When it comes to credit scores, misinformation is everywhere. People often make financial decisions based on myths passed around by friends, family, or even outdated advice online. The result? Unnecessary stress and missed opportunities to build a healthy credit profile. Many believe that checking their credit score, having too many bank accounts, or paying off a loan early might hurt their score. But these assumptions don’t hold up against how credit scoring systems actually work.
Understanding what truly affects your credit score can help you make better financial decisions, improve your credit health, and avoid pitfalls based on outdated or incorrect beliefs. In this article, we clear up some of the most common misconceptions so you can manage your credit with clarity and confidence.
Checking your own credit report
Everybody avoids glancing at their credit report because they don't want to hurt their score. In fact, when you check your own credit report—a "soft inquiry"—you won't be harmed at all. In fact, reviewing your report periodically can help you detect mistakes or spot identity theft early. Only "hard inquiries," when a lender checks your report in considering a credit application, can potentially lower your score—and even that effect is minor and transitory.
Having multiple bank accounts
Having multiple savings or checking accounts could raise suspicions with lenders, but it will not affect your credit score. The reason is that your credit score is built on borrowing habits—credit cards, loans, and payment history—not on how many checking and savings accounts you have your money in. Your money habits are a lot bigger than the number of accounts you keep your money in.
Having zero credit card debt
Others believe that having a minimal balance on their credit card will help their score. It does not. What will help your score is paying the balance in full every month after you charge it. It indicates that you are handling credit responsibly and limits your credit utilization ratio—both of which help your score. Having debt on the card month after month, regardless of how small, only charges you interest and does not create any value.
Having a valid user on somebody else's card
Being placed as an authorized user on another's credit card may sound dangerous, particularly if their credit habits are different from yours. But if the primary cardholder keeps the card in good standing with a low usage ratio, this can work in your favour to build credit, particularly if you're a credit novice. The trick is to maintain the account in good standing with a low usage ratio.
Paying back a personal loan
It's widely thought that repaying a loan hurts your score. Really, timely repayment of a loan is a positive for your credit. Repayment of a loan may drop the average age of your accounts—part of your credit score—slightly, but it also shows that you can repay debt. The credit benefit will end up being larger than the loss in the short run.
Your credit score is founded on regular borrowing habits and on-time payments, not on innocent activities like viewing your score or establishing a new bank account. Knowing what affects and does not affect your credit report can assist you in making more intelligent financial decisions and prevent unnecessary concern over your score.
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