Don't Be Fooled: Understanding Common Credit Score Myths
Don't Be Fooled: Understanding Common Credit Score Myths

Understanding Common Credit Score Myths

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Don’t Be Fooled: Understanding Common Credit Score Myths

Credit scores are incredibly important in modern society, affecting everything from getting approved for loans to renting an apartment. Unfortunately, there are many common misconceptions surrounding credit scores that can lead to confusion and even harm your credit.

In this article, we’ll explore some of the most common credit score myths and provide you with accurate information to help you make the best decisions for your financial future.

Myth #1: Checking Your Credit Score Will Hurt Your Credit

Many people are afraid to check their credit score because they worry that it will have a negative impact. In reality, checking your own credit score is considered a “soft inquiry” and does not affect your credit at all. In fact, it’s a good idea to check your credit score regularly to ensure that it is accurate and to catch any potential fraud early on.

Myth #2: Closing Credit Cards Will Improve Your Credit

It’s common to think that closing a credit card you no longer use will improve your credit score, but the opposite is actually true. Closing a credit card can reduce your available credit, which can increase your credit utilization ratio—a key factor in determining your credit score.

It’s best to keep unused credit cards open and use them occasionally to keep them active.

Myth #3: Paying Off a Collection Account Will Erase it From Your Credit Report

Unfortunately, paying off a collection account won’t automatically remove it from your credit report. The account may still show up on your credit report for up to seven years from the delinquency date. However, paying off the collection account can help improve your credit score over time.

Myth #4: A High Income Equals a High Credit Score

Your income has nothing to do with your credit score. Your credit score is based on your credit history, which includes factors such as your payment history, outstanding debt, length of credit history, new credit accounts, and type of credit accounts.

While having a high income can certainly help you pay your bills on time, it doesn’t guarantee a high credit score.

Myth #5: Making Minimum Payments Will Always Keep Your Credit Score Healthy

While making minimum payments will keep you from becoming delinquent on your accounts, it may not be enough to keep your credit score healthy. Your credit utilization ratio—which is the amount of available credit you’re using—has a big impact on your credit score.

If you’re only making minimum payments, you may be carrying a high balance that’s hurting your credit score. It’s best to pay off your credit card balances in full each month if possible.

Myth #6: Closing a Credit Card Will Remove Late Payments From Your Credit Report

Late payments can stay on your credit report for up to seven years, regardless of whether the account is open or closed. Closing a credit card account won’t remove any late payments associated with that account. The best way to address late payments is to make sure you’re paying your bills on time moving forward.

Frequently Asked Questions

How Often Should I Check My Credit Score?

You should check your credit score at least once a year, but you can also check it more frequently if you’re actively working to improve your credit or if you suspect fraud.

How Long Does Negative Information Stay on My Credit Report?

Negative information such as late payments, collections, and bankruptcies can stay on your credit report for up to seven years. However, the impact of these negative items on your credit score will diminish over time.

Will Paying Off My Debt Improve My Credit Score?

Paying off debt can help improve your credit score, especially if you have high credit card balances or collections accounts. However, it may take some time to see the impact of your efforts on your credit score.

Will Anyone Who Checks My Credit Report See My Credit Score?

Credit scores are typically only visible to lenders and other entities when you apply for credit. If you’re just checking your own credit score, this information is not shared with anyone else.

Can I Dispute Errors on My Credit Report?

Yes, if you find errors on your credit report you can dispute them with the credit bureaus. You can do this by sending a dispute letter, providing proof of the error, and requesting that it be removed from your credit report.

Don’t Be Fooled: Understanding Common Credit Score Myths

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Frederick Taleb

Frederick Taleb, a New York City native and Columbia University graduate in economics, made a name for himself as a successful trader and writer. He quickly advanced on Wall Street before starting his own investment firm and gaining a reputation for providing insightful economic commentary. Frederick remains highly regarded for his dedication to his clients and his contributions to the field of finance.

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