Guide to Myth's about Credit.
 

If I check my score it will lower my score.
We have some clarifying to do with this myth about credit scores. There are two types of credit inquiries: soft and hard. A hard inquiry is done by someone who will potentially be granting you credit -- i.e., a bank, credit card company, car dealership, etc. A soft inquiry is done by someone who needs to know your score, but will not be granting you credit -- i.e., a utilities company, a cell phone company, etc. When a hard inquiry is done, it will lower your score. When a soft inquiry is done, it will not lower your score. So, you can check your score all you want without worrying about your credit score being lowered.

There is nothing I can do once I have a late payment.
This myth about credit scores has got to go. It’s actually extremely easy to remove a late payment, and the sooner you do it the better. Removing a late payment from years ago can be a little more difficult (though it’s definitely doable) than removing a late payment from last month. If you show a late payment on your transaction history, call your credit card company and you’ll be amazed how easily they will remove it. Why? Because they want you to keep using their card. Now, that’s not to say you can be late with your payments all you want. If you are late each month, then you probably aren’t going to get much help. If you were late one time in a year, we're sure you’ll be helped. We can also tell you that a penitent tone will get you further than yelling.

Too many credit cards will hurt my credit score.
This commonly believed myth about credit scores hurts people in a couple of ways. First, many people have canceled all but two of their credit cards because they believed that these cards were hurting them. The truth is that the moment they canceled their cards, their scores dropped by as much as 150 points. So, in reality, by canceling your cards, you reduce the number of healthy accounts you have, which lowers both the amount of credit you have been granted and, in most cases, the average length of credit history for each account, reducing your score drastically.

Secondly, too many people refuse credit card applications because they fear they will have too many accounts. Fair Isaac Corporation, the company that designed the formula for credit scoring, says that the average consumer has 13 credit obligations. However, adding more accounts does not hurt.

On the other hand, it is true that too many credit inquiries will hurt your credit score. In other words, if you are applying for a new card or loan every week, your score will be lowered. This is also another reason why you need to get the credit accounts you desire and keep them. Do not whimsically apply for and cancel credit accounts.

I should have good credit; I pay my utilities and cell phone bill on time every month.
This is one of the sad facts about credit. It may be used to determine your ability to pay for everything you do, but not everything you do will reflect on your ability to pay. In other words, your cable company, phone company, gas company, etc., are all going to check your credit (they probably won’t tell you either). However, because these institutions are not granting you credit, they will only report to the credit bureaus if you fail to pay. In other words, when it comes to phones, utilities and cable, you can only hurt your credit, not build it.

about that last part, i was told that canada student loans falls under the same category. that failure to pay is bad, but paying off one's student loans in a timely fashion of even ahead of schedule does nothing extra or even good for one's credit score.

is that true?

My coworker told me you can build up good credit by revolving a cash advance over multiple CC's. Is this true?

what if you dont renew your CC when it expires, what happens then?

What if you have a CC that you dont use, or barely ever use?

same question

That is correct - Govie loans are a bit different. Because previously many people declared bankruptcy, that new rules were put into place.

Dead wrong - Cash Advance : interest itself would kill you.
PLUS: thats Illegal and consider Kiting and therefore can be sent to jail.

CC companies automatically send out new cards, so i don't think anything will happen, but i don't know. sometimes they stop reporting. because you havent' used it for so long.

Just like any credit card. See OP.

how and where do you check your credit score ? I'm interested in finding mine out !

equifax and transunion

I'd say this is a bit of a grey area. It's not so much about how many cards you have, but about the total revolving limits and the combined balances between them. Also the tenure of the account is a big thing, and yes if you cancel a card that you've had open since you were 19 it could negatively effect your overall credit rating, but if you cancel that random department store card you opened last year so that you could buy the living room set with 0% APR it could be a positive influence on your rating.

This is contradicting. Since these institutions are not granting you credit, then it's a soft inquiry; thus not affecting your credit... no?

nice post.

with soft inquiries, its not the inquiry itself thats lowering your score, its the result of the inquiry that can potentially lower it. hard inquiries directly lower your score.

First of all, I think this is a good first post about credit scores, to correct some of the general misperceptions.

