4-minute readUPDATED: September 08, 2021
If you are like most people, the idea of a credit score is a somewhat fuzzy notion. You know that your credit score exists and that it is based on your financial choices, but you aren’t quite sure what actions affect it.
Unfortunately, there are many myths surrounding credit scores. The way your credit score is determined is somewhat straightforward, but it can be difficult to distinguish fact from fiction.
It’s time to debunk some of these credit score misconceptions once and for all! Here are several myths that you should be aware of.
When a lender makes a hard inquiry into your credit during a loan application, then your credit score could be negatively impacted.
However, it’s a completely different scenario when you check your credit score for your personal knowledge. In this case, it will not have a negative impact on your score. This simply allows you to know where your credit score stands. It is a good idea to monitor your credit score over time through routine checks to catch any problems before they get out of hand.
There are three major credit bureaus that each track your credit report. With slightly different scoring models, these bureaus will determine slightly different scores.
With that, you should be aware that you have multiple credit scores floating around for lenders to consult.
If you have a credit card in your wallet that you rarely use, it can be tempting to cancel it. After all, many people claim this would help your credit score. But canceling a credit card would actually hurt your credit.
Credit scores factor in your credit utilization rate and average account age. If you choose to cancel a credit card, it could increase your credit utilization rate and decrease the average age of your account. This could hurt your credit score significantly.
If you are married, then you may assume that saying “I do” tied your credit scores together. However, your credit scores will remain separate forever. Although you may have joint accounts, these accounts will affect both of your credit scores. If you have any individual accounts, these will not affect your partner’s credit score.
Although a bad credit score can prevent you from receiving the best loan terms, you may still be able to secure a loan. Many lenders are willing to help borrowers with bad credit scores secure mortgages, auto loans and more.
Landing a great job with a high salary can dramatically improve your finances. But it will not improve your credit score. Your credit score is based on how you have managed credit in the past. If you have a bad history of managing your credit, then a good job won’t fix that.
However, you can use your good job to improve your credit score over time. You can start by making on-time payments on any outstanding accounts, paying down your debt, and using this higher income to make better financial decisions.
In a similar fashion, a fat bank account is not factored into your credit. Even with a high income and a healthy bank account, your credit score may not be in great shape. Although saving money is important, it does not show a potential lender that you are responsible enough to pay your bills on time.
A credit score is not reflective of who you are as a person. It is simply a way for lenders to gauge your creditworthiness as you apply for a loan.
Although using your debit card responsibly is important, it will not affect your credit score. Since you are spending money directly out of a checking account, there is no credit component to your debit card usage.
Credit cards can be used to build your credit but debit cards cannot.
Yes, some kinds of debt are bad. The flip side of that coin is that some debt is good. An example of good debt might be taking on a mortgage to buy your first home. A $100,000 mortgage is a more responsible debt to carry than $100,000 in credit card debt that fed your shopping habits.
Your credit report does not contain any demographic information. It does not include any information about your sexual orientation, race, disabilities, religion, or profession. The score is meant to be an unbiased way to grade how you manage your finances, not to disqualify you for a loan based on your identity.
If you find your credit score in need of repair, then you might be tempted to turn to the “experts.” Some of these experts will charge you a lot of money to repair your credit. In reality, you have the ability to improve your credit score with free tools like Rocket HomesSM.
Your credit score can have a big impact on your financial future. Even though these myths will not impact your credit score, other actions could impact your score in a negative way. If you are already dealing with a poor credit score, then it is time to take action and improve your score. Start by creating a free account with Rocket HomesSM to work towards boosting your credit score today. You can also check out our credit and personal finance learning centers for more information regarding credit.
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Did you know that the length of your credit history plays a role in your credit score? Read our guide to find out how impactful your credit history is on your score.
When determining how many lines of credit you should have, it’s important to know that there is no formula or magic number. Because the number of credit scores one has can vary from person to person, you should consider your spending habits and ability to manage credit before deciding whether to add another line of credit or not.