Understanding what factors affect credit scores helps you plan the most effective way to build your credit or protect it. There are many myths and misconceptions about credit scores that can lead to confusion and misinformed financial decisions. By understanding the truth behind these myths, you can make more informed decisions about managing your credit and improving your credit score.

Common Credit Score Myths:

⦁ Checking Your Own Credit Hurts Your Score

⦁ Myth: Pulling your own credit report will lower your credit score.

⦁ Reality: Checking your own credit report is considered a “soft inquiry” and does not affect your credit score.

⦁ Closing Credit Cards Improves Your Credit Score

⦁ Myth: Closing old or unused credit card accounts will improve your credit score.

⦁ Reality: Closing credit cards can reduce your available credit and increase your credit utilization ratio, which can negatively impact your credit score.

⦁ Carrying a Balance Improves Your Credit Score

⦁ Myth: Keeping a small balance on your credit cards will help your credit score.

⦁ Reality: The best way to manage your credit is to pay off your credit cards in full each month. Carrying a balance can lead to unnecessary interest charges and debt.

⦁ Your Income Affects Your Credit Score

⦁ Myth: Higher income directly results in a higher credit score.

⦁ Reality: Your income is not factored into your credit score. Credit scores are based on your credit history, including payment history, credit utilization, length of credit history, new credit inquiries, and types of credit in use.

⦁ Paying Off a Debt Automatically Removes It from Your Credit Report

⦁ Myth: Once you pay off a debt, it immediately disappears from your credit report.

⦁ Reality: Paid debts can stay on your credit report for up to seven years from the date of the last activity. However, the status will be updated to “paid,” which is better than having unpaid debts.

⦁ Only Credit Card Use Affects Your Credit Score

⦁ Myth: Only activity on your credit cards impacts your credit score.

⦁ Reality: Other forms of credit, such as mortgages, car loans, and student loans, also affect your credit score.

⦁ Debit Card Use Builds Credit

⦁ Myth: Using a debit card helps build your credit score.

⦁ Reality: Debit card use does not affect your credit score because it is not a form of credit. Only credit-based transactions and accounts impact your credit score.

⦁ Married Couples Share a Credit Score

⦁ Myth: Spouses have a joint credit score.

⦁ Reality: Each individual has their own credit score. However, joint accounts and co-signed loans can impact both individuals’ credit scores.

⦁ Once You Have Bad Credit, You Can’t Improve It

⦁ Myth: Bad credit is permanent and can’t be improved.

⦁ Reality: You can rebuild and improve your credit score over time with responsible credit behavior, such as making timely payments and reducing debt.

⦁ Employers Can See Your Credit Score

⦁ Myth: Potential employers can see your credit score.

⦁ Reality: Employers can request a copy of your credit report (with your permission), but they do not have access to your actual credit score. They are typically looking at your overall credit history and financial responsibility.

⦁ A Credit Score is Permanent

⦁ Myth: Your credit score is set in stone and cannot be changed.

⦁ Reality: Your credit score is dynamic and changes based on your credit behavior. Positive actions like paying bills on time and reducing debt can improve your score, while negative actions like missed payments and high credit utilization can lower it.

⦁ You Only Have One Credit Score

⦁ Myth: There is only one credit score for each person.

⦁ Reality: There are multiple credit scores calculated by different credit bureaus (Equifax, Experian, and TransUnion) and scoring models (FICO, VantageScore). These scores can vary slightly based on each bureau’s information and the model used.

⦁ Credit Counseling Hurts Your Credit Score

⦁ Myth: Seeking help from a credit counselor will damage your credit score.

⦁ Reality: Enrolling in a credit counseling program does not directly affect your credit score. However, if a debt management plan involves closing accounts, it could impact your credit utilization ratio.

⦁ Applying for Multiple Credit Cards at Once Won’t Hurt Your Score

⦁ Myth: You can apply for as many credit cards as you want without it affecting your credit score.

⦁ Reality: Each application for credit results in a “hard inquiry” on your credit report. Multiple hard inquiries in a short period can lower your credit score.

⦁ Rent Payments Automatically Improve Your Credit Score

⦁ Myth: Paying rent on time will automatically improve your credit score.

⦁ Reality: Rent payments are typically not reported to credit bureaus unless your landlord or property management company reports them. Some third-party services can help report your rent payments to credit bureaus.

⦁ Using Credit Cards is Always Bad

⦁ Myth: Credit cards are inherently bad and should be avoided.

⦁ Reality: Responsible use of credit cards, such as paying off balances in full each month and keeping utilization low, can help build and maintain a good credit score.

⦁ A High Salary Guarantees a Good Credit Score

⦁ Myth: Earning a high salary ensures a good credit score.

⦁ Reality: A high salary does not directly influence your credit score. Credit scores are based on credit behavior, not income. Even high earners can have poor credit if they mismanage their credit.

⦁ Credit Bureaus are Infallible

⦁ Myth: Credit bureaus never make mistakes.

⦁ Reality: Errors can and do appear on credit reports. It’s important to regularly check your credit reports and dispute any inaccuracies with the credit bureaus.

⦁ Having a Lot of Credit Accounts Lowers Your Score

⦁ Myth: The more credit accounts you have, the worse your credit score.

⦁ Reality: Having multiple credit accounts can actually help your score if they are managed responsibly. A mix of credit types (credit cards, loans, etc.) can positively impact your score.

⦁ Late Payments Immediately Ruin Your Credit Score

⦁ Myth: One late payment will immediately destroy your credit score.

⦁ Reality: While a late payment can negatively impact your credit score, its effect depends on your overall credit history and the severity of the lateness. Consistently making timely payments can mitigate the impact over time.

⦁ Credit Scores Consider Your Savings and Investments

⦁ Myth: Your credit score includes information about your savings and investment accounts.

⦁ Reality: Credit scores are based solely on your credit history and behavior. Savings accounts, investment portfolios, and other assets are not factored into your credit score.

⦁ Bankruptcy Permanently Destroys Your Credit

⦁ Myth: Filing for bankruptcy will permanently ruin your credit.

⦁ Reality: Bankruptcy remains on your credit report for 7-10 years, depending on the type, but you can start rebuilding your credit before it falls off your report by demonstrating responsible credit behavior.

⦁ Credit Repair Services Can Erase Accurate Negative Information

⦁ Myth: Credit repair companies can remove accurate negative information from your credit report.

⦁ Reality: Legitimate credit repair services can remove inaccurate and untimely negative information. They can help you dispute errors and negotiate with creditors.

⦁ Paying Off Collections Removes Them from Your Credit Report

⦁ Myth: Paying off a collection account will remove it from your credit report.

⦁ Reality: Paying off a collection account does not remove it from your credit report. However, it will update the status to “paid,” which is better than an unpaid collection.

Conclusion

Understanding these myths can help you navigate the world of credit more effectively. By staying informed and practicing responsible credit behavior, you can maintain a healthy credit score and make better financial decisions.