Credit Myths and Facts

As a responsible adult, understanding your credit score iscrucial. Your credit score and credit report can sometimes seem like elusiveconcepts. But it is important that you know how your credit score is calculatedand what your credit report says. Not nearly as many adults are trulyknowledgeable about their credit score as they should be, so it's easy formyths to be created and fallacies to be believed. We've gathered a list ofcommon credit score myths and debunked them for you.


1. Paying off debt removes it from your credit score.


Your debts are included in your credit history whichconsists of both positive and negative accounts. This means that even if you'vepaid off your debt, any late payments, bankruptcies, etc. can remain on yourcredit report for 7 years.


2. Your age, race, gender, marital status, religion, orincome can affect your credit score.


This is absolutely not true. Federal law prohibits creditscoring from taking any of these factors into account. In fact, your creditrecord includes no personal demographic information other than your birthday.


3. Closing a credit card or a credit account increases yourcredit score.


Always think twice before closing an account. Closing cardsand accounts that you don't use does not increase your credit score. When youclose these accounts, you're decreasing the amount of credit available to you(a measurement used in your credit utilization ratio), so you may even bedecreasing your credit score. If you're thinking about closing an account, yourcredit score will be better off if you just stick the card in a drawer and keepyour account active by using it at least once every three months. However, ifyou're absolutely set on closing an account, think about closing the newestone. Your credit rating is partially determined by the duration an account. Thelonger your relationship with a creditor lasts, the higher your rating will be.


4. Only certain bills show up on your credit report andaffect your credit.


It is up to your creditor to decide which debts will show upon your credit report. If they decide to report every paid and unpaid debt tothe credit bureaus, even something as tiny as a public library fine could showup on your credit report.


5. Using prepaid credit and debit cards can improve yourcredit score.


Prepaid cards don't get reported to the credit bureaus, sothere is no way for them to affect your credit score.


There are many myths associated with credit score. Thesimplest way to improve your credit score is to educate yourself about it. Doyour research, and if you have questions or are still unsure about something,speak with your creditor.