Credit Score Myths

Your credit score goes with you wherever you go. This score can affect your ability to buy a car, obtain a credit card, rent an apartment, and sometimes affect your job search. While you understand your credit score impacts your life, it is also true that your life also affects your credit score.

Your credit score takes several factors into consideration, such as the length of your credit history, types of credit you have, your level of debt compared to available credit, just to name a few. With all the good advice out there on how to improve your credit score, there is also some misinformation that when followed, may actually hurt your credit score.

Myth #1: Closing a credit card improves your credit score.

Actually, the opposite is true, especially if you close the card with a balance. Why? Credit bureaus and lenders look at how long accounts have been open and the amount of credit being used in comparison to the amount of total credit available (also known as the credit utilization ratio). If you close an account with a high credit limit, that has a longer positive history and a balance, it could result in lowering your score.

Myth #2: Checking your credit lowers your score.

It’s not only good to check your credit, but highly recommended. You are not penalized for checking your own credit. It’s the best way to stay on top of any errors in reporting and identity theft. You have to be aware of what’s on your credit report to know which steps can be taken to improve your scores. You are entitled to a free annual credit report from all three main credit bureaus (Equifax, Experian, and TransUnion). Since you don’t know which bureau lenders use, it’s best to check all three.

Myth #3: Building a good credit score = going into debt.

Just because you need to use credit products, doesn’t mean you need to create more debt than you can afford. Simply opening a credit card and having monthly charges that you pay off in full each month will give you the history needed to build a good credit score.