Understanding your credit score is crucial for financial health, but many myths surround it. Let’s debunk some common credit score myths to help you make informed decisions about your finances.
1. Myth: Checking Your Credit Score Hurts Your Score
Fact:
Checking your own credit score is known as a “soft inquiry” and does not affect your score.
Explanation:
Only “hard inquiries,” typically made when applying for new credit, can impact your score. Regularly checking your score helps you stay informed and manage your credit effectively.
2. Myth: Closing Old Credit Accounts Improves Your Score
Fact:
Closing old accounts can actually hurt your credit score.
Explanation:
Length of credit history is a factor in your score. Keeping older accounts open can help maintain a longer credit history, which is beneficial for your score.
3. Myth: You Need to Carry a Balance to Build Credit
Fact:
You do not need to carry a balance on your credit card to build credit.
Explanation:
Paying off your balance in full each month demonstrates responsible credit use and can help improve your score. In fact, carrying a high balance can negatively affect your credit utilization ratio.
4. Myth: Credit Scores Are the Same Across All Lenders
Fact:
Credit scores can vary between different scoring models and lenders.
Explanation:
Lenders may use different scoring models (e.g., FICO, VantageScore) and pull reports from different credit bureaus (Experian, Equifax, TransUnion), which can result in variations in your score.
5. Myth: A Credit Score of 700+ is Always Good Enough
Fact:
While a score of 700 is generally considered good, what constitutes a “good” score can vary by lender and loan type.
Explanation:
Some lenders may require higher scores for certain loans, especially mortgage loans, so it’s important to know the specific requirements for the loans you’re seeking.
6. Myth: Paying Off Collections Will Remove Them from Your Credit Report
Fact:
Paying off a collection account does not automatically remove it from your credit report.
Explanation:
While paying the debt may improve your standing, the collection account can remain on your report for up to seven years. However, it may be marked as “paid,” which is more favorable.
7. Myth: All Debts Are Treated Equally
Fact:
Not all debts affect your credit score in the same way.
Explanation:
Different types of debt (e.g., installment loans vs. revolving credit) can have varying impacts on your score. Additionally, how you manage these debts is crucial.
8. Myth: You Can Boost Your Score Overnight
Fact:
Improving your credit score takes time and consistent effort.
Explanation:
While there are strategies to quickly improve your score, such as correcting errors on your credit report, significant changes require sustained responsible credit behavior.
Conclusion
Understanding the facts about credit scores is essential for making informed financial decisions. By dispelling these common myths, you can take proactive steps to improve and maintain your credit score. Stay informed, be responsible with your credit, and watch your financial health grow!
