There are a lot of misconceptions about credit scores, and they can cost you a lot of money. I’m going to debunk a few of them here but make sure to pay attention and think logically, no sense paying a lot more for something just because of bad information!
Here is a good list from credit.com make sure to check their website out to see this super cool tool they have that tells you how much interest you could pay during your lifetime! I will link to it too.
Closing a lot of credit cards will improve my credit score.
FACT: You’d think having a ton of credit cards would have a negative impact on your credit score and closing them would raise it. Unfortunately, it doesn’t work that way. One of the major factors of your credit score is your debt-to-credit ratio, and closing too many cards at once can drastically change your ratio, which can cause your score to drop. For example: You have $5,000 in debt and $20,000 in available credit between your credit cards. Closing several of those cards would cause your available credit to drop to $10,000, putting a huge dent in your debt-to-credit ratio. Also, the closed account will drop off your credit reports in about 10 years, and from then on you’ll no longer benefit from the age of that account, nor its positive payment history – which are also factors in your score.
Checking my credit report or credit score will reduce my score.
FACT: So many of my clients have no idea what their credit score is because they thought checking it would hurt it. Looking at your own credit report or score isn’t like sneaking a peek at your notes during a test, you’re allowed to be in the know. While it’s true that if a lender checks your credit report or credit score, it results in a “hard inquiry,” which causes a small, temporary drop in your credit score. However, when you check your own, it’s called a “soft inquiry,” and it has no effect on your score.
My income affects my credit score.
FACT: I’ve had a surprising number of people mention that their low income has damaged their credit. The amount of money you make can only affect your credit score if your income affects your ability to pay your bills. Your income itself, however, is not listed on your credit reports, nor is it a factor in your score – so it has zero impact on your credit score.
I don’t need to worry about my credit report because I will not be applying for any new credit.
FACT: This is like saying you don’t have to worry about your weight because you don’t plan on going to the doctor anytime soon. Just because you don’t think you’ll be applying for credit soon doesn’t mean you should forgo maintaining good financial habits.
Lenders aren’t the only ones to check your credit. Insurance companies and potential employers may check and having bad credit can keep you from getting a good insurance rate or a new job. It also takes time to improve credit, which could take years, so don’t put off managing your credit responsibly.
Here is the link to the super awesome tool that shows interest over a lifetime
make sure you guys share this post, time to change all of these misconceptions!