Understanding your credit score is crucial for managing your finances, yet misconceptions abound. Believing these myths can lead to poor financial decisions and unexpected credit issues. Let’s debunk the top 10 credit score myths.
Many believe that checking their credit score will negatively impact it. In reality, checking your own score is considered a "soft" inquiry, which has no effect on your credit. It's a good practice to monitor your credit regularly to stay informed.
Closing an old account may slightly impact your credit history length, which is a factor in your score. However, if you have a strong credit history, the effect is often minimal. Consider the benefits of keeping an old account open, such as maintaining your available credit.
In fact, you have multiple credit scores from different credit bureaus – Experian, TransUnion, and Equifax – each using various scoring models. Your score can vary between these bureaus due to differences in the data they have and the models they use.
Paying off a debt is positive, but it doesn’t erase the debt from your credit report immediately. Paid-off debts can remain on your report for up to seven years, but they are marked as "paid" and are less damaging over time.
Your credit score is determined by your credit behaviour, not your income. While lenders consider your income when deciding whether to offer you credit, it doesn’t directly influence your score. Your score reflects how you manage debt, not how much you earn.
Marriage doesn’t merge credit scores. Each person maintains their own credit history. However, joint accounts or loans can impact both spouses' scores, so it's essential to manage shared finances responsibly.
Debit cards are linked to your bank account, not a credit line, so they don’t impact your credit score. To build or improve your credit, use credit cards or loans, and make timely payments.
Contrary to popular belief, carrying a balance on your credit card isn’t necessary to build credit. Paying off your balance in full every month demonstrates responsible credit use and avoids interest charges.
Not all debt is harmful. Responsible credit use, like making payments on time and keeping balances low, can actually improve your score. Credit cards, loans, and mortgages, when managed well, show lenders you are a reliable borrower.
While your credit score is important, lenders also consider other factors such as your income, employment history, and debt-to-income ratio. A strong credit score is beneficial, but a well-rounded financial profile is equally crucial.
