DEBUNKED: Credit Score Myths

Your credit score plays a significant role in various aspects of your financial life. A good credit score can help you qualify for a loan, get you a competitive insurance premium for auto and home insurance policies, and may even get you your next job (if your employer checks your credit score). There are, however, a number of credit card myths that seem to go around, and many of these could affect your credit score.

Myth #1 Closing Credit Accounts Will Positively Impact Your Score

Closing accounts with a zero balance can actually do more harm than good. The thing is, your credit score is impacted by your debt-to-credit ratio. A low debt-to-credit ratio is preferable since it tells lenders you use credit responsibly. So, if you have several cards that you don’t use, this indicates you have more credit available and a comparatively low debt, which, in turn, increases your credit score.

Myth #2 Checking Your Credit Score Can Cause It to Drop

Each time you apply for credit, either in the form of a credit card or a loan, the lender checks your credit score. This is a hard inquiry and can lower your score slightly. However, checking your own credit score is a soft inquiry and doesn’t impact your credit score. In fact, checking your credit score can help you detect inaccuracies and report it to the credit bureaus on time.

Myth #3 You Can’t Get Loans or Credit Cards with Low Credit Scores

On the contrary, even those with low credit scores can get access to loans and credit cards. FHA loans are a popular choice among people who have low credit scores. For credit cards, you can always apply for a secured credit card. Remember taking a loan or credit card and paying off the due amount responsibly can actually help improve your credit score.

Myth #4 Your Income Affects Your Credit Score

Since your income is not reported by your employer to credit bureaus, your income has no impact on your credit score.

Myth #5 There’s No Way to Improve a Bad Credit Score

There are many things you can do to improve your credit score. If you don’t miss monthly payments, keep your credit card balances low, and don’t apply for too many credit instruments in a year, your credit score will certainly improve.

Comments are closed.