Your credit score is a vital piece of your financial puzzle, but there’s a lot of misinformation floating around about how it works. In this blog, we’ll debunk common credit score myths and separate fact from fiction to help you better understand and manage your credit.
Myth 1: Checking Your Credit Score Lowers It
Fact: Checking your own credit score, also known as a soft inquiry, does not affect your credit score. In fact, regularly monitoring your credit can help you stay on top of your financial health and identify any errors or suspicious activity.
Myth 2: Closing Credit Card Accounts Boosts Your Score
Fact: Closing credit card accounts can actually harm your credit score, especially if they have a long history or low balances. Closing accounts reduces your available credit and can shorten your credit history, both of which can lower your score.
Myth 3: Carrying a Balance Helps Your Score
Fact: Carrying a balance on your credit cards does not improve your credit score. In fact, it can increase your credit utilization ratio, which may lower your score. Paying off your credit card balances in full and on time is the best way to maintain a healthy credit score.
Myth 4: Income Affects Your Credit Score
Fact: Your income is not directly factored into your credit score. Your credit score is based on factors such as your payment history, credit utilization, length of credit history, types of credit, and new credit accounts opened. However, lenders may consider your income when evaluating your creditworthiness for certain types of loans.
Myth 5: Closing Accounts Removes Them from Your Credit Report
Fact: Closed accounts remain on your credit report for a certain period, typically seven to ten years, depending on the type of account. Closing an account does not remove it from your credit report, and it may still impact your credit score during that time.
Myth 6: Paying Off Debt Erases Negative Marks
Fact: While paying off debt is generally a positive financial move, it does not automatically remove negative marks from your credit report. Negative items such as late payments, collections, and bankruptcies can remain on your report for several years, even after the debt is paid off.
Myth 7: You Only Have One Credit Score
Fact: There are multiple credit scoring models used by different lenders and credit bureaus. Your credit score may vary depending on the scoring model and the information contained in your credit report. However, the most commonly used credit scoring model is the FICO score.
Myth 8: Closing Unused Accounts Improves Your Score
Fact: Closing unused accounts can actually lower your credit score by reducing your available credit and potentially increasing your credit utilization ratio. It’s generally better to keep unused accounts open, especially if they have a positive payment history and low balances.
Myth 9: Paying Bills Late Doesn’t Affect Your Score if It’s Just Once
Fact: Payment history is one of the most significant factors affecting your credit score. Even one late payment can have a negative impact on your score, so it’s essential to pay all of your bills on time, every time.
Myth 10: Credit Repair Companies Can Instantly Fix Your Score
Fact: While credit repair companies may promise to improve your credit score quickly, there are no shortcuts to repairing credit. Improving your credit score takes time and effort, including paying bills on time, reducing debt, and addressing any errors on your credit report.
Conclusion: By debunking these common credit score myths, you can better understand how your credit score works and take steps to improve and maintain it. Remember, knowledge is power when it comes to managing your finances, so stay informed and make smart financial decisions.