Credit scores are very important to all of us, and can affect everything from whether or not we can get a mortgage, an apartment, or even a new job. But unfortunately, credit scores are often quite misunderstood. Below are some the most common credit score myths.
Myth #1: Cancelling Credit Cards will Raise Your Score
This is wrong for two reasons. First, your credit score improves if you have accounts that have been open for a long time. Therefore, by cancelling an old credit card account, you can actually end up hurting your score instead of improving it. Secondly, credit bureaus use something called a debt utilization ratio to determine your score. They arrive at this ratio by dividing the amount of outstanding debt you have by your credit limit. For example, if your total credit limit is $10,000 and you have $1000 in outstanding debts, your ratio would be 10% (1000/10,000). Therefore, if you leave a credit card account open, you will have a higher total credit limit, thus lowering your overall debt utilization ratio. Lower debt utilization ratios will often help your score.
Myth #2: Checking Your Credit Score will Hurt Your Score
Feel free to check your own credit score, as this will have no effect on it. However, if a third party such as a landlord or other business checks your score, this can cause your score to fall slightly. Such drops, however, will not be significant, so there is no need to worry about this unless you have a lot of people checking your score over a short period of time.
Myth #3: Your Credit Score is Shared With Your Spouse
Each individual has an independent credit score, so your score will likely be different from that of your spouse’s. However, you should be aware that your spouse’s actions can affect your score if you have joint accounts. For this reason, it is important to close any joint accounts in the event of a divorce. Otherwise, your ex-spouse’s actions could continue to affect your credit score, for better or worse.
Myth #4: You Have Only One Credit Score
There are three main credit bureaus that track your score, which are Equifax, Experian, and TransUnion. While these bureaus calculate your score in a similar manner and use similar criteria, since they utilize different models, there will typically be small differences in your score depending on the credit bureau. Finally, credit reporting agencies can sometimes make errors, so whenever you check your credit score, it is best to get your score from all three bureaus.
Myth #5: Not Using Your Credit Card Will Help Your Score
It’s easier to attain a high credit score if you establish a history of using credit, managing it responsibly, and making payments on time. If you want to avoid paying interest, a good thing to do is use your credit card for some purchases every month, then pay off the balance in full when your statement arrives. This way, you will not be charged any interest and still be able to show that you have used credit and made timely payments.
