Imagine you followed a tip to boost your credit and it actually lowered. This can feel like a double setback—not only did your efforts not pay off, but you also ended up in a worse financial spot. It shows how important it is to get your credit advice from reliable sources so you don’t waste time or money on strategies that don’t work.

Navigating the world of credit scores can be confusing, with numerous myths and misconceptions circulating about how they work and what influences them. Understanding the truth behind these myths is crucial for managing your credit effectively. Let’s debunk some of the most common credit score myths and set the record straight.

Debunking Credit Score Myths
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Myth 1: Checking Your Credit Score Will Lower It

One of the most persistent myths is that checking your own credit score can negatively affect it. This misconception stems from a confusion between “soft” and “hard” inquiries. 

  • A “soft inquiry” occurs when you check your own credit score or when a lender checks your credit for pre-approval offers. Soft inquiries do not affect your credit score. 
  • A “hard inquiry,” on the other hand, happens when a lender checks your credit as part of a lending decision. While hard inquiries can slightly lower your credit score, checking your own score is safe and encourages you to monitor your credit health.

Accessing your free credit score regularly is a crucial step in monitoring your financial standing and identifying areas for improvement.

Myth 2: You Need to Carry a Credit Card Balance to Build Credit

Some believe that carrying a balance on your credit cards and paying interest is necessary to build credit. However, this is not true. You can build and maintain a good credit score by using your credit cards and paying off the full balance each month. 

Paying your balance in full demonstrates responsible credit management and keeps you from paying unnecessary interest, all while positively influencing your credit score.

Myth 3: All Debts Are Equally Damaging to Your Credit Score

Not all debts are created equal in the eyes of credit scoring models. For example, high-interest credit card debt can be more detrimental to your credit score than a mortgage or student loans. 

This is partly because credit scoring models consider your credit mix and credit utilization ratio. Managing a mix of credit types responsibly can actually be beneficial to your credit score, whereas high revolving debt from credit cards can harm it.

Myth 4: Closing Old Accounts Boosts Your Credit Score

Closing old or unused credit accounts might seem like a good way to tidy up your finances, but it can actually hurt your credit score. Closing accounts can reduce your overall available credit, which can increase your credit utilization ratio if you carry balances on other cards. 

Additionally, closing old accounts can shorten your credit history, which is a key component of your credit score. It’s often better to keep old accounts open, especially if they have a good payment history and no annual fees.

Myth 5: Your Income Affects Your Credit Score

Your income does not directly impact your credit score. Credit scores are calculated based on your credit history, including payment history, credit utilization, the length of credit history, new credit, and credit mix. While lenders may consider your income when evaluating your ability to repay a loan, your income is not a factor in your credit score calculation.

Myth 6: Paying Off Negative Records Immediately Improves Your Credit Score

Paying off debts in collections or satisfying other negative records is a positive step toward financial health, but it doesn’t instantly erase the impact of those negatives on your credit score. Most negative records, such as late payments, collections, and bankruptcies, can stay on your credit report for up to seven to ten years. However, their impact on your credit score diminishes over time, especially as you add a positive payment history to your credit report.

Myth 7: You Only Have One Credit Score

Many people believe they have a single credit score, but in reality, you have multiple scores. Different lenders may use different credit scoring models, such as FICO or VantageScore, and scores can also vary between the three major credit bureaus—Experian, Equifax, and TransUnion—based on the information they have on file about you. It’s important to understand that your credit score can vary depending on where and how it’s calculated.

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By Admin