Over the next few weeks, we’ll revisit our past posts on credit, credit reports, and credit scores. Today we will discuss the first two of four common credit score myths.
Myth #1: Don’t check your credit report too often or it will hurt your credit score
While it’s true that when someone checks your credit, it’s recorded as an inquiry on your credit report, and some of those inquiries can negatively affect your credit score, checking your own credit report isn’t one of those inquiries. Pulling your own credit report is considered a soft inquiry and has no effect on your credit score. Furthermore, creditors generally won’t be able to see your soft inquiries, so not only will checking your own credit not hurt your credit score, it’s unlikely creditors will have any idea how often you have or have not pulled your credit report.
Myth #2: You shouldn’t close unused credit cards because the loss of credit history will immediately hurt your credit score
This one is a little more complicated because there are a few true pieces to it. It is true that closing your unused credit cards will result in a loss of credit history…eventually. Assuming the credit card was in good standing, accounts in good standing with no history of missed or late payments will remain on your credit report for at least 10 years from the account closing. That said, closing an unused credit card can have an immediate effect on your credit score. If you have multiple credit cards, closing one credit card will likely impact your credit utilization ratio, which is the 2nd largest factor that determines your credit score. For instance, if you have two $1000-limit credit cards, and credit card A has a balance of $500 and credit card B has a balance of $0, your credit utilization ratio is currently 25%. If you close credit card B, your credit utilization ratio would jump to 50%, negatively impacting your credit score.