A good credit score is important. Sure, it helps if you need a loan or a credit card, but it can also help you in other ways too.
For example, our insurance company offers better rates to customers who have good credit reports. It can also be used when you need to rent a place to live or even turn on utilities to your home.
But what makes up your credit score? Does everything really affect how your score works? Sadly, there are many credit card myths that people believe – and you may be one of them.
CREDIT CARD MYTHS YOU BELIEVE
Myth 1: Closing several accounts can boost your score.
You may think that if you have too many cards it will negatively impact your score. So, you hurry and close them to raise your number. That can actually have an adverse affect and lower your score.
The reason being is that one factor in determining your credit score is your debt-to-credit ratio. If you owe a total of $2,000, but your total available credit across all sources is $20,000, your ratio is 10%. But, if you close 5 cards, you may now have available credit of only $8,000. Your credit ratio just increased to 40%!
Not only that, but once an account is closed, it will drop off of your report after 10 years, so you’ll lose all of the positive credit from the account (on time payment or the payment history). Those factors can help keep your score high.
And, according to CreditRepair.com, your credit score is influenced by the average age of your account. FICO advises that this is 10% of your credit score. It’s not true that closing an account will remove it.
A better alternative is to just put the cards away – or on ice – literally. Freeze the cards in a block of ice and put them in your freezer where you won’t be able to used them. However, always watch all open accounts for any potential fraudulent activities.
Also see: How much is too much credit card debt
Myth 2: You can’t quickly fix your credit score.
The folks at CreditRepair.com disagree. You can improve your credit score if you pay down balances on your cards – including large payments. If you need to get a mortgage, you can get a Rapid Rescore (available only to mortgage professionals).
That being said, if you have many negative strikes on your report and are trying to fix things, it can take a few months before you start to see those positive changes. This is where a credit repair company might be able to help.
Myth 3: Checking my score lowers my number.
You’ve probably been told that you should not check your credit report or score as it will drop your number.
The truth is that if a lender runs a check, that is considered a “hard inquiry” and too many of those can negatively affect your score. However, you, as a consumer must know your score. If you look into getting yours, that is a “soft inquiry” and will have no bearing at all on your score.
Myth 4: Your credit score will be zero if you have no credit.
False! There is no such thing as a “zero credit score.” We talked with the folks at CreditRepair.com and they shared some expert information with us:
In both the VantageScore and FICO score, the range is from 300 to 850, so a zero is outside of that range. The lowest credit score you can have is 300. In the past, the Vantage Score ranged from 501 to 990, but with the era of Vantage Score 3.0, they have synced up with the FICO score, so they can compete more directly with it.
There you go! The lowest score you could possibly have is 300.
Myth 5: I have a bad credit score, so can never get a loan or credit card.
This is also a myth. There are many companies who are willing to give credit to people with lower scores. The only thing is that you may have to pay a higher interest rate, put down a deposit or have collateral. Just read the terms before you sign up so you don’t fall victim to predatory lending.
Myth 6: I don’t make much, so that is why I have a low score.
Yep! Another credit score myth that many people believe.
The amount of money you make has zero direct affect on your score. However, if you do not pay your bills timely because of your income, your credit score can be negatively affected.
Myth 7: I don’t need a number because I don’t need credit.
Scroll back up to the top of this post. Right there, I mention how your credit report is about more than just getting a loan. And, just because you don’t plan on applying for any type of credit in the near future doesn’t mean you should ignore your score.
Remember, your insurance company, utilities and even potential employers all might check your credit. Having a lower score can result in paying more money or not getting that job.
Myth 8: Employers look at your credit score.
According to CreditRepair.com, this is a common credit score myth. Employers, don’t look at your credit score. They may, however, look at your credit report (but you have to give them permission to do so).
Remember, your credit score and credit report are two different things. Employers who request your credit report have no right to see your score. However, banks and lenders will see your score as they do the calculation themselves.
Myth 9: If I dispute an account, it will be removed from my report.
Not necessarily. If you dispute any details on your credit report, it certainly warrants investigating. When you file the dispute, the credit agency will look into the matter.
If they find the information to be accurate, it will not be removed. However, anything incorrectly stated will be properly adjusted and/or removed.
Myth 10: I know I have good credit.
Do you? Do you really? When was the last time you checked your credit report and score?
Under federal law, every consumer in the United States is allowed a free annual credit report. However, if you want to get your score, you will have to shell out a little money, as it is not free.
Take the time to review all details on your reports (from all three agencies) for accuracy. Your credit score relies upon your report, so it is important to sure it accurate.