Credit Score Myths Busted


Credit scores are a tool that lenders, insurance companies and service providers use to determine whether or not they want to do business with you and under what terms. Your credit score shapes whether you’re able to get approved for credit and it also determines what kind of interest rate you’ll pay on what you borrow.

There’s a lot of information floating around about credit scores, how they impact other aspects of your life, and how to raise or lower them. Unfortunately, a lot of this information is half-baked or just plain wrong. Credit Sesame is debunking five credit score myths that are keeping consumers in the dark.

Credit Myth #1: When you get married, your credit reports and credit scores merge


One of the most common misconceptions about credit reporting is that when you get married, you and your spouse automatically share a credit history. In reality, marriage itself doesn’t impact your credit report or credit scores in any way. You and your spouse each have your own credit report, which belong to you individually, and getting married won’t change that.

That doesn’t mean, however, that there won’t be some overlap between your reports. If you decide to buy a home together, open up a joint credit card or get any other line of credit that has both your names on it, those accounts will show up on both of your credit reports and be factored into your credit scores. Your scores, however, would still be different.

One instance where you might be confused into thinking that your credit reports merge after marriage is the mortgage application process. When you apply for a mortgage loan, the lender is going to pull all three of your credit reports and all three of your spouse’s credit reports. They then go through a process of merging, which simplifies things for the lender but mistakenly gives the impression that you share a joint credit report.

Credit Myth #2: You have to apply for credit jointly once you’re married


Combining your financial lives once you’re married is something many couples choose to do but it’s not a prerequisite. Whether you choose to apply for credit individually or jointly is entirely up to you. If your spouse has a history of paying their credit cards late, for example, maintaining accounts in your name only may be the best move to protect your score.

One benefit to applying jointly is that lenders will consider both of your incomes in making credit decisions. For something like a credit card or a car loan, a joint application offers no real tangible benefit but for a larger loan like a mortgage, it can make the difference in whether or not you qualify.

Keep in mind that when you open joint lines of credit, both of you are responsible for paying the balance owed. If one of you is in charge of making the payments and you miss the due date, the late payment would show up on both spouses’ credit reports, negatively affecting both your credit scores. Allowing the account to go into default puts both of you at risk for collection actions.

Credit Myth #3: Divorce absolves you of your spouse’s debt


Applying for joint credit when you’re married is relatively easy but getting rid of it when the relationship goes off the rails isn’t. Once you and your spouse sign your names to a joint debt, it belongs to both of you equally and divorce doesn’t erase your obligation. In fact, it’s much easier to divorce your spouse than it is to divorce your lenders.

Here’s why. A divorce decree doesn’t override the original contract with your creditor. So while the judge might tell you to pay the joint car loan and your ex-spouse to pay the joint mortgage, you’re both still equally liable for the payments.

That can be problematic for a number of reasons. First, when you apply for new credit in your name only after the divorce, any joint accounts are still considered to be your debt. So if you’re trying to buy a home, for example, but your name is on an existing mortgage, that debt will be included in your debt-to-income ratio. In that scenario, a joint debt could disqualify you from getting a loan, even if the divorce decree states that your ex-spouse is the one making the payments.

[You May Also Like: 5 Credit Remedies You Need to Know About After a Divorce]

Second, joint debts are still factored into your credit scores as long as they show up on your credit reports. That can drag your score down if your former spouse isn’t making the payments as they’re supposed to or they’ve maxed out a credit card that has your name on it.

Credit Myth #4: Your credit score can make or break your job search


About half of employers conduct pre-employment credit screenings on some prospective candidates, but these screenings include your credit history, not your credit score. These are two entirely different things and it’s important to understand which one employers may look at.

Your credit report includes information about your credit history, such as the types of credit you use, how much credit you’ve recently opened, and whether you pay bills on time. Your credit score is a three-digit number that’s calculated based on your credit history.

According to recent data from the Society of Human Resource Management, 80 percent of organizations that do credit background checks have hired an employee despite credit issues. The takeaway? Don’t be overly worried about a past credit mistake hurting your chances of landing a job.

Credit myth #5: Paying your bills on time is enough to help you get approved for a mortgage

Payment history accounts for 35 percent of your FICO credit score calculation, which is the score most lenders use to assess creditworthiness. While payment history is certainly important, paying your bills on time alone isn’t all you need to do to if you’re planning to buy a home.

Beginning June 25, 2016, Fannie Mae will institute new loan underwriting policies that use trended data to assess borrowers’ ability to qualify for mortgage loans. Specifically, the new process will reward “transactors” – people who pay their credit card bills in full each month, more than “revolvers” – credit users who carry a balance but always pay on time.

If you’re gearing up to apply for a mortgage, your payment history still counts but lenders will also be taking a closer look at your overall debt balances. Paying down your credit cards or consolidating them using a personal loan can improve your credit utilization ratio so your score isn’t penalized.

[Fun Read: I Purposely Paid My Credit Card Bill Late & Accidentally Discovered a Credit Score Hack]

Credit myth #6: You need to have debt to have a credit score


Opening a line of credit and making on-time payments against it is the easiest way to build your credit score but it’s no longer the only option. FICO, along with the three major credit reporting bureaus—Experian, Equifax and TransUnion—are currently testing credit scoring models that look beyond your debt to create your score.

These models consider things like rent and utility payments. They’re designed to help the estimated 26 million Americans who don’t have many (or any) traditional credit accounts in their credit history (“credit invisibles”) gain access to the credit for the first time. If you don’t have sufficient credit history to generate a credit score, the new models can help without requiring you to go out and get a credit card or a loan in your name.

Final word

Credit is easily one of the most important aspects of our financial lives, yet it’s often one of the most misunderstood. With all the credit score theories you’ve collected — from friends, the news, the web, and personal finance experts — you probably have a good idea about what helps your score go up and what will send it plummeting. But chances are, some of what you’ve heard and thought was true is really nothing but a myth. The next time you’re trying to decipher fact from fiction, keep this handy guide in mind.

Credit Myths

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Published February 9, 2012 Updated: May 13, 2016
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