Finance Blog
Four Myths About Your Credit History
Credit: Four Myths about Your Credit History
By Robin Holland
If you don’t learn to understand your credit, it can be a lifelong problem. You probably know you should be checking your credit report at least once a year. Do you understand what’s included in your credit report and how to read and do something about the information on it? Do you know what your credit score means?
When I work with consumers or lead workshops on financial literacy and credit, I’m always amazed at the misconceptions about credit histories, credit scores, and credit-reporting agencies.
Here are four myths about your credit history that I hear people proclaim frequently as truth:
Myth #1: “The credit-reporting agency is responsible for my debt (or credit) rejection.”
The credit report is an important part of the decision to grant you credit or not, but it’s not the only one. Each lender or creditor has a set of criteria it uses to determine whether or not you qualify for that credit. Think about it: It’s much easier to get a gas card than a credit card or a mortgage. That’s because the requirements to qualify for a gas card are not as stringent as those for a mortgage.
It’s up to you to establish an on-time payment history and a good mix of credit. Then when the creditor pulls your credit report, the creditor can look at your history, along with the other information you have provided, to make a decision about whether or not to give you credit.
A lot of the details you may provide, such as your gender, income, and employment history, aren’t on your credit report. But you can take responsibility for your financial identity and make sure the information reported about your credit history will present a positive picture of you to creditors.
Myth #2: “The credit-reporting agency put the negative information on my credit file.”
A lot of people don’t understand how credit reporting works. Credit reporting agencies put information in your file when creditors send us details about your payment history. Credit reporting agencies are not out to get you, and no one pays us to report negative information so they can avoid granting you credit. We compile the data sent to us about your financial history and present it as a snapshot of your finances.
There may be inaccurate information on your credit report (and you should frequently check your file at all three nationwide credit reporting agencies for inaccuracies), and if you find any inaccuracies contact the credit reporting agencies to dispute them.
Myth #3: “My credit score is a part of my credit report.”
Your credit score is not included with your credit report. You can access your credit report and credit score from Equifax or one of the other nationwide credit reporting agencies, but your credit score and your credit report are not the same thing.
Your credit report[IG1][EU2] is a history of how you pay your bills. It includes your credit accounts—mortgages, student loans, credit cards, and auto loans—and shows if you’ve been late or on time with your payments, the balances on these accounts, and who else has been looking at your credit report.
Your credit score is calculated from a formula based on the components of your credit report. While the score is a good reflection of you and your financial capabilities, there’s still room for interpretation. A lender or creditor will look at your score as another element in determining the risk in lending to you or giving you credit.
So you can get your credit score from a credit-reporting agency, but it is not automatically included with your credit report unless you purchase a credit report and score product or subscribe to a credit monitoring service that includes it.
Myth #4: “Credit-reporting agencies make the rules on how your credit history is reported and how long information stays on your credit report.”
Nope. The credit reporting agencies compile and report information about your credit history, but we’re not the decision makers. A government agency, the Federal Trade Commission (FTC), governs the credit reporting agencies. The Fair Credit Reporting Act (FCRA) outlines the rules on what credit reporting agencies can and cannot report and how long negative factors stay on your file.
It is helpful for people to understand what a credit reporting agency does and how information gets into their credit report. The more knowledge you have about this and your credit history the more control you will have over your finances.
17 comments
Leave a Comment
We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.
Some other factors to consider when commenting:
- Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
- All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
- We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
- Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
- Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
- Stay on topic. Your comment should be concise and pertain to the specific post in question.
- Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
- Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.
RSS Feeds
A very smart and diplomatic answer. It’s really appreciable and general.
——–
jon.
debt management
Great information and helpful. Very much appreciated, however, why does it take so long to report and why out of all 3 bureaus Equifax is always the lowers and longest to "catch up" – I have a score with Experian that is 749 and Equifax is still below 700. Does not make sense to me.
LI-Cowgirl,
Great question! Your score will differ at the three credit reporting agencies since the information in your credit report may not be exactly the same at each credit reporting agency, and because there are different scoring models used. I don't know if the score you received from Experian is based on the same scoring model that Equifax used, or if the information in your Experian credit file is the same as in the Equifax file. This is why I always recommend that people check their credit reports from all three credit reporting agencies since the information can differ, which means the score will differ.
–Robin Holland
I've been in the process of a refi. I have worked with 3 companies in the same 30 day period (I always get 3 quotes for any job). I always heard that if you have mulitple inquires within a 30 period for the same thing (refi) that the inquires would NOT effect your score. The last credit score I received a copy of, my score had dropped (Equifax) 10 pts, with Experian it went from 818 to 792 – the reason "too many inquires…". Is the 30 day period a MYTH?
If a credit score is based on a formula which takes into account such items as avaialble credit, then what impact is it when an company you have been paying off ahead of schedule lowers your credit limit because your credit score has gon down because you closed a credit card account. It seems to me that is the formula for going lower on your credit score. I would hate to have to take out more credit cards to raise my credit score.
ok im about to work on my credit i do not plan to open any new accounts but to clean up my negative reports i have so far. If an account says charged off or closed do i still need to pay the balance? Will paying the balance on these type of accounts help my credit report and my score? I feel like if its charged off and I pay it how does that help out
Hi KeJuana, Thanks for your question. We are working on a post for next month dealing with charged off accounts and how to deal with debt collectors. Check back next month for more information.
Good luck with taking control of your personal finances!
Jennifer
Editor for the Equifax Personal Finance Blog
My husband insist that if a credit card has a balance of $20,000 and you use $19,000 and pay it off each month that helps your credit report. I just did that and mine dropped 20 points???
Even after you pay off your creditors your credit score is still bad and it’s not updated to a good standing account which I think it should be. I’ve paid a few bills and there still in a negative state.
Jon, It’s important to start establishing a new positive credit history. It’ll take some time, but it’s well worth the effort to be seen as creditworthy to lenders. Click here for tips on how to improve both your credit score and creditworthiness. Please come back and let us know what worked for you. Thanks for posting.
I just joined equifax to understand credit better because i got a 805 score from my bank.My credit paying is perfect and i couldn’t believe it was so low.
last year it was 835.I only had 1 hard inquiry (by MY BANK ) since so it still doesn’t make sense.No bad credit issues to report (or contest) ………..how can you dispute a score.
Bob, I’m sorry to hear that. There are other factors to consider though. Has your credit limit decreased? Has your balance increased? Did you close any credit cards, which would change your average credit length? Click here for more information on how your credit score is calculated. I hope it helps.
I have been paying approximately 419.99 a month to each credit bureau to monitor my credit and get my credit scores…I just found out that these credit scores are not my FICO scores….Why can’t I get my FICO scores since I am paying this?? All banks look at your FICO scores for lending, not any other score….HELP…I just want my FICO scores…
oops, typo…$19.99 per month x three credit bureaus…
Good Luck Bob Lizana…The banks use different scoring methods…When I refinanced my home mortgage, my score dropped around 100 points…I have never been late on my mortgage, car loan, or credit…However due to inaccurate billing with medical facilities, it appears that I was late on these…in which 100 percent is covered my OWCP….I encourage all military personal, government employees to check their credit…It has been a nightmare for me….
Debbie, I’m sorry to hear about the troubles you’re having with your credit accounts. The issues you’re having are why it can be helpful to check your credit report regularly. Inaccuracies can have a negative impact on your score. Here are tips on how to check your credit report. I hope this helps.
Not only that…if you file Bankruptcy…no matter how long ago, some banks hold it against you for the rest of your life…whether you were never late with them or not and whether you paid off your entire loan or not…per Chase