We all want to protect and improve our credit scores, which is the smart thing to do. But it means that we can fall prey to common myths and misconceptions about credit scores that hinder more than help us.
1. Checking Your Credit Report Hurts Your Score
The idea that checking your own credit report can lower your score is a widely held belief, but it’s a myth. When you check your own credit report, it’s considered a “soft search” and doesn’t affect your score. Regularly reviewing your credit report is actually good practice to ensure accuracy and identify potential fraud.
2. You Only Have One Credit Score
Contrary to popular belief, you don’t have one credit score. Credit scoring models, like FICO and VantageScore have slightly different scores based on their specific algorithms. Remember that different lenders might use different scores.
3. Closing Old Credit Cards Boosts Your Score
Closing old credit cards, especially those with a long history, can actually hurt your score. It reduces your total available credit and shortens your credit history, both of which are key factors in determining your score. It’s often better to keep old accounts open.
4. Carrying a Credit Card Balance Improves Your Score
There’s a common misconception that carrying a balance on your credit cards positively impacts your score. However, carrying a balance typically means you’ll pay interest, which can indicate higher credit utilization, which isn’t good for your score. Paying off your balance in full each month is the best practice.
5. All Debts Are Equally Damaging to Your Credit Score
Not all debts are viewed equally. For instance, high-interest credit card debt is more detrimental to your credit score than a mortgage or student loan with a lower interest rate. This is because credit scoring models consider your credit mix and the types of credit you’re using.
6. Income Influences Your Credit Score
Your income doesn’t directly impact your credit score. Credit reference agencies base your credit score on your credit history, not your financial status. However, lenders may consider your income when deciding to extend credit, as it demonstrates your ability to repay.
7. A Higher Salary Means a Higher Credit Score
Similarly, having a higher salary doesn’t automatically mean you’ll have a higher credit score. Your score is determined by your credit management habits, not by how much you earn. High earners can have poor credit if they manage their credit poorly.
8. Paying Off a Negative Record Removes It From Your Report
Paying off a debt in collections doesn’t remove it from your credit report. Negative records like late payments, foreclosures, and collections stay on your report for up to seven years, even if you’ve paid them off. However, your credit score can still recover over time as you build positive credit activities.
9. Only Credit Card Debt Affects Your Score
While credit card debt is significant, it’s not the only type of debt that affects your credit score. Loan balances, mortgages, and even some utility bills can impact your score. Managing all forms of credit responsibly is key to maintaining a good credit score.
10. You Start with a Perfect Credit Score
You don’t start with a perfect credit score. Everyone begins without a credit score, and it’s built over time as you start engaging in credit activities. Establishing a credit history takes time and responsible credit use.
11. A Poor Credit Score Stays Poor
It’s a myth that a poor credit score is permanent. Credit scores are dynamic and can change depending on your credit habits. With consistent, responsible credit behavior, such as timely payments and low credit utilization, your score can improve over time.
12. Co-Signing Doesn’t Affect Your Score
Co-signing a loan does affect your credit score. When you co-sign, you’re equally responsible for the debt. If the other person misses payments, it will also impact your credit score.
13. Debit Cards Can Build Credit
Debit card usage doesn’t impact your credit score. Debit cards don’t involve borrowing money or making payments that could influence your credit score. To build credit, you’ll need to use ccredit cards, loans, and other credit products.
14. You Need to Be in Debt to Have a Good Credit Score
This is a misconception. You don’t need to be in debt to have a good credit score. Responsible credit management, like paying off your balance in full each month, can build a good credit score without accumulating debt.
15. Marrying Someone with Poor Credit Lowers Your Score
Your credit score is independent of your spouse’s. Marrying someone with poor credit does not directly affect your own credit score. However, joint accounts opened after marriage will impact both of your scores.
16. Credit Repair Agencies Can Fix Your Score Overnight
Beware of credit repair agencies promising quick fixes. Improving your credit score takes time and cannot be done overnight. Be cautious of agencies that claim they can remove accurate negative information from your report.
17. Young People Have Lower Credit Scores
Age isn’t a direct factor in credit scoring. Young people can have high credit scores if they manage their credit responsibly. It’s more about how long you’ve had credit and how you’ve managed it, rather than your age.
18. Credit Scores Aren’t Important if You’re Not Applying for Loans
A good credit score is beneficial even if you’re not planning to apply for loans. It affects your ability to rent an apartment, get a cell phone plan, and sometimes even impact employment opportunities.
19. Disputing a Credit Report Item Temporarily Boosts Your Score
Disputing an item on your credit report does not temporarily boost your credit score. The disputed information is investigated and corrected if found inaccurate. Only legitimate corrections to your report can improve your score.
20. Utility Payments Always Impact Your Credit Score
Utility payments don’t typically appear on your credit report unless they are delinquent and sent to collections. However, some credit scoring models are starting to include utility payments in their calculations, so paying utilities on time can positively impact your score.
21. Having No Debt Guarantees a Good Credit Score
Having no debt doesn’t automatically grant you a good credit score. Credit scores revolve around your credit history, including your debt management history. You might not have a credit score at all if you have no credit history.
22. You Should Avoid Credit Cards to Maintain a Good Score
Avoiding credit cards is not necessary to maintain a good score. In fact, responsible credit card usage is a powerful tool to build and improve your credit score. It’s about how you manage your credit, not avoiding it altogether.
23. Maxing Out Credit Cards and Paying Them Off Boosts Your Score
Maxing out your credit cards isn’t good for your credit score, even if you pay them off in full later. High utilization can be seen as a sign of credit risk. It’s better to keep your balances low relative to your credit limits.
24. Personal Bankruptcy Ruins Your Credit Forever
While bankruptcy can significantly damage your credit score and stay on your report for up to 10 years, it’s not the end of the road. You can rebuild your credit over time with responsible financial behavior and proper credit management.
