There is a lot of misinformation surrounding credit scores and how they are determined. Credit score myths can be harmful because consumers may end up focusing on the wrong things to try to improve their scores. Believing some of these myths could even lead to increased credit card debt. We will go over some common credit score myths, along with the real factors that determine your credit score.
Credit counseling agencies warn consumers not to fall for these common credit score myths.
5 Common Credit Score Myths
1. Having a lot of money in the bank means you have a good credit score.
The amount of money you have in checking or savings is irrelevant to your credit score. You could have thousands of dollars in savings, but if you aren’t paying your bills on time, you won’t have a good score. While there may be some correlation between having a lot in savings and having a good credit score, the two aren’t necessarily related. People who have good savings habits typically have good credit because they manage their money well overall and pay their bills on time.
2. You have to carry a balance at all times to improve your credit score.
This is one of the most common credit score myths that just doesn’t seem to go away. Carrying a balance on your credit card all the time does not improve your credit score. In fact, if you always carry a balance, especially with high interest credit cards, that could lead to debt problems later. It’s a good idea to pay off your credit card in full every month month if you can.
3. Checking your credit score/report hurts your credit score.
This is just completely false. Many banking and credit card apps offer credit monitoring through which you can check your credit score every week, and this does not impact your credit. Checking your credit report doesn’t hurt your score either. You actually should be checking your credit reports regularly to protect yourself from identity theft. You can check your credit report for free once a year from each of the three major credit bureaus on AnnualCreditReport.com.
4. Getting married means you have a joint credit score.
Your marital status does not impact your credit score. After you get married, even if you have joint accounts, you still have your own credit score. Your credit score and credit report remain your own regardless of whether you are single, married, divorced, widowed, etc.
5. Closing a credit account will improve your score.
The last of the common credit score myths that we’ll be discussing is the myth that closing an account improves your score. In reality, closing a credit account lowers the amount of credit available and can increase your overall credit utilization if you continue spending at the same rate. Additionally, if that was your oldest account, closing it could hurt your score since it effectively shortens your credit history.
What actually impacts your credit score?
Now that we’ve discussed some common credit score myths, what are the factors that actually impact your score? The most important factor, which accounts for 35% of your credit score, is your payment history. Lenders and creditors like to see consumers who pay their bills on time. Next, credit utilization makes up 30% of your credit score. You should aim to keep your credit utilization under 30% if possible. The length of your credit history also affects your credit score. The longer your credit history, the better your score. Finally, the two other factors that impact your credit score include your credit mix and new credit, which account for about 10% each. Credit mix refers to the different types of credit you have, e.g. credit cards, auto loans, student loans, a mortgage, etc. Having a good mix can be good for your credit score. New credit refers to the number of new accounts that you have opened in the last couple of years. Don’t apply for too many new accounts at once, otherwise lenders may see this as a potential red flag, and it could hurt your credit score.
As long as you’re paying on time, keeping your credit utilization low, and not opening too many new accounts at once, you should see an improvement in your credit score. Sticking to these best practices and not falling for those common credit score myths can also help keep you out of debt!
If you have trouble paying off debt, ACCC may be able to help. Schedule a free credit counseling session with us today.
