Credit Scores Practice Quiz: Factors That Don't Count

Credit scores are derived from factors such as payment history, credit utilization, length of credit history, types of credit, and recent inquiries. Income level is not considered when calculating your credit score.

Many people mistakenly believe that checking their own credit report harms their score; however, self-checks are considered soft inquiries and do not affect the score. The other statements accurately describe factors that influence credit scores.

Credit scoring models focus on behavior such as payment history, amounts owed, and credit inquiries, rather than personal details like job title. Understanding this can help debunk the myth that your occupation influences your score.

A common misunderstanding is that closing unused credit cards will improve your credit score. In reality, keeping these accounts open can help maintain a longer credit history and lower your overall credit utilization.

Soft inquiries, such as checking your own credit report, do not harm your credit score. Only hard inquiries, which occur when you apply for new credit, can have an impact - even if it is typically small and temporary.

FICO scores are calculated based on payment history, amounts owed, length of credit history, new credit, and credit mix. Income bracket is not one of the factors in these scoring models.

A common myth is that you need to carry a balance on your credit cards to build credit. In truth, timely payments and responsible credit usage are the keys to establishing a strong credit history without incurring unnecessary interest.

Monitoring your own credit report is classified as a soft inquiry, which does not negatively impact your score. This practice is beneficial for managing your credit and catching any errors early.

While increasing your credit limit can lower your utilization ratio, rapidly requesting increases may result in multiple hard inquiries. This can temporarily lower your credit score, making the strategy counterproductive.

Multiple hard inquiries can suggest that you are seeking a lot of new credit and may lower your score temporarily. However, while the impact can be negative, it is generally small and short-lived.

Credit scoring models do not take into account annual salary when calculating your score. Instead, they assess factors related to your credit behavior such as payment habits and debt levels.

Building a strong credit history is more about making on-time payments and keeping your credit utilization low than about maintaining a balance. Carrying a balance results in higher interest costs and does not provide any inherent credit-building benefit.

Many believe that closing old credit accounts will eliminate fees and improve credit, but this action can shorten the length of your credit history and raise your overall credit utilization ratio. Maintaining old accounts in good standing is generally more beneficial for your score.

Credit mix refers to having a diverse set of credit accounts, including revolving credit (like credit cards) and installment loans (like auto or mortgage loans). This variety can positively influence your credit score by showing that you can manage different types of credit responsibly.

In most credit scoring models, both open and properly closed accounts are considered when assessing the length of your credit history. Believing that only open accounts count is a misconception that can lead to poor credit management decisions.

Applying for several new credit cards at once results in multiple hard inquiries, which can temporarily lower your credit score. While increased available credit may lower your utilization ratio, the negative effect of these inquiries often outweighs that benefit.

This scenario reflects the myth that you need to carry a balance on your credit cards in order to build credit. In reality, paying off your balance in full every month is the most effective way to build a strong credit history without incurring unnecessary interest.

It is a misconception that simply having multiple student loans will permanently lower your credit score. Instead, it is your repayment behavior that matters - timely repayments can actually help in building a positive credit history.

Credit scores incorporate various factors including payment history, amounts owed, length of credit history, credit mix, and new credit inquiries. Focusing solely on spending habits ignores these other critical components that determine your score.

A common myth is that once you pay a late bill, the negative mark will immediately disappear from your credit report. In reality, negative items can remain on your record for up to seven years, although their impact may decrease over time.