There are few numbers as important as your credit score. A high score can help you get approved by lenders and potential landlords, along with saving you thousands through securing lower interest rates. Despite the importance of credit scores, many consumers don’t have a solid understanding of how they work. Here are the five biggest credit score myths that need to be debunked.
1. You Have One Credit Score
It’s easy enough to understand why people would think this. After all, everyone uses the term “credit score” and not “credit scores.” But there are three credit reporting bureaus in the United States – Equifax, Experian and TransUnion. Each issue you a credit score. They use the same criteria so there won’t be vast differences in your scores, but there will still be some variations.
2. Credit Bureaus Won’t Make Mistakes
You can request one free copy of your credit report from each of the credit bureaus per year. Many consumers don’t bother with this under the mistaken assumption that those credit bureaus won’t make any mistakes. All it takes is one creditor to report something inaccurate and your score could go down, making it crucial that you check your credit reports for errors. This is especially true if you’ve been waiting for something negative, such as a bankruptcy, to come off your report.
3. You Don’t Need a Credit Card to Improve Your Credit Score
While this is technically true, the fastest, most effective way to build your credit score is by using a credit card responsibly. If you don’t have a credit card, you should get one, put some purchases on it every month, and then pay off the balance in full each billing cycle. A large portion of your credit score depends on your credit utilization and your payment history. Without a credit card, you won’t have any credit utilization. You also won’t be scoring many points in the payment history category, because utility bills and cell phone bills have a minimal impact.
4. Your Number of Credit Cards Affects Your Credit Score
Consumers sometimes hear about people with dozens of credit cards and believe that having that many cards affects the cardholder’s credit score. Your number of credit cards actually doesn’t matter when it comes to your credit score. Now, two factors which make up small portions of your credit score are recent hard credit inquiries and the average length of your credit accounts. Applying for cards can temporarily lower your score because there will be hard credit inquiries on your account, and if you get several new cards, it will lower your average credit history length. However, neither factor is nearly as important as your credit utilization or payment history.
5. You Should Close the Credit Cards You Aren’t Using
That depends on how long you’ve had the card. It’s okay to close cards you’ve had a short time, since that won’t lower your average account history, although you’d be better off not opening the card in the first place. If you’ve had a card a long time, you shouldn’t close it, because you’ll lower that average account history length. These are some of the most common myths floating around about credit scores. If you’re unsure of anything credit related, it’s a good idea to educate yourself about it so you know how to get and maintain a high score.