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Credit scores are a big part of Americans' financial picture, even if most people don't quite know how they work, or how to tell fact from fiction. Having a good credit score can help you qualify for the best credit cards , and it has other benefits for your life, including saving money on auto insurance and possibly even being offered a job (in some states, employers can check your credit profile during a background check).
Here are five credit score misconceptions not to believe -- and the cold, hard truth.
Myth No. 1: Being married impacts your credit score
When you marry someone, your credit score changes based on theirs, right? Nope. Your credit score is your own, regardless of your marital status. If your spouse has worse credit than you do, you might worry that it could be more difficult for you to get approved to borrow in the future. If you're applying by yourself, don't worry -- there's no impact there.
But if you're applying together (say, for a mortgage), your spouse's lower credit score absolutely impacts your chances, and you could find yourself paying a higher interest rate or unable to qualify based on that. It might not be romantic, but you could make improving your credit scores a joint activity.
Myth No. 2: Credit cards are always bad for your credit score
This is false. Depending on how you use them, credit cards can either have a positive or negative impact on your credit score. If you use your cards responsibly, they're the easiest way to build credit. This means charging only what you can afford to pay off within the month, paying your bills on time and ideally in full, and not using more than 30% of your available credit at any given time.
If you're maxing out your cards, carrying big balances, and paying late (or missing payments), the effect on your credit score can be catastrophic. According to Chase Bank, a payment that's 30 days late can result in a loss of 100 points from your credit score, depending on the scoring model and what your score was originally.
Myth No. 3: Carrying a credit card balance is good for your credit score
You might assume that having a balance on your credit cards at all times is a good thing -- it shows that the account is active, after all. But it's actually best to pay off your entire balance every month, if you can. Doing so will save you money -- credit card interest is expensive (and comes with an average rate of 22.76%, according to the Federal Reserve Bank of St. Louis).
Different credit card issuers report your balance to the credit bureaus at different points in the month, so you don't have to worry that it'll look as if you're not using credit at all. Just use your cards and pay them off, and your credit score will benefit.
Myth No. 4: Checking your credit score lowers it
Worry not! Whenever you apply for credit (be it in the form of a credit card, personal loan , or a mortgage), the lender performs a hard credit check. This inquiry will lower your credit score by a few points, but a loss of five points or less isn't significant (unless you're always applying for new credit, in which case the effects will be cumulative).
But checking your credit score yourself constitutes a soft credit check, which doesn't hurt your score at all. In fact, it's a good idea to check your score every so often. Tou can likely access it via a bank or credit card issuer you already do business with.
Don't forget to review your credit report too (visit AnnualCreditReport.com to do that for free), especially if you're facing a big financial change (like a divorce) or you suspect that someone's gotten a hold of your Social Security number and is opening accounts in your name.
Myth No. 5: You only have one credit score
Surprise -- you have many credit scores! It's easier to simplify things by saying "credit score," but the reality is that the credit scoring system is based on different models, plus there are three different consumer credit bureaus (Experian, TransUnion, and Equifax).
Generally speaking, your credit scores are likely to be around the same number, as they all draw from the same information on your credit profile. But different scoring models weigh factors differently, so your VantageScore using Experian data will differ from your FICO® Score using TransUnion data.
If you're checking your own score (now that you know that doing so has no impact on it!), getting your FICO® Score in particular is a good move, as it's the score used by 90% of lenders.
The personal finance space is full of mysterious-sounding concepts, but now you know a bit more about credit scores. You can use your newfound knowledge to improve yours and save yourself money on your next loan or qualify for the best credit cards.
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