In the area of personal finance, credit scores can seem a lot more mysterious than they actually are.
Many people believe that improving them is a matter of trial and error. As a result, there’s a lot of “credit score advice” floating around that can do more harm than good.
Below are four common myths about credit scores and the truth about each.
Myth #1: You have no control over your credit score
There are a lot of factors that make this myth easy to buy into, including:
- Credit bureaus keep their exact credit score formulas a secret.
- You can’t access your credit report whenever you’d like. (Although, thanks to a massive lawsuit settled by Equifax, you can get seven years’ worth of free credit reports from the credit monitoring service.)
- It’s possible to be financially stable and still have a miserable score.
It’s OK to find credit scores confusing, but a “there’s nothing I can do about it” attitude won’t help your score. Your credit score reflects your borrowing and repayment behaviors, and that means you have a lot more control over it than you might think.
Myth #2: There's a 'quick fix' for your credit score
Although junk mail and late-night commercials try to convince you otherwise, boosting your credit score doesn’t happen overnight. The good news is that the things you can do to positively influence your score are simple and don’t require much time (or even that much effort!). But the trade-off is that you’ll have to be patient while your new good credit habits take effect.
“One of the worst things you can do for your score is miss a payment,” said John Lindsey, Financial Investigator at SELCO Community Credit Union. “So, if you know you’re going to be late (even just past the due date) on a payment, talk to your institution about it ahead of time. The only way to recover from these missed payments is to put time between yourself and the late payments.”
Consistency is key—after all, your credit score is more of a track record than a snapshot.
Myth #3: Checking my credit report will negatively affect my score
This myth comes from confusing two different credit score inquiries: hard inquiries and soft inquiries. Hard inquiries are made by lenders when you apply for new credit (such as a loan, credit card, or mortgage). Soft inquiries are made by you or by others for background checks (a potential employer or landlord, for example). Because hard inquiries suggest you might be taking on more credit soon, they usually lower your score by a few points. Soft inquiries, on the other hand, do not affect your credit score in any way. You have nothing to lose by accessing your own score—in fact, doing so will help you understand what your current credit activity looks like and how you can improve it.
“Make it a point to review your credit report semi-annually,” Lindsey said. “You are entitled to one free credit report from each of the three credit bureaus once per year. If you space them out, you’ll actually be able to review your credit report for free up to three times a year.”
Myth #4: Opening or closing multiple credit cards will improve my score
Even though these actions are the opposite of each other, this myth is still widespread—and misleading. Opening and closing credit cards affects several aspects of your credit score.
Opening new credit cards gives you more available credit, which in turn lowers your credit utilization ratio (the amount of available credit you actually use each month). Lowering your credit utilization ratio is a good thing, so opening new credit cards to boost your score might seem like a solid strategy.
However, there are pros and cons to opening new cards and closing cards. When you apply for new credit, you’ll receive a hard inquiry (as mentioned earlier)—and that can make you look risky. And depending on how and when you close any accounts, you could unintentionally raise your credit utilization ratio and shorten the overall length of your credit history.
Do your research, only apply for credit cards or loans you need, and understand what a specific credit card or loan is contributing to your score before making the decision to close it or to open a new account.