One should know that there is more than one credit score for each individual? Did you know that your income doesn’t impact your credit score at all? If this is all news to you, you should browse through these seven myths around credit score.
What are the Common Myths about Credit Scores?
Myth #1: Each One Of Us Has Only One Credit Score
Canada has two credit reporting agencies, Equifax and TransUnion. These establishments create credit reports and credit scores for Canadian consumers based on the information that creditors supply to them. Unfortunately, not every creditor reports their information to each of these agencies. A creditor may report to one agency and not the other. Creditors may also only update the credit agencies with your current information once a month—or less often in some cases. As a consequence, Equifax and TransUnion may not have exactly the same credit information about you, nor do they use the exact same software to calculate credit scores. This will mean that each of these agencies will produce a different credit score for you based on the information that they have on record for you and how their software examines the information they do have for you.
Myth #2: You Can Receive Your Credit Score for Free Once Each Year
You can definitely get a free credit report each year from both Equifax and TransUnion, but you have make a payment to find out your credit score. A number of organizations are now offering credit scores without having to pay out a penny. These include Credit Karma (in exchange, they share your financial information with advertisers) and RBC (the Royal Bank) who is providing their clients with free credit scores.
Whenever you apply for credit or open a new bank account, the banker will request you to check your credit. At this time you can ask them what your credit score is. You can also ask them to tell you the strengths and weaknesses they witness on your credit report if you want to increase your credit score.
Myth #3: Having a Stable Job or Earning Good Money Will Boost Your Credit Score
Your job title and your income are not part of the credit scoring formula. Even if you are wealthy and famous, it makes no difference. Occupations may or may not be reported to the credit reporting agencies when a creditor or lender requests a copy of your credit report, and your income is never reported—there isn’t even a place to put it on your credit report. Having a stable job and a good income is very important to lenders, but it has nothing to do with your credit report or your credit score. Your credit report only shows your payment history and credit behaviour, not your payment potential.
Myth #4: Spouses Share the Same Credit Score
Interestingly, the credit reporting system is similar to the driver’s licensing system in that everyone has their own record. No one shares a record. If a policeman pulls you over for speeding, you can’t get the policeman to put the ticket on your spouse’s driving record. It goes on yours if you are at fault. The same is true with your credit report. If the debt is only in your name and you are late with your payments, the late payments are only reflected on your credit report. However, if a debt is joint, then the late payment notation goes onto both credit reports.
If you and your spouse are joint on all of your debts, then it is possible that you will have similar credit scores, but it is still unlikely that your scores will be the same for a number of reasons: the length of time each of you has had credit is perhaps different, you may have had a debt in only your name within the last 7 years, and not all joint debts always report on each person’s credit report (yes, this is weird. It’s one shortcoming of the system).
Myth #5: Your Credit Score is Not Influenced by Your Ex-Spouse When You Get Divorced
When a lender gets you and your spouse credit based on a joint application, they are approving the loan credit application based on the fact that two people are certain to repay the debt. Just because you no longer live with your spouse or are divorced from your spouse does not change anything from a lender’s point of view. If you want to change who is responsible for a debt, you or your ex-spouse must either pay out the debt with a new loan or re-qualify for it in only one person’s name. Failure to do this and leave the debt as it was, you remain fully liable for the repayment of that debt.
If you thought that your ex-spouse was making payments on that debt, but the creditor informs you that they have stopped making payments, then it is your responsibility to continue those payments. If it took the creditor a while to track you down, your credit could be tarnished by the missed payments that you didn’t know about. So your credit score can be impacted by your ex-spouse if you still have any joint debts with them because a divorce only disbands a marriage agreement, not a joint borrowing agreement.
Myth #6: Bankruptcy Ruins Your Credit Forever
If you declare a bankruptcy, a record of it will stay on your credit report for 6 to 7 years depending on which province you live in. During that time, the bankruptcy notation will negatively affect your credit score and make it difficult to obtain credit. However, after the 6 or 7 years, the bankruptcy record and all records of bad debts (that are the same age) will usually be removed from your credit report, and this will allow you to get a fresh start. If you are struggling with your debts and are considering filing for bankruptcy, there are several good bankruptcy alternatives that can work out much better for many people.
Myth #7: Going Debt Free Will Render A Perfect Credit Score
While staying out of debt is a fantastic way to live, it’s not a silver bullet for your credit score. Your credit score is based on your credit behaviour and payment history, not just the amount of debt that you have. Not having any debt will help your credit score as long as you maintain at least one active credit account—like a credit card or a line of credit. If you don’t have any active credit, the credit scoring system doesn’t know how you are currently handling your obligations. The credit scoring system can see that you are using your credit card responsibly if you are using one credit card occasionally and paying it off completely every time you receive the bill.
If you are concerned about your credit score and would like to develop good credit which would help you with the credit score department as well, consider applying for a car loan. At Canada Auto Experts, we specialize in helping people build their credit with a car loan regardless of their credit situation. Moreover, our dealer partners do not run a hard credit check needlessly and strive to seek the best approval with the financial institution one is currently with already. Please call 1-855-550-5565 to speak with a credit specialist and learn more.