Credit Score Truths Uncovered! Separate fact from fiction and learn what really helps (or hurts) your credit score:
Sorting Fact from Fiction: What You Need to Know to Supercharge Your Credit Score
Let's face it: credit scores can be a mystery, and it's easy to get tangled up in myths and misconceptions. But the truth is, knowing what's real and what's not can make all the difference in achieving your financial goals. So, let's dive in and debunk some common credit score myths, shall we?
Myth #1: Paying your credit card balance in full each month will hurt your credit score
This one's a doozy! The reality is that paying off your balance in full can actually give your credit score a boost. Why? Because credit scoring models like FICO 9 and VantageScore 4.0 reward consumers with perfect payment histories. Of course, your credit score isn't just about payment history. Other factors like credit utilization, credit age, and credit mix also play a role.
The Takeaway:
Paying off your balance in full can help your credit score, but it's not the only factor that matters. Make sure to keep your credit history long and maintain a reasonable credit utilization ratio to really optimize your score.
Myth #2: Closing old accounts will improve your credit score
This myth is likely born from the idea that closing old accounts will get rid of negative marks on your credit report. But that's not the case! When you close old accounts, you're essentially losing a part of your credit history – which can negatively impact your credit score by reducing the average age of your accounts and increasing your credit utilization ratio.
The Takeaway:
Keep your old accounts open and active to maintain a long credit history and a low credit utilization ratio. However, if you have an account with a negative mark, like a collection or late payment, it might be worth closing it and working to improve that account's credit history.
Myth #3: Checking your credit score too frequently can hurt your credit score
This myth likely originated from the fact that multiple inquiries in a short period can negatively impact your credit score. But here's the thing: when you check your credit score through your bank, credit card company, or a reputable credit monitoring service, that inquiry is considered a "soft inquiry" – and it won't affect your credit score!
The Takeaway:
Check your credit score as often as you need to stay on top of your finances and monitor for identity theft. Just use reputable credit monitoring services and limit your credit applications to avoid multiple hard inquiries.
Myth #4: You can't improve your credit score if you have negative marks on your credit report
This myth is simply not true! While negative marks like collections, late payments, and bankruptcies can have a significant impact on your credit score, it's not impossible to improve your credit score with negative marks.
The Takeaway:
Dispute errors on your credit report, pay off outstanding debts, and avoid new negative marks. It might take some time and effort, but it's possible to improve your credit score even with negative marks on your report.
Myth #5: You can't mix credit types (e.g., credit cards, loans, mortgages) on your credit report
This myth likely originated from the idea that different types of credit have different weightings in credit scoring models. But the truth is that credit scoring models do consider the diversity of your credit mix.
The Takeaway:
Maintain a mix of credit types, like credit cards, loans, and mortgages, to demonstrate your ability to manage different types of credit responsibly. Just make sure to keep your credit utilization ratio low and make on-time payments to optimize your score.
In conclusion, credit scores can be complex and misunderstood, but by debunking these common myths, you can take control of your credit score and make informed decisions to improve it. Remember to keep your credit history long, maintain a reasonable credit utilization ratio, and dispute errors on your credit report. With the right strategies and knowledge, you can boost your credit score and achieve your financial goals.