We are going to talk about the most common myths about credit so that you can take charge of your credit score. We got hundreds of questions on how to improve credit score so we decided to uncover the mystery of credit.
Myth 1: If I check my credit score, it drops.
Many people don’t check their credit score because they believe that doing so will make your score drop. The truth is that checking your credit score is considered a “Soft Inquiry” and anything that is a soft inquiry does not impact your credit score.
A “” can have an impact on your credit score. This is when a lender reviews your credit to check what your credit risk is and how likely you are to pay back loans.
Myth 2: If I open an account jointly or cosign a loan, I am not responsible for the account.
You will be legally responsible for the account or loan. Activity on the account or loan is reported on both account holders. If you cosign for someone’s credit card and that person doesn’t make the payment, your credit score will be affected. Be careful when you open a joint account or cosign a loan about the creditworthiness of the other account holder!
Myth 3: Closing credit cards you don’t use improves your credit score.
This seems logical, but you should calculate your “credit utilization rate” before and after closing the credit card. Credit utilization rate is how much of your credit limit you are using. For example, if your credit limit is $1,000 and you have a of $500 on that credit card, the credit utilization rate is 50%. If the aggregate utilization after closing the credit card is above 30%, then closing your credit card can negatively affect your credit score.
Your aggregate credit utilization rate is calculated by adding the balance on all your credit cards and dividing it by the sum of the credit limit on all the cards.