The Best Practices to Build and Maintain Good Credit

Drake V. Harper
5 min readJun 18, 2019

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Invest in Yourself

A credit score is very important, particularly if you’re looking to apply for a loan or credit card. Many different factors influence your score, credit inquiries are the ones that are so often misunderstood. I lay out a few common myths about credit inquiries and explain the truth about them.

Myth: There is One Type of a Credit Inquiry, and It Always Effects Your Credit

Fact: There are two types of credit inquiries: soft inquiries and hard inquiries. A soft inquiry, or soft pull, happens when you check your own report for educational purposes. This is the type you do with a credit education website like Experian.com No matter how many times you do a soft inquiry on your credit, it will never hurt your score, and it won’t show on your report.

A hard inquiry, or hard pull, occurs when lenders check your report in the lending process, such as when you’re applying for a mortgage or getting a credit card. Hard inquiries can hurt your score by a few points and will remain on your report for two years. They also require your authorization, so no one should be doing a hard pull on your credit without your consent.

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Myth: Hard Inquiries Negatively Affect Your Credit Score by a Lot

Fact: Hard inquiries affect your credit score, but not as much as most people think. The exact amount of points isn’t known for sure, as a complex mathematical formula is used to determine the exact amount of points that are deducted. However, most hard inquiries will dock three to five points from your score. This is only temporary, and your score should recover fairly quickly.

Myth: Shopping Around for a Loan Hurts Your Score

Fact: Too many hard inquires will negatively impact your score, but if you’re shopping around for a loan and your credit is pulled multiple times in a 14-day window, the credit bureaus will only count it as one hard inquiry. This allows you to get credit pulls from multiple lenders while protecting your score from most of those negative marks.

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Myth: Declaring Bankruptcy Gives You a Clean Slate of Credit

Fact: Declaring bankruptcy does not clear your credit and will severely hurt your score for many years to come. A Chapter 13 bankruptcy can stay on your credit report for up to seven years, while a Chapter 7 bankruptcy can stay on for up to 10 years. Filing for bankruptcy should be a last resort, as it has many implications to your financial health.

Myth: Paying Off Past Debts Will Instantly Help Your Credit

Fact: If you’ve had late payments or debt go into collections in the past, paying them now is good, but it won’t instantly help your credit. Your credit report is the history of payments, not a glimpse of your current credit, so it’ll take into account your late payments. Your score will also still be impacted by this debt. Similarly, any future payments you miss will affect your credit score even if you pay off the debt in full.

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Myth: I Pay My Bills on Time; I Do Not Need to Check My Credit Score

Fact: You should check your credit report and score regularly, regardless of whether you pay your bills on time. While a lot of your score is based on your payment history (nearly 35%), your score is still influenced by many factors, such as hard inquiries, age of credit, credit utilization and type of accounts you have open, which influences the other 65% of your score.

Similarly, you want to regularly check for any errors that may have come up. Sometimes good accounts like mortgages aren’t reported, and other times, unauthorized accounts or someone else’s information can be reported in your name. It’s important to check for these and make sure your information is correct and that there are no instances of fraud.

Myth: All Credit Reports Are the Same

Fact: There are three major credit bureaus: TransUnion, Equifax and Experian. Each bureau offers their own credit report based on their own scoring methods. Technically, the information on each of these credit reports should be the same, but it’s not always. Companies that you have loans or credit cards with may not always report to all three bureaus.

If you’d like to see your Equifax or Experian credit reports, you can visit AnnualCreditReport.com for a free copy of each.

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Myth: Bad News Comes Off in Seven to 10 Years

Fact: Most bad news comes off in seven to 10 years. Chapter 13 bankruptcy comes off your credit seven years after the filing date, and a Chapter 7 bankruptcy (exoneration of all your debt) stays on your credit for 10 years. There are other forms of bad news, such as late payments, that also stay on your report for up to seven years.

It’s important to note that not all bad marks are created equally. While a late payment will still show up on your report for seven years, it will not impact your score as much as a bankruptcy or foreclosure will. Even if you miss one or two payments, it’s important for you to get back on track before one or two turns into a bankruptcy.

Your credit is vital to your financial health. It determines so much for your financial life like the ability to get a loan and the interest rates you pay on them, so it’s important to understand what impacts your score. With the right knowledge, you can make good choices about your finances and take the steps necessary to maintain a solid credit score.

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Drake V. Harper
Drake V. Harper

Written by Drake V. Harper

Professional Chef and Entrepreneur. Curating food movements, flavor profiles, and healthy lifestyles

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