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6 Common Myths About Credit Score That You Shouldn’t Fall For

Often, while people are aware of that credit scores exist, they do not really understand the underlying concept behind the two. It is imperative to not only manage your finances well and stay on top of your debts, but also to have complete understanding of the implications of your credit score and its impact on your capacity to procure credit in the future.


Given the fact that there is a lot of misinformation about credit scores out there, it can be difficult to separate fact from fiction.  A single mistake on your part can end up propelling your credit score in the wrong direction, but just one or two new habits can send your score upward.  This list of common misconceptions about credit scores and the truth about them will help clarify your doubts about them ensure that you are able to make good decisions about your finances in the future.

Myth 1: A Bad credit score will last forever


A lot of people demonize the concept of credit score and believe that once your score gets too low it can’t be repaired. The fact is, however, that your credit score is fluid and will change many times throughout your lifetime.  Your score is simply indicative of how well you handle with your financial obligations. A bad credit score can indicate unhealthy financial habits such as maxing out credit cards, making late payments, missing payments or allowing debts to go delinquent.  If you continue to make poor financial choices than yes, your credit score will remain low. However, by doing things such as paying your bills on time, making payments above the minimum or using less than your available credit, your credit score will start to increase.


Myth 2: Closing credit card accounts will improve your credit score

Another common myth is that if you terminate multiple credit card accounts, your credit score will automatically become better. However, while you might believe that closing some of your accounts will cause your credit score to rise, the reverse may be true since you no longer have as much available credit. Your credit score is influenced by a factor called debt utilization ratio which equates to the amount of debt on you have relative to the amount of credit actively available to you. When you close your credit card account, it lowers the amount of available credit and consequently increases the debt utilization ratio. As a result, your credit score may drop, and you are likely to be viewed as a greater credit risk.


Myth 3: Checking your credit report will hurt your credit score 

While you might believe otherwise, checking your credit report is not going to affect your credit score in anyway. Whenever you or any creditor checks your credit report, it is listed as an inquiry.  Many people believe into believing that an inquiry will always damage their credit score. While an inquiry made by a creditor as a background check on an applicant (called a “hard inquiry”) might cause the numbers to temporarily fall a bit, an inquiry made by the individual their self (called a “soft inquiry”) will have no effect whatsoever on their credit score. In fact, the credit reports should be checked at least annually to ensure that you are aware of where you stand in the debtor’s market and are able to manage your debt effectively.


Myth 4: You don’t have to worry about your bad credit score if your spouse has a good rating

This is both highly inaccurate and possibly devastating if your spouse passes away or you decide to go your separate ways. The fact is that credit scores indicate the financial credibility of an individual and your spouse’s rating has nothing to do with how the creditors view you in terms of a potential borrower. For instance, if you decide to take out a mortgage for a buying a home together with your spouse, your creditor will carry out credit checks on the both of you. As such, if one of the partners has a poor score, the application might even end up being rejected by the creditor. In addition, any joint account will influence the credit score of both you and your spouse, regardless of who was using that account or was expected to pay the bill.


Myth 5: A higher income will ensure a higher credit score

Many people believe that their income has a lot to do with their credit score. The fact, however, is that your credit score is based solely on information about your debts and how well you manage them, it does not consider your monthly earnings. A credit report does not even reflect the employment status of an individual.  A higher income may, however, help you get approved for credit because it increases your disposable income as well as make it easier to maintain a good credit rating by making it easier to pay all your bills on time.


Myth 6: A bad credit score implies that you will never be able to get a loan

While a bad credit score may render you a higher risk to the lender, it doesn’t necessarily mean that you cannot get credit. It might be more difficult to be approved for credit, and likely make any credit you are granted more expensive, but it does not make getting credit impossible. In fact, some banks and financial companies specialize in providing credit to people who have low bad credit score or lack any credit history. The reason is that these creditors can do this is that they gauge your creditworthiness on other factors, such as well such as the level of debt obligations you already have and how much you earn monthly. Some credit card customers will even issue a collateralized credit card.  This type of card allows you to deposit a certain amount of funds with the credit card company and they will issue you a credit card with a limit equal to those funds.  You can use this card just like any other credit card and as you make payments your credit score should start to improve (barring any other issues), but if you do not make a payment the company will use your deposit to make the payment and reduce your credit limit to the lower amount you now have on deposit.