(Updated 11/26/24)
Credit scores: a mysterious number that feels like a secret handshake to financial adulthood. It can influence everything from where you live to what car you drive—but it’s also surrounded by myths that confuse more than they clarify. Let’s tackle 10 of the most common credit score myths, debunk them, and help you take charge of your financial future.
1. Checking Your Credit Score Hurts It
The Myth: Checking your credit score will lower it.
The Truth: Looking at your own credit score is a “soft inquiry” and won’t impact your score. Think of it as peeking through a window—it doesn’t disturb anything inside. Regularly monitoring your credit can help you catch errors and stay on top of your finances.
2. Closing Old Credit Accounts Boosts Your Score
The Myth: Closing unused accounts improves your credit score.
The Truth: Shutting down old accounts can actually hurt your score. Your credit history length is a significant factor in your score, and older accounts show lenders you’ve managed credit over time. Keep those accounts open, even if you’re not actively using them.
3. You Only Have One Credit Score
The Myth: There’s a single, universal credit score.
The Truth: You have multiple credit scores, depending on the bureau (Equifax, Experian, TransUnion) and the scoring model used (FICO, VantageScore). These scores can vary slightly, but they all reflect your creditworthiness based on similar criteria.
4. Your Income Determines Your Credit Score
The Myth: Higher income equals a higher credit score.
The Truth: Your income isn’t factored into your credit score. The score measures how you manage debt—not how much money you make. A low-income individual who manages credit responsibly can have a higher score than a high-earner who mishandles debt.
5. Paying Off Debt Erases It from Your Credit Report
The Myth: Once debt is paid, it disappears from your credit report.
The Truth: Paid debt stays on your credit report for up to seven years, but it’s marked as resolved. While it doesn’t vanish immediately, paying it off is a positive sign to lenders.
6. Using a Debit Card Builds Credit
The Myth: Using your debit card responsibly improves your credit score.
The Truth: Debit cards don’t affect your credit score because they’re not tied to borrowing. To build credit, you’ll need to use credit cards or loans and manage them wisely.
7. Carrying a Balance Improves Your Score
The Myth: Keeping a balance on your credit card helps your credit score.
The Truth: Carrying a balance doesn’t help your score and leads to unnecessary interest payments. Paying off your credit card in full each month shows responsibility and avoids debt.
8. One Late Payment Will Ruin Your Credit
The Myth: A single late payment will wreck your credit score forever.
The Truth: While late payments can hurt your score, one slip-up isn’t the end of the world. Make sure to get back on track quickly, as a consistent on-time payment history matters more.
9. Credit Counseling Lowers Your Score
The Myth: Seeking help from a credit counselor will damage your score.
The Truth: Credit counseling itself doesn’t affect your score. In fact, it can help you manage debt and create a plan to improve your financial health.
10. Your Credit Score Only Matters When Buying a House
The Myth: Credit scores are only relevant for big purchases like homes.
The Truth: Your credit score impacts more than mortgages. It affects car loans, credit card approvals, rental applications, and even job opportunities in some cases.
How to Improve Your Credit Score
Now that we’ve busted the myths, here are some practical tips to boost your score:
- Pay Bills on Time: On-time payments account for 35% of your score.
- Keep Credit Utilization Low: Aim to use less than 30% of your available credit.
- Limit New Credit Applications: Too many inquiries in a short time can lower your score.
- Check Your Credit Report Regularly: Spot and dispute any errors that could harm your score.
Why Credit Scores Matter
Think of your credit score as your financial résumé. Lenders use it to decide if they’ll lend you money and at what interest rate. A higher score unlocks better loan terms, lower rates, and even perks like higher credit card limits. On the flip side, a low score can result in higher costs or outright denial.
Frequently Asked Questions About Credit Scores
Q: Does renting an apartment affect my credit score?
A: Only if your landlord reports rent payments to the credit bureaus. Paying on time can help your credit if it’s reported.
Q: Can you build credit without any credit history?
A: Yes! Tools like secured credit cards or credit-builder loans are great for starting from scratch.
Q: Do medical bills hurt my credit score?
A: Unpaid medical bills sent to collections can lower your score, but once paid, they don’t automatically boost it.
Conclusion
Credit scores may seem intimidating, but they’re easier to manage when you understand the facts. By avoiding these common myths, you can take control of your credit and use it to your advantage. Remember, your credit score isn’t a reflection of your worth—it’s simply a tool for navigating the financial world. Now go forth and conquer the credit game!
