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Common Credit Score Myths

Apr 6, 2020

Common Credit Score Myths
Multiple studies have found that 7 out of 10 Americans have at least one credit card. Yet despite how common they are, there are still many myths surrounding credit. A new Credit Card Insider survey of 1,051 adults revealed several widespread credit-related misconceptions, and below, we’ve listed and debunked some of these myths so you can build your credit with confidence.

Myth #1: Your income impacts your credit score.

This myth is false. Your credit score is based on your credit reports, but your income is never included on credit reports.

So, where does this misconception come from? Income does matter for credit card and loan applications, but it is not tied to your credit score. Both your income and your credit score are used separately to determine whether or not your credit union or bank is confident you’ll make your monthly payments, but one does not impact the other.

Myth #2: Using your debit card – or selecting “credit” at checkout – builds credit history.

Selecting “credit” does not impact your credit score or your credit history, which makes this myth false.

The reason you choose “credit” or “debit” at checkout is so that the merchant can determine how to process the payment and what fees they pay. Ultimately, you are still using your debit card to make the purchase, and using debit is essentially just like using cash, so it does not impact your credit.

Myth #3: Closing a credit card is good for your credit score.

This myth is false – closing a credit card can actually hurt your credit score, not help build it.

The two factors that impact your score are the average age of your accounts and the ratio of your amounts owed to your total available credit (also known as the credit utilization ratio). The lower your ratio, the better your score.

Myth #4: Having multiple cards is bad for your credit.

This is not necessarily true, because as previously mentioned, the lower your credit utilization ratio is on each card (across all cards), the better. Having multiple cards can increase your overall credit limit and spread your balances across multiple cards, which can help your credit. Additionally, using different cards with different rewards programs can help you maximize how much you earn day to day. However, keep in mind that you should only apply for or open new credit accounts as needed.

So, what does help build your credit score?

Paying your credit card and loan bills on time is the single biggest factor that affects your credit score. A late payment – at least 30 days past due – can drop your score by as much as 100 points.

Paying off any outstanding debt you may have can also build your credit. Similarly, keeping credit card balances low by paying them off every month can help as well.

It’s important that you understand what does and does not affect your credit, as your credit score can be used for a number of reasons. Visit PFCU’s site for more credit tools and resources or stop by your local branch office to speak with a representative if you have questions.

Erin Ellis

Erin Ellis
Accredited Financial Counselor ®
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