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Are You Falling for These 5 Credit Myths?

August 12, 2021

As credit scores have become more accessible, many people have developed misconceptions about what is beneficial for their credit and what is harmful along the way. 

It can be challenging to separate a myth from fact, so we have gathered five of the most common credit myths and will reveal their truths.

1. It Takes a Long Time to Develop a Bad Credit Score 

Many believe that it takes a significant amount of time to lower, or ruin, your credit score; this would be a myth.  

It only takes a few months to ruin your credit score. If your account becomes six months past due on payments, your account becomes charged off, which is one of the worst scenarios that could occur with your credit score.  

If you find yourself having multiple charge-offs or collections, you could completely ruin your credit score.  

You may be a person who has all their payments on auto-payment scheduled, so your accounts will not become six months past due. It is not uncommon for auto-payment to not work correctly, and if this should happen, you could find yourself having a late remark added to your credit report causing your score to decrease. In addition, you may accrue some hefty late fees. 

2. Closing a Credit Card Will Improve Your Credit Score 

This belief couldn’t be further from the truth. Closing an unused credit card account will not improve your score and will prove to have the opposite effect.  

Closing the account will reduce your total available credit, which will lead to increasing the credit utilization rate. The utilization rate is calculated based on the ratio of your outstanding credit card balances to your total credit limits. 

The increase in your overall utilization could cause the bureaus to see you as a higher risk individual causing your score to decrease.  

Your account could be closed without notice due to inactivity, so the best thing to do is use your cards once every few months to keep them active.

3. Checking Your Score is Bad for Your Credit 

This one is quite common, and the best part is that it is false. That is right. Checking your credit score is not bad for your credit. 

Your credit score will be affected by inquiries related to credit applications, but not by checking your score. 

Even though your score is not affected, many people want as few inquiries on their report as possible. If you fall into this category, free credit monitoring will be your best course of action.  

Due to COVID-19, all three credit bureaus offer free weekly online credit reports, and you can access yours here.  

To view your reporting account information, you could use credit monitoring sites such as Credit Karma. Although the score may not be exact, the account information reporting will be accurate for you to view items such as inquiries, balances, and even reporting derogatory items. 

4. Getting Married Merges Your Credit Scores 

Getting married often means couples will have joint accounts such as mortgages, car loans, or credit card accounts. Creating joint accounts does not mean your credit scores merge, but it just means that both of your credit reports will be affected. 

You should be mindful of this since your credit habits affect more than just you; they may now affect your spouse. Although you both may be affected by the account, your credit report is yours and yours alone.

5. You Don’t Have to Worry If You Already Have an Excellent Score 

Just because you have a good score does not mean you are off the hook. Should you make a mistake, you will fall down a steeper slope if you have a higher score.  

You may have noticed that with a high credit score, adding more points becomes harder. Those with a 750 may struggle to gain a few additional points, but those with a 620 will be able to accumulate points relatively quickly by following the right credit-building steps. 

Furthermore, even if the cause is the same, a higher credit score will be affected more heavily than a lower one. For instance, your auto-payment doesn't work, and you receive a late notice. Someone who has a 680 score in this situation may see the score drop 60-80 points. However, someone with a 780 score may see their score drop nearly 100 points for the same late payment!  

Due to the design of credit score algorithms, the higher your score is, the harder it is to gain more points and the easier it is to lose a significant amount in the event of an error. Ultimately, the algorithm works this way so lenders can access your risk and extend the best offers to the best customers. 

Don’t trust everything told to you about credit. Some of the most widely believed credit information is not true, and you may find yourself falling for some of the myths.  

It can be hard to separate the truth from false information, but it is wise to keep yourself updated on what hurts your score and what won’t. This way, you avoid any missteps and can ensure your credit score is on the rise.

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