When it comes to credit scores, the myths and misunderstandings spread faster than wildfire. For many of us, we’re holding onto half-truths or outdated ideas about what affects our score, creating unnecessary stress and making costly financial decisions. Credit scores are complicated enough without creating layers of misinformation. But here’s the kicker: If you accept these misconceptions, then you’ll lose more than just peace of mind, you’ll lose money as well.
Credit scores are certainly important, but they’re not infallible reflections of financial health that so many assume them to be. The reality is that it’s a much more nuanced system, and a lot of those assumptions out there just don’t hold water. Before you lose sleep over a single missed payment or try to obsess over achieving an arbitrary “perfect score,” let’s clear the fog around what’s really happening.
Credit Scores Reflect Financial Responsibility Perfectly
It’s tempting to think of your credit score as the ultimate litmus test for financial savviness, but it’s far from comprehensive. They’re based mostly on borrowing habits, not on your whole monetary image. For instance, they might have lower score than a person with many open credit accounts, but they have no debt and plenty of savings. Credit usage is rewarded over financial health overall which skews the picture.
Checking Your Credit Score Lowers It
You’ve heard the warning: ‘Don’t even peek at your credit score, because you’ll ruin it.’ It’s pure myth. Getting your own credit report is a ‘soft inquiry’ and doesn’t affect your score. Only “hard inquiries,” like those from lenders, can slightly ding your score. So, check away! After all, knowledge is power and knowing won’t do any harm.
Closing Old Credit Cards Improves Your Score
You might also think closing out an old card you no longer use cleans up your credit profile, but in most cases, it has the opposite effect. A solid chunk of your score is length of credit history, so shutting down long standing accounts can backfire. Having that card around even if you don’t use it for everyday spending, can help showcase your credit longevity.
Having a Small Balance Is Good for Your Score
The notion that carrying a small balance helps your credit score is as dated and incorrect as the notion that leaving a light on saves electricity. Not only do you save money on interest, but it also shows creditors that you’re responsible. While utilization rates are important, they are not to be managed through debt.
Your Income Directly Affects Your Score
What you make on your salary has nothing to do with your credit score. While income may be a factor in approving a loan, credit scoring models don’t factor in how much you make. Instead, they care more about your use of borrowed money, which is more about behavior than about earning.
One Missed Payment Won’t Hurt Much
One late payment doesn’t seem like a big deal, right? Think again. About 35 percent of the info that goes into your credit score comes from payment history, and a missed payment, especially if it’s more than 30 days late, can send your credit score in a tailspin. In the case of a late payment, FICO says someone with a 780 score would see it drop by more than 100 points. It’s not a slap on the wrist—it’s a knockout punch.
You Need a Perfect Credit Score
With a flawless 850 score, you might think that this sounds impressive, but you don’t need to have one to get the top tier financial benefits. Individuals with scores above 760 receive the best terms most lenders have to offer. If you’re in the “excellent” range, don’t worry about trying to be perfect, because nothing more is unlocked by doing so.
Marrying Someone With Bad Credit Will Ruin Your Score
Contrary to what you may have been told, your spouse’s credit does not affect your own. An individual’s Social Security number ties to credit scores; marital status is not a factor. However, if you apply for joint credit, such as a mortgage, your combined scores could make a difference in whether you are approved and on what terms. Your partner’s credit missteps won’t follow you.
Credit Repair Companies Can Fix Everything
Many credit repair firms will promise to ‘fix’ your score for a fee, but beware. They can’t erase legitimate negatives, but they might help correct errors on your report. In many instances, these services are just an expensive middleman because you can dispute errors yourself for free through the credit bureaus.
Your Utility Payments Boost Your Score
Historically, on time utility and phone payments weren’t included in traditional credit scores. But newer tools such as Experian Boost let consumers include those payments in their credit history. It’s helpful, but it’s not universal and the impact depends on the lender and scoring model.
Paying Off a Loan Erases Its History
Paying off a loan is a big moment to celebrate, but don’t think that it will disappear from your credit report right away. Positive accounts stay on your report for about 10 years, keeping a record of your good habits. It’s a win-win: you are still reaping the credit benefits and are debt free.
Applying for Multiple Credit Cards Is Harmless
Each application for a credit card triggers a hard inquiry, and applying for several credit cards in a short period can crash your score. Even if you don’t intend to max out the cards, too many inquiries are a red flag to lenders, who fear that you’re a riskier borrower. Simply spread the applications out to keep your credit healthy.
Using Debit Cards Builds Credit
Though debit cards resemble credit cards physically and visually, they are not reflected in a person’s credit history. Debit transactions don’t involve borrowing, so they are invisible to credit bureaus. They’re excellent for budgeting, but don’t expect them to help you build or maintain a credit profile.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
7 Money Rules The Rich Don’t Want You To Know
7 Money Rules The Rich Don’t Want You To Know
31 Forgotten Household Items from the Past
The blueprint of the quintessential American home has undeniably evolved over the decades. Whether you attribute it to technological leaps or the shifting sands of aesthetic tastes, the fact remains: items once deemed household staples have now drifted into obscurity.
31 Forgotten Household Items from the Past
15 Common Mistakes That Unknowingly Make Your Home Look Bad
A home should be a sanctuary, reflecting personal style and comfort. However, minor oversights and everyday habits can inadvertently detract from its appeal. Understanding these common mistakes is crucial for maintaining an inviting and well-kept home.
