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Debunking credit score myths

by Broderick Perkins

(05/21/2010) Parents aren't so bright when it comes to what behaviors will impact their credit scores and that could brush off on their kids.

In March, ING commissioned Harris Interactive to conduct an online survey of 1,042 parents of children age 17 years and younger.

• The survey discovered more than half, 56 percent, of those surveyed thought bouncing a check or paying a fee for having non-sufficient funds in their bank account would reduce their credit scores.

Wrong.

Credit reports typically don't include information about checking and debit accounts, nor non-sufficient fund issues unless they somehow impact an attached credit account.

• Also one in five (21 percent) thought checking their credit scores would hurt credit scores. Nearly as many (18 percent) thought accessing their credit report, would hurt their credit scores.

Wrong and wrong.

Obtaining your credit report and credit score has no bearing on your credit standing.

In fact, you should check your credit reports regularly. Every year, federal regulations allow you three free credit reports, one each from the three credit reporting agencies, Equifax, Experian and TransUnion.

If you visit some other sound-alike, come-on web site, and it isn't AnnualCreditReport.com, expect to pay for credit services you may not need in exchange for that so-called "free" report.

From AnnualCreditReport.com, get the three free reports all at once if you haven't seen them for years. Otherwise get one from a different company every four months to regularly monitor your credit report for errors, identity theft, black marks you may need to work on and other issues.

For your credit score it will cost you a nominal fee (it's worth it) paid to each of the three credit reporting agencies.

A credit score -- virtually always examined by lenders when you apply for a mortgage, credit card, car loan, other credit, even insurance and other financial accounts -- is a numerical rendition of your creditworthiness on your credit report.

Scores range from about 300 to about 850. The higher the number the more likely you are to get credit and the more likely you are to get cheap credit. Your score should be at 760 or above to land the best interest rate, according to FICO, a leading credit scoring system provider.

Debunking the myths

To help debunk credit score myths, misunderstandings, misdirections and to stop financial behaviors that could be passed onto future generations, ING Direct and Experian developed five tips to help parents separate fact from fiction.

• Practice what you preach. Simple financial behaviors such as paying your bills on time will keep your credit in good standing and will allow you to obtain better interest rates on big asset purchases like a house or car. Lead by example.

• Start early. When you kids start to ask you to buy things for them, it's time for the "money talk." Later, introduce more complex credit topics with stern statements like "credit is not free money." Talk about interest rates, paying on time, paying off balances and saving money.

Make learning fun with interactive web sites like Planet Orange; $avingsman's Choose To Save; Smart About Money; Credit When Credit Is Due; and Fool Proof Me.

• Make credit a family affair. Let children in on household financial discussions that reveal the true cost of necessities. Sit them at the table during budget and bill paying sessions. Explain the fallout from making poor financial decisions.

• Set family financial goals. Teach children how money doesn't grow on trees. Show them how to save for things they desire rather than accessing credit to spend money they do not have. It's a way to encourage your children to set financial goals and work towards achieving them. Children savor things more when they put in the time and effort to purchase items with their hard earned cash.

• Explain the difference. Talk to children about the differences between needs versus wants, especially at times when they want you to give into impulse buying. During grocery store visits, show kids the difference in prices between name brands and generic brands as a way to expand on this lesson.

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