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Debunking Credit Score Myths

Even if you’re familiar with the world of credit reports and credit scores, it can be confusing — and the things you’ve heard about credit may or may not be true. Credit scores are an important tool to have in your financial arsenal, so let’s start debunking some of the most common credit score myths.

Myth #1: Checking your report will hurt your credit score.

One of the most popular beliefs about credit scores is that checking your report will negatively impact your score. Whenever you or someone else looks at your file, an “inquiry” goes on your credit report. A credit inquiry only impacts your score if it originates from submitting a credit application. An application, like a loan or a credit card, can bring your score down because it assumes you’ll be adding debt. However, simply looking at your credit report will not drop your score. In fact, it’s actually an indication that you are responsibly managing your credit.

Myth #2: Closing an account paid in full will help your credit score.

Say you have a long-standing credit account that you have completely paid off and no longer use. Closing the account can potentially impact your credit score negatively because it may affect your debt to credit utilization rate. In other words, the amount of debt you currently owe divided by the credit limit you have available. A low utilization rate indicates that you’re using less of your available credit which typically means you’re managing your credit well and not overspending. Credit bureaus may consider this when calculating your credit scores, and it could make it easier for you to take out loans and open additional credit accounts.

If you are paying a high interest rate for a credit card account, it might be beneficial to close the account. However, first determine through your credit card issuer whether you can switch to an account with no annual fee.

Myth #3: Your income impacts your credit score.

Income has no direct impact on your credit score, because it is not information that is found on your credit report and will not be evaluated by the national credit bureaus. Your credit report only identifies the way you use your credit and manage your debt. Indirectly, your income and/or employment status may impact your ability to pay your debts (which, in turn, would impact your credit score if you are unable to pay). Additionally, when you apply for a credit or loan, a lender is likely to ask you directly about your income.

Myth #4: Credit scores are only dependent on credit card debt.

Credit card debt is only one factor when it comes to the evaluation of your credit score. And while credit card debts are important to manage effectively, so too are accounts such as installment loans and mortgages. The main difference between them is that credit cards and other personal lines of credit are revolving accounts, meaning they do not have a fixed number of payments, whereas installment loans (such as car payments) and mortgages do.

Manage your accounts confidently with Credit Insights.

Ultimately, managing your credit and debts has many moving parts. At Republic Bank of Chicago, we make it easy to manage by offering a solution called Credit Insights that is integrated with our mobile banking app. Credit Insights allows you to view your credit score and download your credit report, so you have full transparency of your information. It also provides an analysis on the six factors of your credit score, which includes rating, payment history, credit usage, account mix, credit age, and list of inquiries.

And since the way different factors influence your credit score is highly dependent on every individual’s situation, Credit Insights allows you to simulate “what-if” scenarios, such as:

  • Applying for a new loan
  • Increasing my credit card balance by $X
  • Raising my credit limit
  • Paying off a balance
  • Closing a credit card
  • Missing a monthly payment

These scenarios make it easy for you to see exactly how making a particular decision for your credit will impact your report and overall scores. We also offer additional resources such as FAQs and tips to increase your credit score. Debunking credit score myths, along with tools like Credit Insights, should help you get on the path to financial success. If you’re interested in learning more about managing your credit and finances, we’re here to help! Reach out to us at 800-526-9127, visit a branch, or read our other posts!

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