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Debunking Common Credit Score Myths

January 30, 2024

In the world of personal finance, few numbers carry as much weight as your credit score. Whether you're applying for a mortgage, car loan, or credit card, your credit score plays a crucial role in determining your eligibility and the interest rates you'll be offered. Despite its significance, credit scores are often shrouded in myths and misconceptions that can lead to confusion and anxiety among consumers. In this blog post, we aim to debunk some of the most prevalent credit score myths and provide clarity on how these scores truly work.

Myth 1: Checking Your Credit Score Lowers It

One common misconception is that checking your own credit score can negatively impact it. In reality, when you check your own credit score – a process known as a "soft inquiry" – it has no effect on your score whatsoever. It's important for consumers to regularly monitor their credit scores to stay informed about their financial health.

Myth 2: Closing Credit Cards Improves Your Score

Some believe that closing unused credit cards can boost their credit score. However, the length of your credit history and the total available credit impact your score. Closing a credit card may reduce your available credit and shorten your credit history, potentially lowering your score. It's often better to keep unused credit cards open to maintain a longer credit history and improve your credit utilization ratio.

Myth 3: Only Income Affects Your Credit Score

While your income does play a role in your ability to repay debts, it is not a direct factor in calculating your credit score. Credit scoring models primarily consider your payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries. Having a stable income is crucial for managing your debts, but it doesn't directly impact your credit score.

Myth 4: Closing a Credit Account Erases It from Your Report

Closing a credit account doesn't erase it from your credit report. Closed accounts can still appear on your report for several years, affecting your credit history. Positive accounts generally remain on your report for up to 10 years, while negative information may stay for 7 years. It's essential to be mindful of the impact closing an account can have on your credit history.

Myth 5: Paying Off a Debt Erases It from Your Report

Paying off a debt is undoubtedly a positive step, but it doesn't immediately remove it from your credit report. The record of the paid debt may stay on your report for several years, depending on the type of debt. However, your credit report will reflect that the debt is paid, which can positively influence your credit score over time.

Understanding how credit scores work is crucial for making informed financial decisions. By dispelling common myths surrounding credit scores, individuals can take proactive steps to improve and maintain their credit health. Regularly checking your credit report, managing credit responsibly, and staying informed about credit scoring factors are key elements in building a strong financial foundation. Heritage Bank is here to support you on your financial journey. If you have any questions or need assistance, contact us today to speak with one of our knowledgeable bankers. Your financial success is our priority.

Heritage Bank is an equal housing lender. Member FDIC.

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