5 Common Credit Myths Debunked

Understanding Credit: Separating Fact from Fiction

Credit can be a complex topic, and with so much misinformation circulating, it's easy to fall for some common myths. Believing these myths can negatively impact your financial health. Let's debunk five of the most common credit myths to help you make more informed decisions.

Myth 1: Checking Your Credit Score Lowers It

Many people avoid checking their credit score because they believe it will negatively impact their score. This is a myth. Checking your own credit score is considered a "soft inquiry" and does not affect your credit. In fact, it's a good practice to regularly check your credit report to ensure its accuracy and catch any potential errors.

Myth 2: Closing Old Credit Cards Will Boost Your Score

It might seem logical to close old or unused credit cards to improve your credit score, but this can actually have the opposite effect. Closing a credit card reduces your overall available credit, which can increase your credit utilization ratio—a key factor in your credit score. Instead of closing old accounts, consider keeping them open and using them occasionally.

Myth 3: You Only Have One Credit Score

Contrary to popular belief, you don't have just one credit score. There are multiple credit scoring models, such as FICO and VantageScore, and each can produce different scores based on the same credit report. Additionally, each of the three major credit bureaus—Experian, Equifax, and TransUnion—may have slightly different information, leading to variations in your scores.

Debunking More Credit Myths

Myth 4: Carrying a Balance Improves Your Credit Score

One persistent myth is that carrying a balance on your credit cards will help improve your credit score. In reality, carrying a balance can lead to higher interest payments and debt. Paying off your balance in full each month is a better strategy for maintaining a healthy credit score and avoiding unnecessary interest charges.

Myth 5: Your Income Affects Your Credit Score

While your income can impact your ability to get approved for loans or credit cards, it does not directly affect your credit score. Credit scores are calculated based on your credit history, including factors like payment history, credit utilization, and the length of your credit history. Your income is not included in this calculation.

By understanding and debunking these common credit myths, you can take control of your financial future. Regularly check your credit report, keep old credit accounts open, and pay off your balances in full to maintain a healthy credit score. Remember, knowledge is power when it comes to managing your credit effectively.