WorldExecutivesDigest.com | Common Credit Score Myths | Whether you like it or not, your credit score plays a huge part in your overall financial opportunity and decision making. Yes, your credit score is used in the determination of loan approvals and credit card approvals, but it is also used for many other aspects of your financial life.
Your credit score is used by insurance companies in setting premiums for your house and your car, plus it determines the interest rates you get charged in loans you are approved for. Landlords might even decide to check your score to decide whether they want to rent an apartment to you.
There are an awful lot of myths associated with credit scores that could end up hurting your ability to improve or track your score. It’s important to understand what these myths are and how to identify them.
Five Credit Score Myths You Shouldn’t Believe
- Your Income Affects your Credit Score
This is a common belief held by many people that has absolutely no basis in fact. If your income is higher, it does not make your credit score higher and if you have a lower income, your credit score isn’t worse because of it. In fact, your income is never actually included in your credit reports.
- Applying for New Cards Can’t Hurt your Score
A myth that can be rather dangerous is the idea that applying for new credit cards or new credit of any type won’t have a poor affect to your score. Applying for new credit accounts can actually hurt your score in several ways by creating a new hard inquiry on your credit report. Getting turned down and applying for others looks desperate and gives lenders a bad impression. Even if you are approved, your score could still be hurt by the amount of new credit, length of credit history, or the number of accounts.
- Closing a Credit Card is Good for your Score
This might seem counter-intuitive, which is why its opposite is such a common myth, but closing a credit card account could really hurt your score. Your instinct when paying off your debts might be to finish paying a card and close it so it’s no longer on your report, but this would significantly decrease your credit utilization ratio, and possibly your age of account if it is your oldest credit line. But if you leave that account open when your amount of available credit will only increase, therefore improving your score.
- It’s Impossible to Get a Loan with Bad Credit
It’s widely thought that you cannot receive any kind of funding if you have a bad credit score. And while your options are greatly diminished, it is possible to get emergency funding if you need it even if you have poor credit. One loan option for bad credit is an auto title loan which is a particular type of secured loan which uses the equity in your personal vehicle as collateral. Registration loans typically have no credit requirements.
- No Debt Means a Good Credit Score
This is probably one of the most common misconceptions about credit score. People assume that having no debt at all means that you will have a pristine credit score but that is not the case. This myth makes logical sense, as society is constantly reminding everyone of the dangers of credit card debt. Ironically, you need to take on credit card debt or some kind of reported debt consistently in order to have any kind of positive credit score.
Have you believed any of these myths? Have they affected your decision making at all? Now that you know these truths, you can do what you need to do to improve your credit score and access better financial opportunities.