Credit Score Myths vs Truths
Credit score myths or truths?… Let’s find out!
Ever feel like your credit score is a mysterious force controlling your financial life? You’re not alone. Credit scores hold immense power, but many myths and misconceptions cloud how they truly work. These credit score myths can lead to bad financial decisions that hit you where it hurts – your wallet.
Let’s clear the air and debunk some of the most persistent credit score myths:
Myth #1: Checking Your Credit Score is Like Poking a Sleeping Bear
This myth has people terrified to even glance at their credit score. But here’s the good news: Checking your score yourself is a soft inquiry and doesn’t affect your score at all. In fact, it’s a smart move! Regularly monitoring your credit report helps you catch errors or signs of identity theft early on.
Myth #2: Canceling Unused Credit Cards is Like Giving Your Score a High Five
This one might seem logical, but it overlooks a key player: your credit utilization ratio. This ratio compares how much credit you’re using to your total credit limit. Closing a card reduces your total credit limit, which can actually raise your credit utilization ratio and lower your score. So, unless a card has crazy fees or tempts you to overspend, keeping it open (and using it responsibly) might be better for your score.
Myth #3: Income is the Magic Key to a Great Credit Score
Sorry to burst your bubble, but your income isn’t a direct factor in your credit score. Lenders might consider your income when deciding on a loan, but credit bureaus don’t use it to calculate your score. Your credit score tells the story of your credit history, including things like on-time payments, credit card balances, and how long you’ve had credit.
Myth #4: Debt is Your Credit Score’s BFF
Debt definitely has a say in your credit score, but it’s not the only friend in the group. Your payment history is a major influencer and can make or break your score, regardless of your debt level. Additionally, how much credit you’re using compared to your limit (credit utilization ratio) matters too, even if you’re not carrying a balance. Make timely payments and keep your credit utilization ratio low, and you can build a good credit score without being BFFs with debt.
Myth #5: There’s Only One Credit Score Out There to Rule Them All
Nope! There’s no single universal credit score. In the US, the three main credit bureaus (Compuscan, Experian, and TransUnion) use slightly different formulas to calculate your score. There are also different scoring models, like FICO Score, that might give you slightly different scores. These scores usually move in the same direction, but there can be variations. The key takeaway? Monitor your reports from all three bureaus and understand what factors affect each score.
Deciphering between credit score myths vs truths empowers you to take control of your financial health. By debunking these myths, you can make informed decisions to build and maintain a great credit score, paving the way to achieving your financial goals. Remember, knowledge is power, so arm yourself and go forth to conquer your financial future!
Related: Unleash Your Credit Score Superpower – Here’s How to Boost It and Dominate Your Finances