Monday, May 20, 2024
Investment Advice

Credit Myths That May Lower Your Credit Score

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Credit myths are rampant misconceptions about credit score factors spread by people that don’t understand the facts about credit reports. And, if you’re not aware of credit report facts, such myths lead to bad decisions that can hurt your credit score.

4 Myths About Credit Scores

Lenders use your credit score to determine your creditworthiness and determine interest rates on loans, and loan terms. It also impacts your insurance premium rate, eligibility for certain jobs, and even your cell phone plan.

Thus, any credit myths that may prevent you from keeping your FICO score at its best should definitely be debunked.

Here, we present four common credit myths and facts so that you gain the knowledge you need to manage or improve your score.

Carrying a credit card balance boosts your score

This is a top credit myth that leaves many Americans asking, “Should I leave a small balance on my credit card?”

The fact is, carrying a credit card balance month-to-month can hurt your credit score. That’s because a large balance increases your credit utilization rate, which impacts your credit score negatively.

Large balances can also sink you into unmanageable credit card debt due to the double-digit APR charged on credit cards. Thus, it’s advisable to make payments on time and if you can, pay off your credit card balance in full.

Closing a credit card improves your score

This is a common credit myth believed by people with old credit cards that they no longer use. The truth is, your score takes a hit when you close a credit card.

Closing a card limits your credit history, and also increases your overall utilization rate, resulting in a lower score. So, instead of closing an old card, consider charging a small recurring bill on it to preserve your credit history and lower your utilization rate. 

Getting loan estimates from multiple lenders hurts your score

This is one of the myths about credit scores that prevent most people from shopping for the best loan terms. Your credit score will only take a small hit when rate shopping for similar loan products from different lenders.

As long as you rate-shop within 45 days, the multiple soft pulls performed will count as one hard inquiry. The long-term benefits of locking in the best rate and terms far outweigh the impact on your score.

That said, applying for a credit card isn’t considered rate shopping. So if you make multiple credit card applications within a short period, each application results in a hard pull, which can negatively impact your score.

It costs money to check your score

The lack of facts about credit reports leads people to subscribe to this credit score myth and end up paying to check their FICO score. The fact is, you can check your credit score for free from any of the major credit bureaus at annualcreditreport.com

You can also use apps such as Chase’s Credit Journey and Discover’s Credit Scorecard to check your credit score for free. The good thing is, checking your credit report is considered a soft pull, and doesn’t impact your score.

Credit Score Facts And Myths: Bottomline

Learning basic credit score facts is important if you want to improve or maintain your credit score. While many credit myths exist, you can navigate them by seeking advice from credit experts to help you sift credit myths and truths.

 

If you’re looking to purchase insurance, consulting with an independent insurance agent is the best way to go. They’ll not only help you learn how your credit score influences your policy premium rate but also lock in a low rate.

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