Your credit score is one of the most misunderstood aspects of personal finance. Many people unknowingly believe in myths that can harm their financial standing and delay their journey toward financial wellness. To set the record straight, here are five common myths about credit scores, debunked to help you better understand how to manage and improve your credit.
1. Myth: Checking Your Credit Score Lowers It
One of the most widespread myths is that checking your own credit score will hurt it. This simply isn’t true. When you check your credit through a credit bureau or a credit monitoring service, it’s considered a “soft inquiry,” which does not affect your score.
A hard inquiry, on the other hand, occurs when a lender checks your credit in response to a credit application. This can have a small, temporary impact on your score, but checking your own score regularly is a good financial habit that helps you stay informed.
For more on how to monitor your credit and manage debt effectively, check out our guide on Effective Debt Management Strategies.
2. Myth: You Only Have One Credit Score
Many believe that they have just one credit score, but in reality, there are multiple versions of your score. The most commonly used are the FICO score and VantageScore, and each can vary slightly depending on the credit bureau providing the data—whether it’s Experian, Equifax, or TransUnion.
Each credit scoring model may weigh the factors of your credit report differently, resulting in variations across scores. However, the key principles for improving your credit—paying bills on time, keeping balances low, and maintaining a mix of credit types—apply to all of them.
3. Myth: Closing Old Credit Cards Will Boost Your Score
It seems logical that closing an unused credit card might improve your score, but doing so can actually harm it. Here’s why:
- Credit Utilization: This is the ratio of your credit card balances to your total available credit. When you close a card, you reduce your total available credit, which can increase your credit utilization ratio. A higher utilization ratio can lower your score.
- Length of Credit History: Closing old accounts can shorten the length of your credit history, which is a key factor in your score.
Instead of closing old credit cards, consider keeping them open, especially if they have no annual fee. Just make sure you continue using them responsibly to maintain a healthy credit utilization rate.
4. Myth: Carrying a Balance Helps Your Credit Score
Carrying a balance from month to month doesn’t help your score—in fact, it can hurt it. Credit card interest can add up quickly, leaving you with more debt than necessary. The best strategy is to pay off your balance in full each month to avoid interest charges and keep your credit utilization low.
If you’re looking to repair credit that’s been damaged due to high balances, take steps like paying down debt aggressively and disputing errors on your credit report. For additional tips on credit repair, check out our full guide on Credit Scores and Credit Repair.
5. Myth: Only Debt Affects Your Credit Score
While debt plays a significant role in your credit score, other factors like your payment history and the types of credit you use also affect it. Even non-debt accounts, such as utility bills and rent payments, can influence your credit score if they are reported to the credit bureaus. Missing payments on these can still harm your score, so it’s essential to manage all aspects of your financial life responsibly.
If you’re working to manage your debt while keeping an eye on your credit, we have some useful resources on Effective Debt Management Strategies, which can help you regain control over your finances while improving your score.
Conclusion: Understanding Credit is Key
Your credit score isn’t a mystery, but it is affected by many factors that you can control. By staying informed and debunking common myths, you can take proactive steps to improve your credit health. Whether it’s checking your credit score regularly, paying off balances in full, or keeping old credit cards open, the right habits will gradually lead to a higher score.
To learn more about how you can boost your credit score and manage your debt effectively, visit our resources on Athir Press for more insightful tips.
