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Top 5 Credit Score Myths You Should Know About

Debunking 5 Common Credit Score Myths

Open this account, close that credit card, add yourself to this one, and spend more money! But do they work? Today, we’re diving into credit scores and financial wellness, debunking some common credit score myths many people believe are true.

Myth 1: Closing Old/Unused Accounts Improves Your Credit Score

One common misconception is that closing old or unused credit accounts will boost your credit score. However, closing these accounts could significantly lower your score.

First, it can decrease the average age of your credit history, an essential factor in credit scores. You’ve likely had it for a while if it is an old account. Creditors like seeing a stable payment history over the long term. Closing this old account erases that history. You can lower your credit score if your newer accounts lack the same history.

Second, closing these accounts could hurt your credit utilization ratio (CUR) by lowering your available credit. Think of your credit like a pie. If you have three credit cards with a $5000 limit each, one with a $1000 balance and another with a $500 balance, your CUR is 10% ($1500/$15000). If you close the unused card, instead of $1500 debt out of $15000 available credit, you have $1500 out of $10000, raising your ratio to 15%.

Most lenders want you to keep your CUR under 30%. Carrying a 30% or higher balance could cost you precious points monthly. Before closing anything, please consult with your lender. If you aren’t buying anything right now, you will have time to recover as you continue making timely payments, as long as closing that card doesn’t push you over the 30% threshold.

Myth 2: Checking Your Credit Lowers Your Score

Contrary to popular belief, checking your credit score is a ‘soft inquiry’ and doesn’t impact your score. It’s rarely visible to other creditors. Please check your credit score regularly to see where you stand. The time for surprises regarding your score is outside of your lender when you want to buy a home.

On the other hand, credit cards, mortgage lenders, and auto financing companies pulling credit leave a “hard inquiry” mark. Multiple hard inquiries could drop your score. The initial mortgage pull might drop you 10 points. If you’re buying a house, subsequent inquiries by other lenders hit you way less.

If these inquiries happen within 30-45 days, credit reporting agencies understand you’re likely shopping for the best rate and could lump all those pulls into one inquiry. This keeps your score from dropping further. The same applies if you’re shopping for a car. Keep that shopping to 2-3 weeks to ensure those pulls are grouped into one hard inquiry.

This differs significantly from credit card companies. If you go on a shopping spree and open credit cards at every major retailer, your credit can drop considerably. These are all hard inquiries, and credit agencies will likely consider you a high-risk borrower.

Myth 3: Your Income Affects Your Credit Score

I hear this myth quite a bit. Some buyers who didn’t previously qualify for a loan call me and let me know they got a raise, so they’re sure their credit score will increase, allowing them to qualify. Unfortunately, your increased income doesn’t directly influence your credit score.

Income can impact your ability to manage your debt, but it’s not a factor in your credit score calculation. Making more money yearly helps your score if you use it to pay down any accrued debt. If your debt-to-income ratio is too high, increasing your income can help you qualify for a mortgage now.

Myth 4: Carrying a Balance Helps Your Score

Carrying a balance on their credit card can improve their score. Paying off your credit card balance in full each month shows responsible credit usage and can help boost your score. Also, remember your credit utilization ratio.

Your score will drop if you spend over 30% of your monthly credit limit and don’t pay it off. If you can’t pay the balance off, minimize it to 10% or less.

Myth 5: Transferring a Balance to a New Account Will Improve My Score

There’s a misconception that transferring a balance from one card to a new card will improve your score. While it might lower your credit utilization ratio, your score might drop due to the hard inquiry needed to open the new line. So, it might be a wash.

People carrying a balance that they can’t pay off are usually hit with 20%-25% interest per month. The allure of a balance transfer is that those with a perfect credit score might get a 0% interest introductory offer. Great, right? Only if you’re one of the select few.

If you’re struggling to pay those monthly payments, you’re carrying a higher than 30% balance, which has already started dinging your score. You might not make the cut. Also, those 0% interest offers are short-term and often not accessible. Aside from the hard inquiry, you’ll also be charged a flat fee or a 3%-5% fee on the balance, whichever is higher.

If you’re transferring a hefty amount, the new card might need a credit limit that is high enough to keep that amount under the 30% ratio. That will then put you right back where you started. However, some people have successfully dug themselves out of debt by doing balance transfers to 0% interest cards and aggressively paying them down while not accruing more interest.

How to Determine Credit Scores

Your credit score is a compilation of five criteria that carry different weights:

  1. Payment History carries the highest weight at 35%. You have to make those payments continuously and on time. If you borrow it, pay it back.
  2. Amounts Owed comes in a solid second at 30%. You have to keep those credit utilization ratios down. Pay it off in full or carry a maximum of a 10% balance.
  3. Length of Credit History is at 15%. Wait to close that old account, especially if your other cards are newer.
  4. New Credit is at 10%. Every time you get new credit, it is factored into your score. In these instances, you get hit with a hard inquiry and have no payment history on new credit.
  5. Credit Mix is also 10%. There are two types of credit: installment and revolving credit. Installment credit includes your mortgage or car payment. The payment is the same every month, due on the same day, until you pay it off. Revolving credit, which includes credit cards, allows you to borrow more money as you make payments.


You add all those together for a happy 100%.

Need Help With Buying a Home?

If you need help with buying a home in Nampa, Idaho or another city in the Treasure Valley, contact us today. We’d be happy to discuss property investment and finances with you.

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