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The credit world is full of common myths and misconceptions. Credit is complicated - it's no wonder that incorrect ideas spread quickly. Here are five common credit myths along with their straight answers:
1. Checking your own credit hurts your score.
Not true! This myth is as old as credit scoring itself. Checking your own credit reports and credit scores will never hurt your credit score. Your credit is only damaged when a lender or creditor pulls your credit for the purpose of an application for credit. This is called a "hard inquiry" and can cause a small drop in your score for less than a year.
2. Being wealthy or well-off helps your credit.
Thankfully, also not true! Your income, net worth, banking accounts, savings accounts and other financial assets are not considered as part of your credit score. Being rich or less-than-rich doesn't have any impact on your credit score. Credit scores are concerned with the ways you use credit, not how much money you have.
3. Closing old accounts is good for your credit score.
No! Closing accounts will never help improve your credit score. In most cases, closing an account will actually damage your credit. The damage will be greater if the account was the oldest, had the highest credit limit, or was the only account on your credit report. Here's why: Once the old account disappears from your credit history, it will no longer be counted as part of your credit age (older accounts are the best!) and the credit line will no longer be counted in your revolving utilization. These are two of the five categories that make up your credit score, and you adversely affect both by closing the old accounts! Aim to keep old accounts open for as long as possible.
4. Having high credit limits is bad for your credit score.
You can't damage your credit score by having too much available credit. High credit card limits - even astronomically high - will only help your credit score. You earn credit score points by only using a small percentage of your available limits each month - the higher your limits, the easier it will be to do well in this score category.
5. Paying off collection accounts will remove them from your credit report.
Unfortunately, paying off negative records doesn't remove the damage from your credit reports. Collection accounts, liens, bankruptcies, repossessions, judgments, and charge-offs each have a set expiration date under Fair Credit Reporting Act law; usually 7-10 years. Paying, closing, or settling the account will not cause it to come off of your credit reports.
Now you know the truth behind these common credit myths! Avoid these and other credit misconceptions in the future by always getting your credit information from credible sources.
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