times indicating the style of report they provide for employment screening does not include a score.
“Opting Out” will improve your credit scores – Sorry, this isn’t true either. When you receive firm offers of credit or insurance in the mail you’ve been what’s referred to as “prescreened.” This means a lender, normally a credit card issuer, has provided the credit reporting companies with credit related criteria and asked for a list of consumer’s names and addresses who meet that criteria. Then, the creditor will mail “pre-approved” offers of credit.
The Fair Credit Reporting Act (FCRA) gives you the right to “Opt Out” of being part of those preapproved mailings. You can do this by calling 1.888.567.8688 or by visiting www.OptOutPrescreen.com. Opting out is free and being opted out (or remaining opted in) will not have any impact to your credit scores one way or the other.
Freezing Your Credit Reports is Expensive – Not only is it not expensive, it’s entirely free. If you believe you’ve been the victim of fraud or if you want to control who can access of your credit reports then you can place what’s referred to as a security freeze on your credit reports. The security freeze, also commonly referred to as a credit freeze, will not allow access to your credit reports except under limited scenarios. The practical impact of a freeze is if someone were to apply for credit in your name without your permission, the credit reporting companies won’t even deliver your credit reports or credit scores to the lender. This effectively stops the fraudulent application in its tracks.
For the last three years placing security freezes on your credit reports has been free thanks to the FCRA. You will need to contact each of the credit reporting companies independently to place and remove freezes. And, if you’ve been told you can improve your credit scores by freezing your credit reports, that’s a myth as well.
Debt Lowers Credit Scores – That is definitely not true, at least not as definitely stated. In fact, you can have elite credit scores bouncing up against 850 with consumer debt on your credit reports. Debt that is managed properly indicates responsible credit management and, thus, is actually helpful to your credit scores. Debt that is not managed properly, of course, can lead to lower credit scores. But to simply correlate any debt as being the cause of a lower score is a myth.
Debt that is in default can lower your credit scores. Excessive credit card debt and credit card debt that represents a large percentage of your credit limits can lower your credit scores. These statements are certainly true. But, these scenarios represent mismanagement of credit which is very different than simply using credit.
The views and opinions expressed in this article are those of the author (credit expert John Ulzheimer) and not necessarily those of VantageScore Solutions, LLC.