Your credit score affects everything from your ability to secure a home or vehicle loan to the interest rate you'll pay on those loans.
Unfortunately, there are many misconceptions about credit scores, so it's important to separate fact from fiction. Here’s the truth behind 10 common credit score myths:
Myth #1: Paying off Debt Hurts Your Score
Paying off debt can actually improve your score by reducing the amount of debt you owe. Your credit utilization, the amount of debt you owe compared to your credit limit, makes up 30 percent of your credit score.
Myth #2: Closing Old Accounts Boosts Your Score
Believe it or not, this can hurt your score because it reduces the average length of your credit history. Generally speaking, your credit history length makes up about 15 percent of your credit score.
Myth #3: Checking Your Credit Score Damages Your Score
Maybe you grew up hearing this from your parents, but it only tells part of the story. Checking your credit score is a "soft inquiry" and should not hurt your score. Only hard inquiries – like when you apply for a loan – can affect your score, so your parents weren’t entirely wrong!
Myth #4: Car Loan Doesn't Affect Your Score
Car loans in Lenoir, NC are like any other loans because they can impact your credit score. Late payments, high balances, and a long credit history ultimately affect your score.
Myth #5: One Late Payment Doesn't Matter
Fair or not, just one late payment can stay on your credit report for up to seven years and, consequently, negatively impact your score.
Myth #6: You Only Need One Credit Card
Do you use more than one card? Using multiple credit cards can diversify your credit mix, which typically makes up about 10 percent of your score. You should also aim for a combination of different types of credit (car loans, credit cards, etc.).
Myth #7: Income Has No Impact on Your Score
While your income is not directly considered in your credit score calculation, lenders still use it to indicate your ability to repay debts.
Myth #8: Only High Balances Affect Your Score
While higher balances can affect your credit utilization -- and thus, your score – low balances can also indicate a lack of credit experience.
Myth #9: You Only Need to Check Your Score Once a Year
That’s also not true – you should check your score regularly to monitor any changes so that you can address any errors promptly.
Myth #10: You Can't Improve Your Score
Your credit score can always be improved with responsible credit habits, such as making payments on time and reducing debt.
Improving your score takes time and effort
Don't let these credit score myths prevent you from securing a lower interest rate on your Lenoir, NC vehicle loan. Stay informed and take control of your credit score today.