Debunking Common Credit Score Myths 

Updated on 04/10/2024

Debunking Common Credit Score Myths 

Have you heard of a “shortcut” to a better credit score that sounded fishy? Credit advice and hacks are often myths! They offer seemingly simple solutions to improving your credit score or promise quick fixes to complex issues. However, the reality is that these myths can lead to decisions that negatively impact your financial health.

In the following exploration of common credit score myths, we aim to debunk these misconceptions and shed light on the truths that can genuinely help you build and maintain a strong credit score. 

Knowledge is not just power—it’s protection against the pitfalls that can hinder your financial progress.

Myth 1: Checking Your Own Credit Score Will Hurt It

Let’s start with a biggie. Ever heard that peeking at your own credit score is bad news? Well, you can breathe easy because that’s not technically true. 

This myth stems from a misunderstanding of hard inquiries, which are credit checks by lenders that can impact your score. When you check your own score, it’s considered a “soft inquiry.” This kind of check doesn’t affect your score at all.

So, check your free credit score whenever you like. It’s actually a smart move to keep tabs on your credit health! 

You can get a free credit report up to three times a year by requesting a report from each of the major credit bureaus—Experian, TransUnion, and Equifax—at different times throughout the year.

You may notice that your, for example, TransUnion credit report has a different score than the other bureaus. A different Experian credit score can occur when there are information discrepancies. 

It’s important to check your credit reports and scores from all three bureaus regularly to ensure accuracy and to get a full picture of your credit health.

Myth 2: You Need to Carry a Balance to Build Credit

This one’s a classic. Some people believe that keeping a balance on your credit cards is necessary to build credit. Not true! 

You should use your credit cards and pay off the balance in full each month. This shows lenders that you’re responsible with credit. 

Plus, it saves you from paying interest. So, no, you don’t need to carry a balance to build credit. Just use those credit cards wisely!

Myth 3: All Debts Are Equally Bad for Your Credit Score

Not all debts are created equal, at least not in the eyes of the credit bureau. Credit bureaus look at various factors when calculating your credit score. 

Yes, high levels of debt can negatively impact your score, but factors like the type of debt and your payment history play a huge role too. For instance, a mortgage might be seen in a more favorable light than a bunch of maxed-out credit cards.

Myth 4: Closing Old Credit Cards Boosts Your Credit Score

This myth likely originates from a misunderstanding of how credit history length and credit utilization ratio contribute to your overall credit score. Part of your score is based on the length of your credit history and your credit utilization ratio (that’s the amount of credit you’re using compared to what’s available to you).

Here’s the deal: closing old credit cards, especially those with a long history, can actually lower your credit score. That’s because closing old accounts can shorten your credit history and increase your utilization ratio. So, think twice before you close those old accounts.

Myth 5: Your Income Influences Your Credit Score

Your income doesn’t show up on your credit report or directly impact your credit score. What matters is how you manage the credit you have. High income doesn’t automatically mean a high credit score, and lower income doesn’t mean your score will suffer. It’s all about how you handle your bills and debts.

Myth 6: Your Age Affects Your Credit Score

You might think your age has a direct impact on your credit score, but that’s not the case. What matters is the age of your credit history, not the number of candles on your birthday cake. Younger folks might have lower scores simply because they have shorter credit histories, but age itself isn’t a factor. So, whether you’re 18 or 80, it’s the history and management of your credit that counts.

Myth 7: Paying Off a Debt Removes It From Your Credit Report

If you’ve tackled a debt—congrats, by the way—that’s fantastic for your financial health, but it doesn’t mean the record of that debt vanishes from your credit report. Paid debts, especially those that were in collections, can still appear on your report. However, their status will be updated to show that they’re paid, which looks better to potential lenders than unpaid debts.

Myth 8: A High Credit Score Guarantees Loan Approval

A high credit score is definitely a feather in your cap, but it’s not an all-access pass. Lenders consider other factors beyond your credit score, like income, employment history, and debt-to-income ratio. So, even with an impressive score, approval isn’t guaranteed—it’s just one piece of the puzzle.

Myth 9: Co-signing Doesn’t Affect Your Credit Score

Thinking of co-signing a loan? It’s a generous gesture, but be aware that it can affect your credit score. As a co-signer, you’re equally responsible for the debt. If the primary borrower misses payments, it’ll hurt your score too. Always tread carefully when considering co-signing for someone else.

So, there you have it! Some of the most common myths about credit scores, debunked. Remember, understanding your credit is crucial for financial health.

You can use free tools to check your credit score and report regularly. And, consider using credit cards to build credit—just make sure you’re doing it wisely.

By Admin