Myth 1: Checking Your Credit Score Lowers It
Many people believe that checking their credit score will negatively impact it. However, this is a myth. When you check your own credit score, it is considered a ‘soft inquiry’ and does not affect your credit score. Unlike a ‘hard inquiry,’ which occurs when a lender checks your credit for a loan or credit card application, a soft inquiry is harmless. In fact, being aware of this distinction can encourage people to take more control over their financial health. Additionally, understanding how credit inquiries work can demystify the credit monitoring process. Regularly monitoring your credit score can help you stay informed about your financial standing and identify any errors or potential fraud early on.
Myth 2: Closing Old Accounts Boosts Your Score
Another common misconception is that closing old or unused accounts will improve your credit score. In reality, closing these accounts can actually hurt your credit score because it reduces your overall available credit and can increase your credit utilization ratio. One might think that by closing these accounts, they are tidying up their financial profile, but this action might backfire. It’s generally better to keep old accounts open, as they contribute to the length of your credit history, which is an important factor in your overall score. The longer and more consistent your credit history is, the more reliable you appear to potential lenders and creditors. Therefore, keeping these accounts in good standing and not shutting them down can help maintain or even improve your credit health. Additionally, old accounts often have a positive influence simply because they offer a historical perspective on your financial management skills.
Myth 3: You Have Only One Credit Score
Contrary to popular belief, you do not have just one credit score. In fact, you can have multiple scores depending on the scoring model used and the credit bureau providing the score. The three major credit bureaus—Experian, TransUnion, and Equifax—each generate their own credit scores, which can vary based on the data they collect. These differences can sometimes be significant, affecting your access to loans and interest rates. It’s important to routinely check your credit reports from all three bureaus to ensure accuracy. Regular monitoring can also help you catch any errors or signs of identity theft early. Additionally, different lenders may use different scoring models, such as FICO or VantageScore, leading to variations in the scores you receive.
Myth 4: Paying Off Debt Removes It from Credit Report
Many people incorrectly assume that paying off a debt entirely will remove it from their credit report. While paying off a debt is certainly a good financial move, it does not erase the history of the debt from your credit report. The payment history, including any missed or late payments, will still be recorded and can impact your credit score. In fact, maintaining a good payment history is crucial for long-term credit health. It’s important to regularly check your credit report to ensure its accuracy. Establishing a habit of monitoring your credit can help you catch and address any errors promptly. Typically, negative information stays on your credit report for up to seven years.
Myth 5: Employers Can See Your Credit Score
A common myth is that potential employers can see your credit score as part of a background check. The truth is, employers cannot access your credit score. They can, however, request a modified version of your credit report, which includes information such as your payment history and the status of your accounts. It’s important for job seekers to know this. This modified report provides a broader view of your financial habits. Employers are more interested in the pattern of your financial behavior rather than a single number. This helps them assess how responsibly you manage your financial obligations, but it does not include any numerical credit score. Understanding this distinction is crucial for job seekers.
