I recently obtained one of the 3 free credit reports that I'm entitled to each year, and looking over it brought to mind credit scores, which are not included in these reports, and in particular, some credit score myths that can hurt consumers.
Paying Cash Won't Boost a Credit Score
My credit report was brimming with information about credit card accounts, mortgages, car loans and so on--the sort of information that is used to calculate an individual's credit score. This reminded me of what I think is the number one credit score myth: that making all purchases with cash can boost a credit score. On the face of it, it seems to make sense that using cash is a wise financial strategy, and it definitely has benefits, but one of them is not a better credit score. The reason is that a credit score reflects how an individual handles credit, so a cash-only policy means no credit history, no credit history means no credit score, and no credit score means it could be difficult to get credit.
On the other hand, switching to cash while paying down credit card debt or loans could result in a higher credit score, since one factor taken into account in calculating a score is how much credit an individual has outstanding relative to how much credit is available to him (as measured by such factors as borrowing limits on credit cards).
There's Only One Credit Score
Given frequent references to an individual's credit score, it may seem as if each of us has only one score. In fact, this is a myth. There are three main credit reporting agencies, Equifax, Experian and TransUnion, each of which calculates its own credit score, and these scores may vary for a variety of reasons. For example, while each credit reporting agency uses the same sort of information to calculate its credit scores, all of an individual's credit information is not necessarily reported to all three and there may be differences in when information is received and processed.
Employers Don't Use Credit Histories when Evaluating Job Candidates
If they want to, employers can take an individual's credit history into account when evaluating a job applicant, and many do. However, the report that they obtain, while including information about loans and other types of credit, is abbreviated and doesn't include a credit score or certain personal information. Also, the job applicant has to give permission for his credit report to be used by employers.
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