5 Myths About Credit Scores vs FICO Scores You Should Stop Believing

Introduction

When it comes to credit, you’ve probably heard the terms credit score and FICO score used interchangeably. While they are related, they are not exactly the same thing. Many people misunderstand how these scores work, which can lead to confusion when checking their credit or applying for loans.

Myth #1: Credit Scores and FICO Scores Are the Same Thing

Many people think that a credit score and a FICO score are the same, but that’s not true. A credit score is a general term for a number that represents your creditworthiness, while a FICO score is a specific type of credit score created by the Fair Isaac Corporation.

There are different types of credit scores, and FICO is just one of them. Another popular scoring model is VantageScore, which was created by the three major credit bureaus—Experian, Equifax, and TransUnion. Since different lenders use different scoring models, your credit score may vary depending on which one is being used.

Myth #2: You Only Have One Credit Score

Many people believe they have just one credit score, but the truth is, you have multiple credit scores. Your score can vary depending on the scoring model used (like FICO or VantageScore) and which credit bureau (Experian, Equifax, or TransUnion) is providing the data.

Each credit bureau collects information separately, so your scores might not always match. Plus, lenders use different scoring models based on what type of loan you’re applying for. For example, a mortgage lender might use a different version of your FICO score than a credit card company.

Myth #3: Checking Your Own Credit Score Hurts Your Credit

Many people avoid checking their credit score because they think it will lower their score—but this is not true! When you check your own credit score, it’s called a soft inquiry, and it does not affect your credit.

The confusion comes from hard inquiries, which happen when a lender checks your credit during a loan or credit card application. Hard inquiries can slightly lower your score, but checking your own score doesn’t have the same effect.

Myth #4: A High Credit Score Guarantees Loan Approval

Having a high credit score is great, but it doesn’t guarantee that you’ll be approved for a loan or credit card. Lenders look at more than just your credit score when deciding whether to approve you.

They also consider things like:

• Your income – Can you afford the loan payments?
• Your debt-to-income ratio – How much debt do you already have compared to your income?
• Your credit history – Have you had late payments or bankruptcies in the past?

Even if you have a high credit score, you could be denied if your income is too low, your debts are too high, or you don’t meet other lender requirements. That’s why it’s important to keep your overall financial health in good shape, not just your credit score.

Myth #5: Closing Old Credit Cards Will Boost Your Score

Many people think that closing old credit cards will help their credit score, but it can actually do the opposite. Closing a credit card can hurt your score in two ways:

1. It shortens your credit history – The length of your credit history is an important factor in your score. Keeping older accounts open helps show a longer, more stable credit history.
2. It increases your credit utilization – Your credit utilization is the amount of credit you’re using compared to your total credit limit. If you close a card, your total available credit decreases, which can make your utilization ratio higher and lower your score.

Conclusion

There are many misconceptions about credit scores and FICO scores, and believing them can hurt your financial decisions. Now that you know the truth, you can take better control of your credit.