We bust some common credit myths so you can take control of your finances and make informed decisions based on nothing other than cold, hard facts.
Like many things in life, there are myths and misconceptions in the world of credit that can make your life more difficult and mean you don’t always get the best deal.
In this guide, I’m going to bust some of those myths so you can take control of your finances, keep informed, and get a better credit score!
Myths & Truths About Credit Score
Myth 1: Having stable finances and plenty of money in the bank will give you a good credit score
The Truth: Bank balances are not a factor that’s taken into account when calculating your credit score. You might think a healthy bank balance shows that you’re able to manage your finances effectively, but it doesn’t provide any information about how you manage credit.
For that reason, it’s very possible to have an excellent credit score but no money in the bank, or plenty of money in the bank and a bad credit score.
Myth 2: Closing your credit cards will improve your credit score
The Truth: You might think that having multiple credit cards at any one time is indicative of unhealthy reliance on credit. However, as long as you make the repayments on those credit cards on time, closing a credit card is more likely to damage your credit score than help it.
Leaving credit card accounts open, as long as they’re in good standing, is likely to be better for your credit score. Here’s everything you need to know about canceling a credit card.
Myth 3: A higher income will contribute to a better credit score
The Truth: Your job title and income have no direct impact on your credit score. Your credit score is calculated based on the information contained in your credit report, which doesn’t include your job title, your income, and in some cases, even whether you’re employed at all.
When it comes to applying for a loan, a mortgage, or some other form of credit, the lender will usually ask about your employment status and income, but your credit score will not be affected.
Myth 4: Your partner could damage your credit score
The Truth: Being in a relationship with or living with someone will not have any bearing on your credit score unless you enter into a joint credit agreement with them.
If you enter into a financial association with them, such as a joint overdraft, loan, or mortgage, their credit score may have an impact on your application. However, their credit score will not directly impact yours.
Myth 5: Applying for a new form of credit will hurt your credit score
The Truth: Not necessarily. The inquiries made when applying for a new form of credit account for just 10 percent of your credit score. Therefore, applying for a new form of credit may harm your credit score slightly.
However, the exact impact depends on the other information included in your credit report. If everything else looks healthy, then your credit score may not move at all if you make a credit application.
Want to read more? The short-term lender Wonga has been busy busting credit myths that I’ve not covered in this guide. Or, if you’d like to share your credit experiences with our readers, please share them in the comments section below.