Secondly, the ways that credit scores are based on are changing literally constantly and it is very hard to tell anymore. I have had quite a few experience in the past year or so on those and they are contradicting as well.

As to soft check not affecting your score, I would not hold against that, because my score did get lower by having soft checks. But then again, you never know if it was the soft check or whatever it is that is lowering your score. Not even Equifax or credit-checking agencies/agents/etc can tell you exactly "WHY" or "HOW" your scores are different from last week if you checked last week. Besides, there are too many so-called "experts" telling you "oh, it wont affect your score, oh it wont do this and that". But at the end of the day, it is your money, your time, your credits that is suffering and not theirs. It is in their best interest to "sell" you something, not to "protect" your credit NO MATTER what they say.

Simple advise and best bet to have a good score.

1) Pay all your bills (utility, CC, loans, etc) on time. (Not just the minimum payments on your credit card)

2) Try not to exceed a ratio over 50% of your CC/loan/LoC credit limit for a long period of time. i.e. Your CC has a limit of $10,000 and you have more than $5000 on the balance. Now, sure, once you pay the $5000 off, your score should not be affected, but it could lower your score during the time of the balance. I learned this the hard way, as I had about $14,000 on my CC on a $22,000 limit card. I checked my score during this time (for my mortgage loan application earlier last year), my score was lowered by 15 points!!!! Sure, 755 and 770 makes no difference, but 739 and 754 makes every difference as F&F was using 740 as the cut-off line to get my extra 1/4th point off on my mortgage rate. So, you see, I was literally 1 point away from saving me thousands in interests!

So, lesson is, keep balance low if you're looking to apply any loan, or else, it wont matter. Again, this is my experience and it may vary depending on your situation.

3) # of CC does not matter. What affects your credit is when a) You submit an application for a CC, just as GTR said. b) if you dont pay them off on time. You can hae as many CC as you want and whether you use them or not should not matter. But you're dead wrong if you think your score wont get affected if you have revolving balance.

4) Check your credit score at least ONCE A YEAR

Do all of the above, I am sure when it comes to your business loan/mortgage/car loan, you will thank yourself for paying all these bills on time and that is when you are enjoying your dividends. Look ahead and dont be short-sighted.


Bottom Line - Pay Your Bills On Time

Sure some people do get away with something (i.e. maybe a few payment missed and your credit has not been affected yet), but do not take the chance and then regret later. Trust me, it is not worth the risk and the time/money/effort to fix a screwed-up credit history will more than offset whatever short-term benefit you think you are enjoying right now

Just the same as every other financial advisors would tell you, spend what you actually have on hand, not what you "will" make in the future and plan wisely.

Also, as said above, rules for "calculating" credit rating literally changes constantly. So, instead of trying to figure out what the "current rules" are, it is much easier and more effective to just follow the above 2 advices and pay your bills on time.

Seems like alot of people here work/worked for a bank : )

I'd do a credit check once a year with Equifax or Transunion. As these are regular checks and not a hard check (re: loan or additional debt) its great to find out if you've been a victim of ID theft and whatnot.

Great service from RBC/CIBC is Credit Alert - free with your VISA Card. It basically keeps track of your credit and alerts you whenever a credit check is done. Even soft ones like when account opening for brokerage accounts and/or opening account at branch and overdraft checks the beacon automatically at your FI.

+1 for equifax
had some earlier problems last year with my wallet stolen.
Equifax was a great company to work with.

brilliant post PNF.

Well written and very detailed =) PROPS!

Question:
Got a parking ticket that's NOT from the gov't. It's from a company called "Diamond Parking" which I assume is a similar to Impark but on a smaller scale.

If their ticket was not paid, I heard from many frds and coworkers that it doesn't affect your credit. However, I have other frds saying that a credit company called "Wiggins" will call and ask you for the money.

So in conclusion, if a parking ticket from a NON GOV'T company like the ones above is issued and NOT PAID, will it affect your credit?

Thanks in advance

I can confirm that a collection agency does come and ask for money.

sort of off topic but still cc related. i want to apply for my first cc but i don't have a job that pays cheques, or direct deposit. so it is still possible to get a cc? do they ask for the tax income papers which shows my income? im self employed. tia

whattt...silly.

now i know.