What are some common credit score myths?

There are several myths and misconceptions about credit scores. Let's debunk some of the common ones and separate fact from fiction:

Myth 1: Checking Your Own Credit Hurts Your Score

• Fact: Checking your own credit report or score is a soft inquiry (soft pull) and does not impact your credit score. This is often called a "soft inquiry" or "soft pull." It's important to monitor your credit regularly, and doing so will not harm your score.

Myth 2: Closing Credit Cards Improves Your Score

• Fact: Closing credit cards can actually harm your credit score. It may reduce your overall available credit, potentially increasing your credit utilization ratio. A longer credit history is generally better for your score, so closing older accounts can have a negative impact.

Myth 3: Carrying a Balance Helps Your Score

• Fact: You don't need to carry a balance on your credit cards to improve your credit score. In fact, paying off your credit card balances in full and on time is a responsible credit management practice and can positively impact your score.

Myth 4: Income Affects Your Credit Score

• Fact: Your income is not a factor in calculating your credit score. Credit scoring models do not consider your salary, wages, or other income sources. However, your ability to make timely payments depends on your income, so it indirectly affects your creditworthiness.

Myth 5: Closing Negative Accounts Removes Them from Your Report

• Fact: Negative accounts, such as late payments or collections, can remain on your credit report for a specific period, usually up to seven years from the date of the initial delinquency. Closing the account does not remove it from your report.

Myth 6: Paying Off Collections Erases Them from Your Report

• Fact: Paying off a collection account will update its status to "paid," but it does not remove it from your credit report. The account will still appear and may continue to impact your score, although a paid collection is generally less damaging than an unpaid one.

Myth 7: All Credit Scores Are the Same

• Fact: There are different credit scoring models, with FICO and VantageScore being the most widely used. These models may use slightly different algorithms and have different scoring ranges. Additionally, there are industry-specific scores, such as FICO Auto Score and FICO Mortgage Score, used for specific lending purposes.

Myth 8: Credit Repair Companies Can Remove Accurate Negative Information

• Fact: No company or individual can remove accurate and verifiable negative information from your credit report. You have the right to dispute errors, but legitimate negative information remains until its reporting period expires.

Myth 9: You Need to Carry Multiple Credit Card Balances to Build Credit

• Fact: You can build and maintain good credit by using credit cards responsibly, which includes paying your balances in full and on time. You don't need to carry multiple balances to build a strong credit history.

Myth 10: Closing Old Accounts Doesn't Matter

• Fact: Closing old credit card accounts can affect the average age of your credit history, which is a factor in your credit score. Keeping older accounts open (if they have no annual fees) can help maintain a longer credit history and potentially improve your score.

It's essential to base your understanding of credit scores on accurate information to make informed financial decisions. Monitoring your credit, paying bills on time, and managing debt responsibly are fundamental practices for maintaining good credit health.