Credit reports and scores often confuse consumers

Most people who are of an age to care about their credit are aware that the three main credit bureaus, Experian, Trans Union and Equifax, maintain credit reports on them. The bureaus keep track of loans, credit cards and bankruptcies and make note of whether each consumer pays his or her bills on time. Most people are also aware that their credit history is also available in the form of a credit score, which is, in essence, their overall credit worthiness reduced to a three-digit number.

Beyond that, many people have, at best, a vague understanding about how their financial transactions are regarded by the credit bureaus. There are a number of myths and misconceptions about credit reports and credit scores and how they are affected by things people do financially. Here are a few examples of these popular misunderstandings:

A consumer has only one credit score - Not true. Each bureau keeps track of financial transactions independently of the others and may have more or less information to work with than the other bureaus. Plus, until recently, each bureau used their own scoring system. In all likelihood, if a consumer were to contact each bureau to obtain his or her credit score, the result would be three completely different figures.

Your salary affects your credit score - Your score is simply a reflection of how well you handle the credit available to you. If you earn more money, you might have more available credit, or not. Either way, the score is simply a reflection of what type of credit you have and whether you pay your bills on time. How much you earn is not part of the equation.

Canceling a credit card raises your score - Not necessarily true. Credit bureaus examine how much of your available credit you are using. Less is more; the bureaus like to see that you are using as little of your available credit as possible. If you owe a lot of money on credit cards and you cancel an unused account, it may look like you are using a larger portion of your available credit. That will actually raise your score!

Marriage merges credit reports - Your credit report is your own. That will not change if you get married. Jointly borrowed money will show up on both reports and will affect both of your scores. And just as marriage doesn't merge the reports, divorce won't separate the joint items. If you get divorced and your ex doesn't pay on your joint loans, your score will decrease.

The process of compiling credit scores is a complicated one. It's understandable that many people don't entirely understand how the system works. Perhaps the best way to keep tabs on what is going on with your own finances is to check your credit report regularly. You can get a free copy at AnnualCreditReport. com.