Have you ever wondered if checking your credit score too often could hurt it? Or if closing a credit card will automatically boost your score? Credit scores can feel like a mystery, with plenty of myths floating around that confuse people. These myths can lead to poor financial decisions, affecting your ability to get loans, credit cards, or even rent an apartment.
Understanding your credit score is key to managing your financial health. Misinformation can hold you back from making smart choices. In this blog, we will share some of the most common myths about credit scores you should stop believing.
1. Checking Your Credit Score Hurts It
Many think that when they check their own credit score, it will be lowered. This is not true. When you check your own credit report, it’s called a “soft inquiry,” which has no impact on your score. Soft inquiries are different from “hard inquiries,” which occur when lenders check your credit during applications for loans or credit cards.
Monitoring your credit score regularly is a good habit. It helps you track your financial progress and spot any errors or signs of identity theft. Staying informed about your credit status can actually improve your financial decisions over time.
2. You Only Have One Credit Score
Another common myth is that you have just one credit score. In reality, you have multiple scores because different credit bureaus and scoring models are used. Companies like FICO and VantageScore create scores based on information from credit reports provided by Equifax, Experian, and TransUnion.
This is where credit score monitoring becomes helpful. It allows you to see how your score might differ depending on the source. Even though the scores may vary slightly, they generally follow the same patterns. Keeping track of them can help you understand your overall credit health.
3. Closing a Credit Card Will Improve Your Score
Some people think that closing an old credit card will boost their credit score. However, closing a credit card can actually hurt your score, especially if it’s an older account. That’s because part of your credit score is based on the length of your credit history. The longer your history, the better it can be for your score.
Moreover, closing a card lowers your total available credit. This can boost your credit utilization ratio, which is the amount of credit you’re using compared to your total limit. A higher utilization ratio can lower your score. It’s often better to keep old accounts open, even if you don’t use them regularly.
4. Paying Off Debt Erases It From Your Credit Report
It’s a common belief that once you pay off a debt, it disappears from your credit report. This isn’t true. Paid-off debts, especially loans, remain on your credit report for several years. For positive accounts, this is actually a good thing because it shows a history of responsible repayment.
Negative items, like late payments or collections, also stick around for a while, usually up to seven years. However, paying off these debts can still help improve your score over time because it shows that you’ve taken care of your financial obligations.
5. Your Income Affects Your Credit Score
Many people assume that their income directly affects their credit score. While income is important for lenders when considering loan applications, it doesn’t influence your credit score. Credit scores are based on your credit behavior, such as payment history, credit utilization, and the types of credit you use.
Lenders may ask for income information separately to determine if you can afford a loan or credit card. But when it comes to your score, how you manage your credit is what matters most, not how much money you make.
6. You Need to Carry a Balance to Build Credit
Some believe that carrying a balance on your credit cards helps build credit. This is a myth. You don’t need to carry a balance and pay interest to improve your credit score. What matters is that you use credit responsibly and make payments on time.
In fact, paying off your balance in full each month is the best strategy. It shows that you can manage credit wisely without falling into debt. Plus, it saves you money by avoiding interest charges, which can add up quickly.
7. Only Credit Cards Affect Your Credit Score
Another misconception is that only credit cards influence your credit score. While credit cards do play a big role, other types of credit also matter. This includes installment loans like car loans, mortgages, student loans, and personal loans.
Having a mix of different credit types can actually help your score because it shows that you can handle various forms of credit. What’s important is making timely payments on all your accounts, regardless of the type of credit you have.
8. Your Credit Score Doesn’t Matter If You Don’t Plan to Borrow
Some people think that if they don’t plan to take out loans or credit cards, their credit score doesn’t matter. This isn’t true. Your credit score can affect many areas of your life other than borrowing. Landlords, insurance companies, and even some employers may check your credit as part of their decision-making process.
A good credit score can help you get better rates on insurance, secure a rental apartment, or even influence job opportunities. Maintaining a healthy credit score is beneficial, even if you don’t plan to borrow money anytime soon.
In conclusion, believing in credit score myths can lead to mistakes that hurt your financial health. Understanding the truth about how credit scores work puts you in control. By checking your score regularly, managing credit wisely, and staying informed, you can build a strong financial future. Knowledge is power when it comes to your credit. Now that you know the facts, you can make better choices to improve your credit and achieve your financial goals.
