Having a good credit score is essential for financial stability and success. However, there are many myths and misconceptions about credit scores that can lead to confusion and even damage to your credit. In this article, we will debunk some of the most common credit score myths and explain their consequences.
Myth 1: Checking your credit score will lower it
Many people believe that simply checking their credit score will lower it. This is not true. Checking your own credit score is considered a “soft inquiry” and does not affect your credit score. However, if you apply for credit and the lender checks your credit score, this is considered a “hard inquiry” and can temporarily lower your score.
Myth 2: Closing credit cards will improve your credit score
Some people believe that closing credit cards they no longer use will improve their credit score. However, this is not always true. Closing a credit card can actually harm your credit score, especially if it is one of your older accounts. This is because your credit utilization ratio will increase, which is a big factor in determining your credit score.
Myth 3: Carrying a balance on your credit card will improve your credit score
It is a common misconception that carrying a balance on your credit card will improve your credit score. This is not true. In fact, carrying a balance can actually hurt your credit score because it increases your credit utilization ratio. It is best to pay your credit card balance in full each month to avoid interest charges and keep your credit utilization ratio low.
Myth 4: Only credit card activity affects your credit score
While credit card activity certainly affects your credit score, it is not the only factor. Other factors that can affect your credit score include payment history, types of credit, length of credit history, and new credit inquiries. It is important to have a mix of credit types, such as a mortgage or car loan, to demonstrate your ability to handle different forms of credit.
Myth 5: Your income affects your credit score
Many people believe that their income is a factor in determining their credit score. This is not true. Your income is not reported to credit bureaus and does not affect your credit score. However, your income can affect your ability to obtain credit, as lenders will consider your income when determining your creditworthiness.
Consequences of Believing Credit Score Myths
Believing credit score myths can have serious consequences. If you believe that checking your credit score will lower it, you may avoid checking it altogether and miss important errors or fraudulent activity. If you believe that closing credit cards will improve your credit score, you may harm your credit by increasing your credit utilization ratio. If you believe that carrying a balance on your credit card will improve your credit score, you may end up paying unnecessary interest charges.
It is important to educate yourself on the facts about credit scores and avoid falling prey to common myths and misconceptions. By understanding how credit scores work and taking steps to improve or maintain your credit, you can achieve financial stability and success.