There are many widespread credit myths out there. Some are more persistent than others. Here are the three biggest credit myths and the truth behind them.
Myth #1: Checking your credit report can hurt your score.
Fact: When you apply for a new line of credit or a lender views your credit report, a “hard inquiry” will appear on your credit report. If you have too many hard inquiries within a short time period, it may indicate to lenders that you are seeking credit from too many places. However, if you are looking at your own credit report, that is known as a “soft inquiry.” Soft inquiries have no impact on your credit score.
Myth #2: Once a delinquent loan or credit card balance is paid off, it is removed from your credit report.
Fact: Negative information such as late payments, collection accounts, and charged off accounts will remain on your credit report up to seven years after the date of delinquency. Bankruptcies will remain on your credit report from seven to ten years, depending on the type of bankruptcy. Paying off a delinquent loan or credit card balance will only change the status to “Paid” and will not remove it from your credit report.
Myth #3: You can avoid credit issues by using only cash.
Fact: Paying cash for some things can be a wise financial decision in some cases. However, there are going to be larger purchases in your life, such as a home, when you will need to use credit. In order to use credit, you need to have a decent credit score. If you use cash for all your purchases, you won’t build a strong credit history and your score can actually suffer. Lenders look for a history of responsible credit use. You don’t need to avoid using credit altogether. You just need to avoid abusing it.