Credit scores are often
misunderstood, leading to financial decisions based on myths rather than facts.
In this article, we'll debunk some of the most common misconceptions about
credit scores.
Myth 1: Checking Your Own Credit Score Lowers It
Checking your own credit score is considered a "soft inquiry" and does not affect your credit score.
Myth 2: Closing Old Accounts Will Improve Your Credit Score
Closing old or unused accounts can actually lower your credit score by reducing your available credit and increasing your credit utilization ratio.
Myth 3: You Only Have One Credit Score
Contrary to popular belief, you don't have just one credit score; you have several. These scores can differ for a variety of reasons:
Different Credit Bureaus
There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. Each bureau collects its own data and may have slightly different information about your credit history, leading to variations in your credit score.
Various Scoring Models
There are multiple credit scoring models used to calculate credit scores. The most commonly used are FICO and VantageScore. Each has its own algorithm and scale for scoring, which can result in different scores.
Types of Credit Scores
There are also specialized scores for specific lending situations. For example, an auto lender might use a FICO Auto Score, while a mortgage lender might use a different version of the FICO score optimized for mortgage lending.
Time Factor
Credit scores can fluctuate over time due to various factors such as payment history, credit inquiries, and changes in credit utilization. Therefore, your score today may not be the same as it was last month or will be next month.
Myth 4: Income Affects Your Credit Score
Your income does not directly impact your credit score, although it may affect your ability to borrow or pay off debt.
Myth 5: A Bad Credit Score Will Haunt You Forever
The Truth
Credit scores are dynamic and can be improved over time by adopting good financial habits.
Myth 6: Co-Signing Doesn't Affect Your Credit Score
Co-signing a loan makes you equally responsible for the debt, and any late payments can negatively impact your credit score.
Understanding the truth behind these myths can empower you to make better financial decisions. Your credit score is a vital part of your financial health, so it's important to separate fact from fiction.
Additional Resources
Contact Information for Major Credit Bureaus
- Equifax: P.O. Box 740241, Atlanta, GA 30374-0241, Phone:
1-800-685-1111
- Experian: P.O. Box 2002, Allen, TX 75013, Phone: 1-888-EXPERIAN
(1-888-397-3742)
- TransUnion: P.O. Box 2000, Chester, PA 19016, Phone: 1-800-916-8800
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