Common Credit Score Myths Debunked

When you’re looking to buy a house your credit score has a huge impact on the mortgage rates available to you. An excellent credit score can save you a LOT of money over the 25 years or so of paying back your mortgage. It can also help you get a better rate for your home insurance! 

Despite the fact that credit scores are so important and have such a big impact on buying a home, many of us are completely unaware of exactly how credit scores work and what would make them increase or decrease. 

Take a look at these credit score myths and get informed about what steps you can take to increase your credit score to help you get a better mortgage rate when it comes time to buy! 

Checking In On My Credit Score Will Hurt My Score 

This is one of the biggest myths out there and, unfortunately, this myth has caused many people to be completely in the dark about what their credit score actually is. “Hard inquiries” are what will cause a little dip in your score (which is completely temporary and will bounce back). These “hard inquiries” come from third parties when you are applying for something like a line of credit or credit card. 

When you check your score on legitimate sources (such as directly through a credit bureau or apps like Credit Karma), it’s called a “soft inquiry” and it won’t affect your score at all. You have the right to know what your credit score is and it’s a good idea to use that right to be informed about where you stand and how you can improve your score. 

Carrying A Balance On My Credit Card Will Increase My Score

This is a myth that is not only incorrect but can actually hurt your finances in the long run. One of the factors that make up your credit score is called your “utilization ratio”, which basically just means the percentage of your credit that is available to use at any time. You want your utilization ratio to be low, so you want to try and keep it under 30% at all times. Carrying a balance will push up your utilization ratio. 

So, not only does carrying a balance potentially hurt your credit score, but it also just doesn’t make financial sense. If you’re only paying the minimum to carry a balance, you’ll be paying more money through interest. That’s money that you didn’t need to be paying! 

Getting Rid Of My Old Credit Cards Will Help Improve My Score 

Because history is one of the factors included in calculating your credit score, keeping your oldest credit card, using it occasionally and paying it off, will actually help your credit score. Not only that, but if you close an old credit card and instead often use your current credit card, you could increase your utilization ratio causing your score to drop. 

If I Make More Money My Score Will Increase 

Your income isn’t listed on your credit reports and doesn’t impact your score. Your credit score is a number that indicates your credit RISK. If you make lots of money you can still have more debt than you can pay. Instead, your credit score will look at things like your payment history, how long your credit history is, the mix of credit products that you have in your portfolio, and how often you’re applying for new cards/accounts. 

If I Had A Perfect Credit Score I Would Get Additional Benefits

Having a PERFECT credit score isn’t really any different than having an excellent credit score. There are no loans, lines of credit, or credit cards that are reserved for people who have a perfect credit score. Basically other than bragging rights, there is no advantage to having that perfect 850. Pretty much, if your score is above 760, you’re going to be qualifying for all of the best deals in terms of credit products. 

If I Co-Sign A Loan, It Doesn’t Really Count

Make sure that you think long and hard before you co-sign for a loan. A co-signed loan is treated the same way as if the loan was your own. So that loan will be taken into account when they look at your utilization ratio. Also, if there are any missed or late payments, YOUR credit score will be impacted negatively. 

I Don’t Need To Look At My Credit Report, I Just Need To Know The Number

It’s a good idea to look at a detailed credit report at least once a year so that you can see if there are any mistakes or incomplete information. Sometimes credit scores can have incorrect information which could be affecting your credit score. You can dispute any issues with Equifax. These inaccuracies can even show you if someone has been stealing your identity, so make sure that you’re looking into the full report, and not just the number, at least once a year. 

I Only Have One Credit Score

Actually, there are three different credit bureaus: Equifax, Experian and TransUnion. Sometimes your credit lender will report your new product to all three, or just one, or just two. So your scores can vary across all three credit bureaus. Although, it’s important to note that your scores shouldn’t be vastly different. There might be a bit of a discrepancy between the three, but overall it shouldn’t affect whether you have a good or bad credit score.