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Busting Credit Score Myths: The Truths You Need to Know

Figuring out credit scores and how to boost them can feel like a bit of a puzzle. Your credit score is very crucial when you’re looking to get a loan or a decent interest rate on a credit card. Unfortunately, with all the myths and mixed messages floating out there, it’s tough to know what’s actually true.

To help you get your facts straight, we’re going to tackle those myths head-on. When you’re armed with the right information, you will be able to better navigate your way to a more favorable credit score.

Myth 1: Checking Your Credit Score Will Lower It

This is a biggie that keeps appearing on many searches. Many individuals hesitate to check their credit scores, fearing it’ll ding their credit.

This is a classic case of mixing apples with oranges—or more accurately, hard inquiries with soft inquiries. Soft inquiries, like checking your credit score or pre-approval offers, don’t affect your credit score.

Hard inquiries, on the other hand, such as applying for a new credit card or loan, can impact your score but typically only by a few points.

The takeaway? Check away! Financial experts suggest that you take a close look at your credit report at least once a year. Monitoring it more frequently can help you catch and address any inaccuracies or fraudulent activity sooner. Staying informed is key to managing your financial health.

Myth 2: You Only Have One Credit Score

In reality, you have multiple credit scores. The two major players in the credit scoring world, FICO and VantageScore, each use different models and versions. Plus, each of the three major credit bureaus—Equifax, Experian, and TransUnion—can report slightly different information.

Why does this matter? It highlights the importance of not putting all your eggs in one basket and understanding that lenders may see a slightly different score than you do.

Myth 3: Income Influences Your Credit Score

This myth is particularly persistent. Your income, high or low, doesn’t directly affect your credit score. What matters is how you manage the credit you have. High-income individuals can have poor credit scores if they mismanage their credit, and vice versa. It’s all about your payment history, credit utilization, and other factors unrelated to how much you earn.

Myth 3a: A Good Credit Score Means You’re Rich

This myth is a cousin to the one about income affecting your credit score. Having a good credit score doesn’t mean you’re rolling in dough; it means you’re good at managing your credit. While being adept at debt management could indeed help you make more money, this is not always the case.

Myth 4: Carrying a Balance on Your Credit Cards Improves Your Credit Score

This myth is a tricky one because it mixes a kernel of truth with misunderstanding. While using your credit cards can demonstrate responsible credit use, carrying a balance and paying interest is not necessary to improve your score.

In fact, high balances relative to your credit limit can hurt your score. Paying off your balance in full each month is a sound strategy that shows you can manage credit without accruing unnecessary interest.

Myth 5: Closing Old Credit Accounts Will Improve Your Credit Score

Out of sight, out of mind? Not with credit scores. Closing old credit accounts, especially those with a long history, can actually lower your score.

This is because the length of your credit history and the amount of available credit you’re using (your credit utilization ratio) are key factors in your score. A longer credit history and lower utilization rate can positively impact your score, so think twice before you close old accounts.

Myth 6: You Can Pay a Company to Fix or Improve Your Credit Score Quickly

While paying down debt can improve your credit score, the notion that you can pay a company to quickly fix your score is misleading.

No company can legitimately remove accurate negative information from your credit report or magically increase your score overnight. Real credit score improvement takes time and discipline, focusing on responsible credit management and disputing any inaccuracies on your credit reports yourself.

Myth 7: Getting Married Will Merge Your Credit Score With Your Spouse’s

Tying the knot doesn’t blend your credit scores into one. You and your spouse will continue to have separate credit scores. However, joint accounts or loans you open together will appear on both of your credit reports and can impact your individual scores.

Myth 8: Approaching Your Credit Limit Will Not Negatively Impact Your Credit Scores

This statement needs clarification. In reality, approaching or maxing out your credit limit can negatively impact your credit scores significantly. Your credit utilization ratio — the amount of credit you’re using compared to your total credit limit — is a major factor in your credit score calculation.

High utilization can be seen as a sign of financial distress and risk to lenders, potentially lowering your score. Keeping your credit utilization below 30% is generally advised to maintain or improve your credit score.

Myth 9: Good Credit Scores Guarantee Your Credit Application Will Be Approved

A stellar credit score is a powerful asset, but it doesn’t offer a universal pass for credit applications. Lenders consider a variety of factors beyond your credit score, including income, employment history, and debt-to-income ratio. This comprehensive evaluation means that even with a good credit score, approval isn’t guaranteed. It’s a reminder that while your credit score is crucial, it’s just one piece of the financial puzzle lenders review.

Myth 10: Paying Off a Debt Will Remove Any Late or Missed Payments From That Account

Paying off debt is definitely a step in the right direction, but it won’t erase the history of any late or missed payments associated with that account.

Payment history is a significant component of your credit score, and negative marks, like late payments, can remain on your credit report for up to seven years.

However, their impact on your score diminishes over time, especially as you add positive payment behaviors to your credit history.

Navigating the Truth

With these myths busted, it’s clear that managing your credit score isn’t about secret tricks or shortcuts. It’s about understanding how credit works and making informed decisions. Regularly checking your credit report for accuracy, paying your bills on time, keeping your credit utilization low, and being strategic about opening and closing accounts can all help you maintain and improve your credit score.