6 credit score myths busted
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Your credit score is a vital part of your financial health, and has the potential to determine whether you’ll be approved for a loan or credit card and the interest rate you'll be charged. Likewise, it can also determine whether you can buy a home or a car, rent an apartment, or even get a job.
Unfortunately, there are many misconceptions surrounding credit scores that may prevent you from enjoying the benefits of having a healthy one. As myths about credit scores continue to circulate, it can lead to an understandable degree of ongoing confusion.
Here, we'll debunk some common credit score myths and provide you with tips on how you can boost yours more effectively.
Myth 1: You only have one credit score
It’s a common misconception that you only have one credit score. Many people are unaware that there are several different credit bureaus, each with slightly different scoring models. When applying for different loans, credit cards, or housing opportunities, lenders may often use one or more of these credit bureaus, which explains why you may see a difference across your scores.
That’s one of the many reasons why it’s important to know how credit scores are calculated, as well as keep an eye on multiple credit scores simultaneously to know where you stand.
Myth 2: Checking your credit score will hurt it
Although many people think that checking their credit score will hurt it, this is fortunately not the case. Checking your credit score will not affect your score, period. On the contrary, regularly checking your credit score can help you spot errors and catch potential fraud or identity theft.
Most of this confusion stems from not understanding the difference between soft vs. hard credit inquiries. Whereas soft inquiries, such as checking your score, do not affect your creditworthiness, hard inquiries, such as applying for a loan or credit card, can negatively impact your score, especially if several are performed in a short amount of time.
Myth 3: Closing credit accounts can improve your score
Closing credit accounts will not help your credit score, and can actually even negatively impact it. That’s because closing credit accounts reduces your overall available credit, which can impact an essential factor in your credit score—your credit utilization ratio. By reducing your available credit, you may be effectively increasing your credit utilization ratio, or the ratio of utilized versus available credit.
Myth 4: Paying off all debt boosts your credit score
Although the prospect of doing so sounds appealing, it’s important to know that paying off all your debt does not guarantee an immediate boost to your credit score. In fact, you could even see your credit scores temporarily drop after you’ve fulfilled your payment obligations on things like a loan or credit card. That’s because your credit score is determined by a variety of factors, including credit utilization ratio, payment history, length of credit history, hard credit checks, and new lines of credit, among others.
Myth 5: A high income equals a good credit score
It may seem counterintuitive, but having a high income doesn’t necessarily guarantee a good credit score. Although your debt-to-income ratio (DTI) does help lenders measure your ability to manage payment installments on borrowed money, your credit score is more dependent on the factors mentioned above, such as payment history, credit utilization ratio, etc. Having a higher income may make it easier to pay down debt more consistently, but it’s not a good measuring stick for how good your credit score could be.
Myth 6: Once your score is low, it's difficult to improve
Having a low credit score doesn’t mean you can’t take the necessary steps to improve it. Although it might take some time, anyone can improve their credit score with consistent effort. Start by paying your bills on time, reducing your credit card balances, and avoiding applying for new loans or lines of credit in a short period of time.
Looking to establish or rebuild your credit? Varo Believe is a secured credit card that can help you build your credit¹, and makes it easy to pay on-time and in-full. We report your payments to the three major credit bureaus to help you improve your credit score. In fact, Believe customers, on average, see a 40-point increase in their credit score after just three months with no late payments². Additionally, you can monitor your score directly on the Varo Bank app.
Given that your credit score is an essential part of your financial wellbeing and financial future, it’s crucial to debunk some of the common misconceptions surrounding it. By separating credit score myths from facts, you can be better positioned to monitor and improve your score, as well as make more informed financial decisions.
Unless otherwise noted above, opinions, advice, services, or other information or content expressed or contributed by customers or non-Varo contributors do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s) other than Varo.
¹ Varo Believe is a secured credit card designed to help you build credit; however, a variety of factors impact your credit and not all factors are equally weighted. Building credit may take time and Varo Believe may be able to help when you consistently make on-time payments.
² Customers who had an existing credit score showed an average score increase of approximately 40 points after three months of having Varo Believe and no late payments on their credit. Individual results may vary. Some customers may not see an increase, but customers with bad or thin credit histories are likely to see the biggest positive impact on their score from using Varo Believe and making consistent on-time payments. Score increase is based on the VantageScore 3.0, a credit score alternative to the FICO score. VantageScore and FICO use different models and weigh factors differently when determining a credit score.
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