Editors' pick: Originally published April 27.
For a concept as integral to Americans' daily lives as credit, it's astonishing so many myths exist. Perhaps it's the complexity of our credit system or the lack of financial education in our country. Either way, consumers stand to lose a lot of money if they believe the common misconceptions about credit that prevail today.
In order to avoid bad credit, high interest rates and a number of other costly consequences, these are the five credit myths that need to be dispelled once and for all.
1. You only have one credit score
It's commonly believed that every adult has one credit score. FICO is the most common credit scoring model, but the truth is that dozens of models exist, each with its own algorithm and purpose.
Ibrahim Dusi, chief risk officer at financial wellness company Payoff, explained that while most lenders examine at least one of your FICO scores when making a decision, "you actually have at least three different FICO credit scores, including one from each of the major credit bureaus."
To add to the confusion, he said, there may be significant differences in what information each bureau has, resulting in a different score depending on the source.
Those considering a loan or line of credit should first investigate their credit scores from the three major bureaus - Equifax, Experian, and TransUnion - to ensure their scores are within a healthy range and fairly consistent. A single score based on missing information or an error could result in a denied application.