Introduction
A credit score feels like a mysterious number, wielding immense power over our financial lives. It can determine approvals for loans, credit cards, and even impact things like apartment rentals and insurance premiums. No wonder there are so many myths and misconceptions surrounding credit scores! In this post, we'll debunk common credit score myths and reveal the truth about building and maintaining healthy credit.
Understanding how credit scores work is crucial for making informed financial decisions. Let's separate fact from fiction and empower you to take control of your creditworthiness.
Myth #1: Checking Your Credit Score Hurts It
Fact: Checking your own credit score is considered a "soft inquiry" and does not negatively impact your score. You can check your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) annually for free.
Myth #2: Closing Old Credit Cards Improves Your Score
Fact: Closing old credit cards can actually hurt your score, especially if they represent a significant portion of your available credit. Keeping older accounts open demonstrates a longer credit history, which is a positive factor in credit score calculations.
Myth #3: Carrying a Small Balance Helps Build Credit
Fact: You don't need to carry a balance to build credit. The most important factor is making on-time payments. Pay your credit card balances in full each month to avoid interest charges and maintain a good credit standing.
Myth #4: Your Income Determines Your Credit Score
Fact: Your income is not directly factored into your credit score. Credit scoring models focus on your credit history, including payment history, credit utilization, length of credit history, types of credit used, and new credit.
