Examining the Biggest Myths Surrounding Credit Scores

Woman is checking credit card bill information

The world of credit scores is often confusing and intimidating. Many people do not fully understand the factors that can increase or lower a credit score. This is largely because there are so many myths floating around out there about credit scores and what hurts them and what helps them. Here we will examine some of the biggest myths surrounding credit scores and the truth behind them.

Checking Your Own Credit Score Will Lower It

If many different creditors check your credit score in a very short amount of time, it will likely reduce your overall score, which is likely how this myth got started in the first place. Many people do not realize, though, that there are different types of credit inquiries. A hard inquiry is the type creditors will make when determining whether or not to give you credit. Too many of these in a certain period of time and yes, it may lower your score.

However, when you check your own credit score through a banking app or other form, it is a soft inquiry. The major credit reporting bureaus, such as TransUnion and Equifax, also allow you one free credit report every year. These are also soft inquiries and will not lower your score. In fact, you are encouraged to check your credit score periodically to see where it is and if it needs improvement.

Opening a New Credit Account Will Lower Your Score

Sometimes, opening a new credit account will lower your score, but that is not always the case. You need some credit history before you are considered low risk to creditors. So, if you do not open any credit accounts, you will not have a credit history, which ultimately lowers your score. On the other hand, if you open a credit account and can pay off the credit you use on time, it is actually very healthy for your score.

Still, there are times when opening a new credit account will hurt your score. First, opening a new credit account will mean the creditor will make a hard inquiry, which could negatively impact your credit score. Additionally, if you open many new credit accounts at once, it may lower your score because it will seem as though you need to borrow more than you can afford.

Your Credit Score and FICO Score Are the Same Things

There is some truth behind this myth, but your credit score and FICO score are not necessarily the exact same thing. A FICO score is just one type of credit score, but there are other credit scoring systems out there as well. Most systems use the same range, typically between 300 and 850, but they use different algorithms and information to arrive at your score. Currently, most creditors do use the FICO system, so it is generally that score you should be most concerned about.

You Can Increase Your Credit Score By Paying Off Debt

Debt is not something anyone wants to deal with. Having a significant amount of debt will also make you seem like a high risk to creditors, so it is advisable that you pay it off when you can. However, this usually only applies to certain types of debt, such as a credit card.

If you have debt that is to be paid off in installments, though, and you pay off too much at once, this can actually hurt your credit score. Lenders want to see that you can pay off your debt, and also that you know how to manage your money well. If you pay off a debt in eight months when it was supposed to take over one year, lenders will think you cannot properly manage your money and so it could lower your score.

It Does Not Matter How Much of Your Credit You Use

You may think that because your credit card has a $3,000 limit, that is how much you can spend. In fact, that is true, but maxing out your credit card will only hurt your credit score. When lenders look at your credit history, they want to see that not only can you repay your debt, but also that you can manage your credit wisely. To do this, they will consider how much debt you have, and how much you are using. This is known as credit utilization.

While you should use some of your credit to show that you can pay it off, you should also try to keep your utilization under 30 percent. So, if you have a credit card limit of $3,000, you should try to use no more than $900, or 30 percent, of that limit.

Closing a Credit Card Will Increase Your Credit Score

This is perhaps one of the biggest myths about credit scores, and it is absolutely untrue. If you voluntarily close a credit account, it automatically increases your utilization rate because you do not have as much credit that is not being used. That will ultimately lower your score. In other instances, a creditor may close an account simply because you have not used it in some time. To avoid this, make a small purchase with your credit cards from time to time to keep the account open without taking on more debt than you can afford.

There Is No Such Thing as a Perfect Credit Score

This is not true. However, you should not be concerned if you have never achieved the 850 that generally constitutes a perfect score. Once your credit score is considered good, there really is not a lot of benefit to getting a higher one. Try to keep your credit score at a fairly positive number, and do not become too concerned if you cannot seem to get it any higher.

Drowning in Debt? Our Debt Defense Lawyers in Florida Can Help

The myths about credit cards may seem like harmless untruths, but they are much more than that. In fact, they can sometimes lead to a person drowning in debt, and maybe a creditor even taking legal action. If a creditor has threatened to file a lawsuit against you, or has already started the process, our debt defense lawyers in Fort Lauderdale are here to help. At Loan Lawyers, we will answer all of your questions surrounding your debt, and prepare a defense to give you the best chance of success with any lawsuit filed against you. Call us today at (954) 807-1361 or contact us online to schedule a free consultation.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation and find out more about our money back guarantee on credit card debt buyer lawsuits, and how we may be able to help you.