Credit scores are an essential part of personal finance, and yet many people have misconceptions about how they are calculated and what factors affect them. In this article, we will debunk some of the most common credit score myths.
Myth #1: Checking your credit score will lower it
One of the most persistent myths is that checking your credit score will hurt it. However, this is completely untrue. When you check your own credit score, it’s considered a “soft inquiry” and won’t affect your score at all. In fact, it’s a good idea to check your credit score regularly to make sure there are no errors or fraudulent activity.
Myth #2: Closing credit card accounts will improve your score
Another common myth is that closing credit card accounts will improve your credit score. However, this is not always the case. In fact, closing a credit card account can actually hurt your score by reducing your available credit and increasing your credit utilization ratio. It’s generally better to keep your credit card accounts open and use them responsibly.
Myth #3: Your income affects your credit score
Many people believe that their income plays a role in their credit score, but this is not true. Your income is not reported to the credit bureaus and has no impact on your credit score. However, your employment status and length of employment can be factors that affect your score.
Myth #4: Paying off a debt will immediately improve your score
While paying off a debt is always a good idea, it doesn’t necessarily mean that your credit score will immediately improve. Your credit score is based on a variety of factors, including your payment history and credit utilization ratio. It may take some time for paying off a debt to have a positive impact on your score.
Myth #5: Your credit score is the only factor lenders consider
While your credit score is an important factor in lenders’ decisions, it’s not the only one. Lenders also consider your income, employment history, debt-to-income ratio, and other factors when determining whether to extend credit. It’s important to keep these factors in mind and work on improving them as well as your credit score.
By understanding the truth behind these credit score myths, you can take steps to improve your financial health and make informed decisions about your credit. Remember to check your credit score regularly, keep your credit card accounts open, and focus on improving not only your credit score but also your overall financial situation.