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Credit Myths and Facts You Should Know
Rajiv Verma, Mortgage Broker
Understanding credit and your credit score can be confusing for many Canadians due to credit score myths.
This article will help you understand the truth behind some of the most common credit score myths in Canada.
A credit score is based on five main factors (in order of importance):
Payment history 35%
Amount owed and utilization 30%
Length of credit history 15%
New credit 10%
Types of credit used 10%
1. Approaching your credit limit will not negatively impact your credit scores.
FALSE.
Your credit utilization ratio represents how much revolving credit you're using compared to the total amount available to you.
2. You can dispute items on your Equifax or Transunion credit report.
TRUE.
If you see information on your Equifax or Transunion credit report you believe is inaccurate or incomplete, contact the lender or creditor. You can also file a dispute with Equifax or Transunion..
3. It will always help my credit scores to close an account that’s paid in full.
FALSE.
In fact, closing a paid-off credit card account may not positively impact your credit scores. Closing the account may affect your debt to credit utilization rate
4. There is no one-size-fits-all solution when it comes to credit scores, credit reports and credit behavior.
TRUE.
Everyone’s financial and credit situation is unique.
5. You have a universal or overall credit score.
FALSE.
There are many different credit scores, and each may be calculated differently.That’s why your credit scores may be different among the two credit bureaus.
6. Checking your credit scores yourself will not impact them.
TRUE.
Checking out your credit scores and credit reports does not impact your credit scores.
7. There is a credit “blacklist.”
FALSE.
Credit bureaus aren’t the ones that decide your creditworthiness - that’s up to lenders and creditors so there is no “blacklist.”
8. Parking tickets and library fines are not included on your credit reports.
TRUE.
Things like parking tickets and library fines don't show up on your credit reports -even if the accounts are sent to a collection agency.
9. Your relationship status and whether you live alone can impact your credit scores.
FALSE.
The information on your credit reports relates to you personally - not your relatives, partner, or former roommates.
Also, keep in mind accounts you have co-signed on with another person may affect your credit scores.
10. Good credit scores do not necessarily mean your credit application will be approved.
TRUE.
Good credit scores aren’t a golden ticket. While good credit scores are a strong start, each application is unique, so it’s not wise to consider a loan, credit card or mortgage a given based solely on credit scores.
11. If I pay off a debt, any late or missed payments on that account will be removed.
FALSE.
That's not the case. Late payments can remain on your Equifax or Transunion credit report for up to seven years from the date you missed the payment. And late or missed payments remain even after the debt is paid.
12. Making a lot of money will help your credit score and loan Qualification
FALSE.
Salaries are unrelated to your credit score.
13. Paying cash helps your credit rating.
FALSE.
People often make the mistake of thinking that not using credit shows that they are responsible with their money.
14. Co-signing does not affect your credit.
FALSE.
Even if you co-sign on a loan, you may have a responsibility for that debt. If the other party misses a payment or a few, your credit score could be affected just like theirs.
15. Divorce takes away the former spouse’s bad credit habits..
FALSE.
This is not necessarily true. So even if you get divorced, your accounts may remain joint, which means your former spouse’s credit continue to affect your credit. Also, joint accounts that have been closed may continue to report on your credit report.
16. - You get your credit score for free each year from Equifax and TransUnion.
False!
It is true you can get a free credit report each year from Equifax and TransUnion.
If you would like to get a free copy of your credit score, Contact me to get full free report link.
16. - Bankruptcy Permanently Ruins Your Credit.
False!
After you get your bankruptcy discharge, a record of your bankruptcy will remain on your credit report for 6 or 7 years, depending on the province or territory.
17. My credit score and my spouse’s credit score are the same.
False!
18. Becoming Debt Free Will Give a Person a Perfect Credit Score.
False!
Without maintaining active credit, the Equifax and TransUnion won’t have a record of your credit, which can actually hurt your credit score over time.
For any credit related questions or concerns, always call for FREE
Rajiv Verma, The Trusted Mortgage Broker for Canadians
Direct contact 647 291 7116
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