Which of the Following is Not True of Credit Scores?
Credit scores are essential in today’s world as they determine how banks, lenders, and other financial institutions view your creditworthiness. These scores play a vital role in determining whether you will get approved for a loan or credit card and at what interest rate. However, there are many myths and misconceptions surrounding credit scores, making it challenging to understand what’s fact and what’s fiction.
In this article, we will focus on the question – which of the following is not true of credit scores? Let’s debunk some common myths:
Myth #1 – Checking your credit score will hurt it
This is entirely false. Checking your own credit score will not negatively impact it at all. There are two types of credit inquiries: a soft inquiry and a hard inquiry. When you or any other person checks your credit score, it is considered a soft inquiry that does not have any impact on your credit score. However, a hard inquiry occurs when someone applies for credit, and the financial institution checks your credit score to make a decision. This type of inquiry can have a small negative impact on your credit score.
Myth #2 – Closing credit accounts will boost your credit score.
This is also a false belief. Closing a credit account can negatively affect your credit score. This is because it lowers your available credit, and when there is less credit available, it increases the credit utilization ratio, which can negatively affect your credit score. It is better to keep credit accounts open and use them responsibly.
Myth #3 – You only have one credit score
There are many credit scoring models, and each of them calculates your credit score differently. While FICO is the most popular and widely used credit-scoring model, other models include VantageScore, PLUS score, and BEACON score. Each model takes different factors into account when calculating the credit score. Moreover, each credit bureau has its own credit score. Therefore, it is essential to monitor all your credit scores and credit reports.
Myth #4 – Your income is factored into your credit score
This is entirely false. Your income is not a factor in determining your credit score. While your income plays a role in your ability to repay debts, credit bureaus do not have any access to your salary information. Instead, your credit score is based on your credit history, credit utilization, length of credit history, the types of credit you have, and recent credit inquiries.
In conclusion, knowing and understanding credit scores can help you make better financial decisions. While credit scores can be complex, it is crucial to separate myths from facts. Remember, checking your credit score will not hurt it, closing credit accounts can hurt your credit score, you have multiple credit scores, and your salary does not factor into your credit score. By keeping these in mind, you can confidently navigate the world of credit and use it to your advantage.
Read More: WHICH OF THE FOLLOWING MOST INFLUENCES YOUR CREDIT SCORE?
