May 30, 2024

4 Common Credit Score Myths You Should Know

NEW YORK, February 2, 2023 (Newswire.com)

iQuanti: Your credit score is a vital piece of your financial picture. It impacts your ability to buy a home, purc…

4 Common Credit Score Myths You Should Know

iQuanti: Your credit score is a vital piece of your financial picture. It impacts your ability to buy a home, purchase a car, rent an apartment, open a credit card, and much more. Unfortunately, there are many myths out there that, if fallen for, can set you back on your credit-building journey. With that in mind, this article will debunk common credit score myths and offer some tips on how to fix your credit score.

1. Checking my credit score lowers my score

Applying for credit can temporarily harm your score, an effect that wears off after several months. However, checking it yourself does not harm your score at all. You can only get one free copy of your official credit report from each credit bureau — Equifax, Experian, and TransUnion — per year. Getting more than one from each costs money. However, you can check your score online for free through websites like CreditKarma, although the scoring model differs slightly. Some banks offer credit monitoring tools to customers as well.

2. You need a good credit score to qualify for a loan

A higher credit score indeed offers access to more loans. But borrowers with poor or little credit still have plenty of options. Many traditional lenders run credit checks for loans but don't ask for a high score. This is especially true for secured loans — loans that require you to put down a piece of collateral. Some unsecured loans also have less strict credit score requirements and look at other factors like income and employment during the approval decision process.

3. Paying off debt eliminates its effects

Paying off any relevant debts doesn't wipe the evidence of them off your credit report right away. Certain types of derogatory marks may stay on for a certain amount of time before falling off.

For example, Chapter 13 bankruptcies can remain on one's credit report for up to seven years. Meanwhile, Chapter 7 bankruptcies can take up to 10 years to fall off. Many other derogatory marks, such as account charge-offs and collections, stay on your report for around seven years.

Sometimes, marks are erroneously left on your report after they were supposed to fall off. In this case, you'll need a copy of your credit report to find the mark, then file your dispute with the corresponding credit bureau.

4. Closing a credit card helps your score

Closing a credit card can actually hurt your score because this can affect three of the five factors credit bureaus use to calculate your score: credit history length, credit mix, and utilization.

Here is how each works:

  • Credit history length measures the average age of your accounts, along with your oldest and newest account ages. Closing an account reduces your average account age, hurting your score.
  • Credit mix measures the diversity of loans and credit cards you have. Closing a credit card could reduce your credit mix, hurting your score.
  • Credit utilization measures total credit balances against total credit limits across all cards. Closing a card reduces your total credit limit and doesn't erase that card's balance. This could increase your utilization, harming your score.

Ideally, you keep the card open and use it once in a while to prevent the company from closing it for inactivity.

Ignore these credit score myths

Misinformation about credit scores can hamper your credit-building efforts, so it's important to stay informed about how credit works. Remember: you can check your credit as often as needed without worrying about credit damage, and you can still get a loan without a good credit score. In fact, getting a poor-credit loan can be a great way to build up your score if you pay the loan in a timely manner and the lender reports it to credit bureaus.

Additionally, paying off debt doesn't erase it from your credit report immediately. You might have to wait or take more action. Meanwhile, closing credit cards can actually hurt your score instead of helping it. Ignore these common credit card myths to stay on the right path toward building your score and reaping the benefits.

Contact Information:
Keyonda Goosby
Public Relations Specialist
[email protected]
(201) 633-2125


Original Source: 4 Common Credit Score Myths You Should Know