When it comes to finances, few topics are as misunderstood as credit scores. From applying for loans to qualifying for a good interest rate, knowing what affects your credit score can make all the difference in your finances.
Many people unknowingly hurt their chances of getting approved for auto loans because of misinformation. By understanding credit report facts and how they influence your score, you can take smarter steps toward building credit and reaching your financial goals.
Credit Report Confusion: Myths That Distort the Truth
Myth: Checking your own credit hurts your score.
Checking your own credit is a soft inquiry, meaning it has zero impact on your score. In contrast, hard inquiries occur when a lender pulls your credit report during an application. Only hard inquiries can slightly lower your score, but the impact is minimal and short-lived.
Myth: Closing old accounts improves your score.
It might make sense to close unused accounts, but doing so can actually lower your score. That’s because the length of credit history is an important factor in credit scoring. Also, closing an account reduces your overall credit limit, increasing your credit utilization ratio. When it comes to building credit, keeping old accounts open (as long as they’re in good standing) is usually beneficial.
Misunderstood Credit Behaviors That Can Backfire
Myth: Carrying a small balance helps build credit.
You don’t need to carry a balance to improve credit score numbers. In fact, paying your balance in full each month shows responsibility and avoids interest charges. If you want to improve your credit score, make timely payments.
Myth: Income level influences your credit score.
While income may affect your loan eligibility, it doesn’t directly affect your credit score. Credit scoring looks at how you manage debt, not how much you earn. Even someone with a high salary can have poor credit. If you’re serious about building credit, focus on payment history, credit utilization, and account mix.
Credit Score Myths That Affect Auto Loan Approval
Myth: All lenders use the same credit score.
Auto lenders often use specialized scoring models that weigh certain factors more heavily, like your history with auto loans. So, while your general FICO score may look solid, the auto-specific version could tell a different story. Knowing which score a lender uses is key to understanding what affects yours during car financing.
Myth: A large down payment can override a poor score.
While a big down payment can reduce your loan amount, it won’t cancel out the risk of a low credit score. Lenders still consider your credit behavior when setting interest rates. Even with cash up front, poor credit can lead to higher costs over time. To qualify for better terms, improve credit score numbers.
Credit Report Facts You Should Know
- Payment history is the most significant factor in your score.
- Credit utilization—the amount of credit you use compared to your limit—should ideally stay below 30%.
- Length of credit history, account variety, and recent credit activity also play key roles.
- Your credit report may contain errors—check it regularly to dispute inaccuracies and protect your score.
Get Started Today!
Understanding credit report facts and debunking credit score myths can make all the difference when applying for a car loan or any other type of credit. Whether you’re trying to qualify for better terms during an auto refinance or just starting your credit journey, smart habits can help you steadily build credit and take control of your financial future.
Don’t let myths hold you back. Contact us today to learn more about how to improve your credit score and secure the auto loan you deserve.