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Planning your financial future

Credit score misconceptions

If you're not familiar with how credit scores work, it can be easy to misunderstand how they're used. We discuss three common misconceptions.

It can often appear that Americans live and die by their credit reports. The fact is, a healthy credit score can open the doors to lower interest rates and a plethora of different types of loan opportunities. However, while there is a lot of good information on building and maintaining a fiscally fit credit report, there are some common credit score myths.

As part of our budget 101 series of financial articles, we're dispelling three common credit score fallacies so that you can make informed decisions about your credit report and learn how to budget your financial future.

Myth #1: A bad credit score will take forever to improve.

Not true. In fact, improving your credit score doesn't necessarily require a lot of time, as much as diligent effort on your part. For this reason, it's important to use your credit score number as a launching point in which to begin to rebuild your FICO score. Begin monitoring your credit report, disputing discrepancies, and gradually changing the way you handle credit. You may be pleasantly surprised at how quickly your score can begin to improve.

Myth #2: Evaluating my credit score is an invasion of my privacy.

What a credit inquiry reveals to lenders is how risk-worthy you are with the money/credit they are willing to lend to you. According to FICO, your credit report and score is evaluated on the same information that lenders already look at, such as a credit bureau report, credit application and/or your bank file. A credit score is simply a numeric summary of that information.

Myth #3: Credit scoring is discriminatory.

Your credit score is made up of credit-related information only. The Equal Credit Opportunity Act (ECOA) prohibits lenders from considering factors such as gender, race, nationality, and marital status.

 

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