When it comes to your credit score—that helpful three-digit number that symbolizes your financial health—you can’t believe everything you hear.
In fact, there’s tons of misinformation out there about what things do and don’t affect your credit score.
We decided to wade through the mess to bring you the facts and dispel some of the most common myths about your credit score.
But first: What is a credit score, exactly?
In short, it’s a number ranging from 300 to 900 that tells the outside world how good (or bad) you are at managing your money. It doesn’t paint the entire picture of your financial wellbeing, but it does give lenders a small window into how likely you are to repay a loan, if they decide to give you one.
You actually have a bunch of different credit scores because each financial institution uses a different formula—if you want to get a car loan, the dealership will give more weight to certain pieces of your financial history than others, for example.
1. Myth: Your Income Affects Your Credit Score
This one sounds counterintuitive, but your salary actually has no bearing on your credit score. Your income, however, will determine how much money a bank is willing to lend you, so it does matter in the big picture. To calculate your credit score, credit bureaus and lenders are more interested in your track record of paying bills, making payments on loans or credit cards on time and whether you’ve got any skeletons in your closet, such as bankruptcy.
2. Myth: Checking Your Credit Score Can Hurt It
Checking your own credit score or credit history won’t negatively affect your score. You can—and should—keep an eye on your credit history, just to make sure there isn’t anything funky going on.
You can request a free credit report from each of the three major credit bureaus—Equifax, Experian and TransUnion—once a year. This is a good idea, in part because checking your credit report regularly will help you catch identity theft early, before the criminal can do as much damage.
You should know, however, that when a bank, a lender or even your cable company runs a credit check, this can negatively affect your score. This is what’s known as a hard check (as opposed to a soft check, like the one you can do at home).
3. Myth: Once You Have Bad Credit, You Always Have Bad Credit
If you have a low credit score, you might be tempted to believe that you’re doomed and you’ll never be able to get a loan or a good interest rate. That’s just not true.
You can improve your credit score by disputing incorrect information in your credit report, by paying your bills on time every month and by visiting a credit counselor to get your finances back on track. It’s also helpful to know that after seven years, some of the financial mistakes you made when you were younger will drop off your credit report.
4. Myth: Moving Debt Around Will Hide It
If you’ve got credit card debt, it will show up on your credit report, no matter how many ways you try to hide it or move it around. The credit bureaus are interested in something known as credit utilization, which is how much credit is available to you and how much of that credit you take advantage of at one time. So, even if you have a little bit of debt spread across five credit cards, the credit bureaus can still see the big picture and they know how much of your total available credit you’re using.
5. Myth: Who Cares About My Credit Score—My Spouse’s Score Is Great
You might think that if your significant other has great credit, the two of you are all set when it comes time to apply for a mortgage loan. That’s true if you only want one partner’s name on the loan, but if you both want to be on the loan, think again. The bank will look at both credit scores to determine how much to lend you and at what interest rate. It’s totally necessary to have tough conversations with your spouse about money before taking the plunge so you know what your financial future together holds.
Of course, this list isn’t exhaustive. What myths have you heard about credit scores?