Common Credit Myths Debunked: What You Need to Know About Credit Scores
Your credit score is one of the most important factors that lenders use to determine your creditworthiness. It's a numerical representation of your credit history and can determine whether you'll be approved for loans, credit cards, or mortgages. However, there are a lot of myths and misconceptions about credit scores that can cause confusion and anxiety. In this blog, we'll debunk some of the most common credit myths and help you understand what you need to know about credit scores.
Myth #1: Checking Your Credit Score Will Hurt It
Many people believe that checking their credit score will hurt their credit. However, this is not true. When you check your own credit score, it's considered a soft check and doesn't have any impact on your score. Only hard checks, which are made when a lender checks your credit as part of a credit application, can impact your score. It is also worth noting that not all lenders perform hard checks as part of their application process, some only do a soft check.
Myth #2: Closing a Credit Card Will Improve Your Credit Score
Closing a credit card account can actually hurt your credit score. Your credit utilization rate, which is the amount of credit you're using compared to your credit limit, is an important factor in your credit score. When you close a credit card account, your credit utilization rate can go up, which can hurt your score. So as long as the card isn't costing you a monthly/annual fee, we reccomend you keep it open; you don't have to use it.
Myth #3: Paying Off Debt Will Immediately Improve Your Credit Score
While paying off debt is always a good idea, it won't necessarily improve your credit score immediately. Your credit score is based on a variety of factors, including your payment history, credit utilization rate, and length of credit history. It takes time to build a good credit history and improve your credit score.
Myth #4: Having a High Income Will Guarantee a High Credit Score
Your income is not a factor in your credit score. Your credit score is based on your credit history and your ability to manage credit responsibly. Even if you have a high income, if you have a history of missed payments, defaults, or high credit card balances, your credit score may be lower than you'd expect.
Myth #5: You Only Have One Credit Score
There are actually multiple credit scores, each calculated by different credit reference agencies (CRA's) or credit scoring models. The most commonly used credit scores in the UK are those provided by Experian, Equifax, and TransUnion. Each credit reference agency (CRA) may have slightly different information on your credit report and may calculate your credit score differently.
In conclusion, understanding credit scores and how they work is important for managing your finances and achieving your financial goals. By debunking these common credit myths, we hope to help you make informed decisions about your credit and take control of your financial future. Remember to check your credit report regularly, use credit responsibly, and build a solid credit history over time.