In America, credit opens the door to so many things. And that’s largely the reason as to why U.S. consumers have some $3.4 trillion in outstanding debt. Yes, having good credit is essential to acquiring a credit card, taking out a mortgage and financing an automobile. On that note, it’s also important to separate fact from fiction when it comes to your credit score. Here’s a look at some of the most notable credit score myths.
11 Egregious Credit Score Myths
- Credit isn’t necessary: This is completely false, but not just for the aforementioned purposes of taking out a mortgage or financing a car. Employers, landlords and insurance agents may also look at your credit score in a better effort to judge what type of a professional, tenant and customer you are, respectively.
- Carrying a credit card balance improves your credit score: Actually, if you carry too much of a credit card balance, your score can drop. That’s why it’s important to keep credit card debt within 30 percent of your total credit limit.
- I only need one credit card: Keep in mind that credit history plays a role in your overall credit score. So if you have multiple credit cards that are all managed responsibly, that can help increase your score versus just having a single card.
- Credit scores are all the same: There are three credit reporting bureaus and all of them use different scoring formulas. FICO is the most popular, but it’s not the only one.
- If I close out accounts, my score will improve: This is true to a certain extent. As we noted prior, you want to keep your debt owed within 30 percent of your total credit allotment, so closing multiple accounts could cause you to go above this available credit limit. So while closing accounts may help, this strategy can also backfire on you if you’re not careful.
- If I settle a negative report, it will go away: While you should make every effort to settle accounts in poor standing, negatives may stay on your record for up to seven years from the time of your first delinquency.
- Credit limit raises aren’t good: Credit limit increases are great in that they boost your available credit limit and can lower your debt-to-credit ratio.
- Co-signing has zero risks: False. Co-signing can cause your credit score to take a hit if the other co-signer doesn’t take responsibility for the payments.
- My annual salary impacts my credit score: This is false, as your annual salary has zero impact on your credit score.
- I don’t need to worry about checking my credit report: Even if you have no big purchases on the horizon, checking your credit report at least once a year can help you find – and dispute – errors that may be impacting your credit score.
- I get penalized for checking my credit score: Performing a soft inquiry, which is what occurs when you check your credit score, has no impact on your score. It’s hard inquiries that do – and this occurs when a lender analyzes your report, typically after you apply for financing.