A credit score can be the key to renting an apartment, buying a home, and getting a credit card, among other things. If you don’t have a credit score or have a less-than-stellar one, you may be prevented from these actions. Before you fret, let’s straighten out a few credit score myths so you’re equipped for your financial future.
To begin, what is a credit score? Investopedia describes it as a number between 300 and 850 that shows creditworthiness. And creditworthiness, according to Experian, “determines a lender’s willingness to trust you to pay your debts.” Your credit score is calculated based on information from your credit report, which includes credit card payment histories, mortgages, and other financial data. Credit bureaus, like TransUnion, Experian, and Equifax, gather this information for potential lenders so they can make choices about who to lend to.
Checking your credit report can, in fact, hurt your credit score -- but not all the time. If you’re just checking your credit report to know your score, your score won’t be affected. This is known as a “soft” credit check. But if you’re checking it to open a new credit card, for example, it shows lenders that you’re planning to take on more debt. This is known as a “hard credit check” and your score may be affected. It’ll also be affected if you don’t pay credit card providers money that you’ve borrowed from them each month, classifying your money owed as “bad debt”.
A credit score takes into account how much of your available credit you use, through a ratio known as credit utilization. When you close a credit card, you are removing money from your available credit balance, which in turn increases your credit utilization. So, closing a credit card can negatively impact your credit score.
You can have a high salary and still have a low credit score if you’re bad at paying your bills on time. Timely payback affects your credit score directly. Your credit score does not reflect how much money you make. Use whatever money you make to pay down your debts on time so that you can avoid fees and credit card interest, which must be paid if you fail to pay off your credit card balance in full each month.
Even if you merge bank accounts, you will each have your own credit score. Since it’s linked to your social security number, your credit score will never be combined with anyone else’s. If both of your names are on a mortgage or credit card, both of your scores will be affected by having a mortgage or card. So, your spouse’s actions can increase or decrease your score even though they aren’t technically listed on your credit score.
Your credit score may not even show whether you have a job or not, so your job title bears no significance on your credit score. It can be argued that a better job title means a higher salary, which in turns means it is easier for you to pay your bills, but a prestigious job title will not directly increase your credit score.
You may rightly be proud of your heritage, but your credit score won’t show that. It also won’t show your sexual orientation, gender, veteran status, or other demographic traits. Your social security number is what is used to identify you, which anonymizes your many unique qualities.