The Myth of Checking Your Credit Hurting Your Score
One of the most persistent myths about credit scores is that checking your own credit report will negatively impact your score. This misconception often stems from confusion between “hard inquiries” and “soft inquiries.” When you check your own credit, it’s considered a soft inquiry and has no effect on your score. Soft inquiries are simply informational and won’t be visible to lenders reviewing your credit report.
Hard inquiries, on the other hand, occur when a lender or creditor checks your credit to make a lending decision, such as approving a credit card or loan application. These inquiries can cause a minor dip in your score, but they are temporary and typically amount to just a few points. Moreover, credit scoring models are designed to account for rate shopping, meaning that multiple hard inquiries for the same type of loan—like a mortgage or auto loan—within a short time frame are usually treated as a single inquiry.
Why regularly checking your credit is a smart financial habit:
- Monitor for errors or fraudulent activity.
- Stay informed about changes to your credit score.
- Address issues promptly to maintain financial health.
Staying informed can help you keep your finances on track. Resources like AnnualCreditReport.com allow you to check your credit reports for free annually, empowering you to take charge of your credit without fear of repercussions.
Carrying a Balance to Boost Your Score
Another widespread myth is the idea that carrying a balance on your credit card improves your credit score. Many people believe that demonstrating ongoing debt signals responsible credit use to lenders. However, this couldn’t be further from the truth. Carrying a balance not only fails to improve your score but also costs you money in the form of interest payments.
Your credit utilization ratio, which is the percentage of your credit limit you’re using, plays a significant role in your credit score. Ideally, you should aim to keep this ratio below 30%, though lower is even better. Paying off your balance in full each month shows responsible behavior and avoids the accumulation of interest. Contrary to the myth, a zero balance due to on-time, full payments is a positive signal to creditors.
Instead of carrying a balance:
- Focus on making consistent, timely payments.
- Maintain a low credit utilization ratio.
- Build financial flexibility by avoiding high balances in case of emergencies.
These habits are far more effective in building and maintaining a strong credit score. For additional tips, explore our guide on responsible credit card habits.
Closing Old Accounts to Improve Your Score
Many people assume that closing old or unused credit accounts will help their scores by simplifying their credit reports. While this might seem logical on the surface, it can actually harm your credit in two critical ways:
- Shortens your credit history: Closing an old account can reduce the length of your credit history, a key factor in determining your score. Lenders prefer to see a long and stable credit history.
- Increases your credit utilization ratio: When you close an account, your total available credit decreases, which could raise your utilization ratio if you carry balances on other cards.
For example, if you have a $10,000 total credit limit and are using $3,000, your utilization ratio is 30%. Closing a card with a $5,000 limit would reduce your available credit to $5,000, instantly pushing your utilization ratio to 60%—a red flag to creditors.
Instead of closing accounts:
- Keep old accounts open, even if you rarely use them.
- Occasionally charge small amounts and pay them off in full to keep the account active.
This approach maintains your credit history and utilization ratio while keeping your score in good shape. Learn more about avoiding common credit pitfalls in our article on credit card pitfalls.
The Belief That Income Influences Credit Scores
A common misunderstanding is that your income directly impacts your credit score. While income is an important factor in your overall financial health, it doesn’t play a role in your score. Credit scoring models like FICO and VantageScore focus on your credit behavior—such as payment history, credit utilization, and account age—rather than your salary.
Key distinctions:
- Higher income can make it easier to pay bills on time, indirectly supporting a better credit score.
- Even individuals with modest incomes can achieve excellent credit scores by practicing responsible credit habits.
- Lenders use debt-to-income ratio to assess creditworthiness, but this doesn’t affect your score.
Understanding this distinction can help you focus on the factors that truly impact your credit. For more strategies to improve your financial health, check out our guide on strengthening your savings habits.
The Misconception That Credit Repair Services Are a Quick Fix
When faced with a low credit score, many people turn to credit repair services, believing these companies can quickly erase negative marks from their reports. While some credit repair services can help dispute errors, they cannot remove legitimate negative information, such as late payments or defaults, before it naturally ages off your report.
Here’s what you need to know:
- Most negative marks, like missed payments or collections accounts, stay on your credit report for seven years.
- Bankruptcies can remain on your report for up to 10 years.
- No third party can bypass these timelines, regardless of their promises.
Improving your credit score takes time and consistent effort. Address errors on your report, pay down debt, and establish a history of on-time payments. Learn more about legitimate ways to rebuild credit in our article on correcting credit report mistakes.
FAQs
- Does checking my credit report hurt my score?
- No, checking your own credit report is a soft inquiry and doesn’t affect your score.
- Should I close old credit accounts I no longer use?
- No, closing old accounts can shorten your credit history and increase your credit utilization ratio.
- Can credit repair services remove negative marks from my report?
- Credit repair services can dispute errors, but they can’t remove legitimate negative marks before they naturally expire.