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There are a lot of misconceptions about credit. You might come across information that has the potential to negatively impact your finances. And even the most budget-conscious among us can fall for these common credit lies.
It's important to understand how these scores actually work to make sure you're managing your credit well. Here are three lies you might have been told about your credit score, and the truths behind them.
1. Checking your score will lower it
You may have heard that you can check your credit score every year at AnnualCreditReport.com -- and that's true. But that doesn't mean that checking your score will lower it. In fact, all three credit bureaus (Experian, Equifax, and Transunion) have offered free weekly credit reports since 2020, and all three offer credit monitoring.
There are also other ways that you can actively track your credit score throughout the year, including credit card programs. Whatever method you choose, you should track it to ensure you'll have options should you need to take out a loan or otherwise get a credit check. Tracking your score can also help you quickly identify errors and address costly issues like identity theft.
2. Carrying a credit card balance will improve your score
Credit scores consider the percentage of your revolving credit that you utilize (a.k.a. how much credit card debt you carry). For example, the amount you owe accounts for 30% of a FICO® Score. But having a balance won't help your score.
If you've been avoiding fully paying off your credit card each month, but you have the means to do so, it's best for your finances to go ahead and make that payment. Otherwise, you're paying your credit card company for no real benefit.
As a general rule, the less credit card debt you have, the better. This also applies to credit scores.
3. There is a superior credit score model
You have multiple credit scores, each based on different credit scoring models. And all of these models have a function, so there's no one model that's better than another.
For context, there are two main credit scoring models: FICO® and VantageScore. The FICO model is used by 90% of lenders, according to the company. Meanwhile, VantageScore 4.0 is the required model, per the Federal Housing Finance Agency (FHFA), for all loans sold to and guaranteed by, the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
While you may be more likely to run into creditors and lenders that use a FICO® Score to evaluate your creditworthiness, that doesn't mean you shouldn't be aware of your other scores (especially if you're making larger moves, like getting a mortgage).
Credit scores can have a major impact on your life, dictating everything from where you live to your ability to qualify for loans. But if you understand how they work, and don't fall prey to the many myths surrounding these scores, you'll be better equipped to work toward and maintain a high score.
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