Credit Score Myths and Facts
The truth about what will affect your credit score
There’s more credit score information available than ever, but unfortunately, many consumers continue to hold harmful misconceptions about credit scores. Here are some of the largest myths surrounding credit scores.
Checking Your Report will Hurt You Credit Score
A notation called an “inquiry” goes on your credit report every time someone (including you) looks at your file, and rumor has it that inquiries can hurt your score. Well, yes and no. An inquiry affects your score only if it’s related to a credit application that you have submitted. If you apply for a loan or a credit card, your score might fall, because that application suggests you’ll be adding debt. But if you simply look at your own credit report, the resulting inquiry won’t affect your score. If anything, checking your report is a sign of responsible credit management, though you don’t get points for doing it.
Closing a Credit Card Will Increase Your Credit Score
If you have a credit card you don’t use, you’re unlikely to improve your score by closing the account. In fact, closing the card might even lower your score. In general, credit scoring models don’t measure risk by how much credit you have available, but rather by how much of that credit you’re using — a ratio known as “credit utilization”. When you close an unused account, you reduce your total available credit, so your credit utilization goes up. (Of course, if an unused card creates an unbearable temptation to spend, you may be better served in the long run by closing the account.)
Demographics Affect Your Credit Score
Just as credit reports don’t list your income, they also don’t provide much demographic information. Credit reports contain no information about such things as race, national origin, religion, profession, disabilities, sexual orientation or military veteran status. They also don’t say how much you have in the bank or in retirement accounts. And if it’s not on your credit report, it can’t affect your credit score.
Couples Have Joint Credit Scores
There’s no such thing as a joint credit report — for married couples or anyone else. Married or single, you have your own credit report, one that’s linked to your Social Security number. If you’re married, you and your spouse may have a lot of joint accounts, such as mortgages, car loans and shared credit card accounts. Those joint items will appear on both your credit reports and will affect both of your scores. But your credit report is yours and yours alone.
You Have to Make a Lot of Money to Have a Good Credit Score
How much money you have only indirectly affects your credit score. Income isn’t a factor in your credit score. However, bill payment habits (which are impacted partially by your income) do factor into your credit score. No matter how much money you have, paying your bills on time is the best thing you can do for your credit score.
Employers Check Credit Scores
It is against the law for employers to use credit scores to screen job applicants. The media routinely gets this fact wrong because people do not understand that credit scores and credit reports are not the same things. An employer can check your credit report but not your credit score.
You Need to Go Into Debt to Build a Good Credit Score
You need to use credit products to build a good credit score. That can be as simple as opening a credit card, charging a small amount with it each month, then paying it off every month. You don’t have to — and shouldn’t — create more debt than you can afford to build a good credit score.
How I Manage My Bank Accounts, Investments and Other Personal Finances Impact My Score
Anything pertaining to your bank accounts, investment accounts or transactions made in cash have no effect on your score. That said, overdrafts can have an effect if your bank provides you with a line of credit in the event that you overdraw — then that line of credit may show up on your reports. You should make sure all accounts are closed properly and all fees are paid off. Unpaid fees can also end up on your report if sent to collections.
Disputing an Account Will Make it Come Off of My Report
Disputing an account with the credit bureau will certainly do one thing — result in them investigating your claim. However, if they find the account or the information to be accurate, the information will not be removed.
Take Away
The best way to keep yourself in the know is to do your homework. Keep track of your debts, and review your credit report at least yearly and compare it to your financial history. All it takes is a little initiative and less reliance on hype to maintain a good credit score and good financial health.
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Casey Botticello is an internet entrepreneur and the founder of Blogging Guide, an online community of writers with an award-winning newsletter. He is also the creator of the popular Medium Writing Course and the Substack Newsletter Course.
Casey previously worked at several tech startups, a lobbying & strategic communications firm, and has created several businesses of his own. He is a graduate of The University of Pennsylvania, where he received his B.A. in Urban Studies.
You can connect with him on LinkedIn, Twitter, Facebook, follow his Medium publications, Digital Marketing Lab and Medium Blogging Guide, or reach out to him directly on his personal website.