Understanding credit scores is critical for maintaining financial health, yet many people fall victim to common myths. In this post, we will uncover the truth behind the ten biggest credit score myths you need to stop believing. Let’s shed light on these misconceptions and set the record straight!
1. Checking Your Credit Score Hurts It
🚫 Myth: Checking your own credit score will lower it.
✅ Truth: Self-checking your credit score is a soft inquiry and does not lower your score. Only hard inquiries, which occur when applying for new loans, can cause a temporary dip in your score.
This misconception can discourage people from monitoring their credit. By knowing that checking your score is safe, you can stay informed about your financial situation and quickly address any errors. According to a 2022 study, 35% of Americans didn’t know this fact, which can lead to financial oversight.
2. You Must Carry a Credit Card Balance to Build Credit
🚫 Myth: Keeping a balance will help boost your credit.
✅ Truth: You can build credit by using your card for purchases and paying it off in full each month. Carrying a balance isn’t only unnecessary—it can lead to high interest costs.
It’s a common belief that debt is essential for credit growth. However, the Consumer Financial Protection Bureau states that credit card users who pay their bills in full are more likely to have higher credit scores. In fact, those who consistently pay off their balances avoid the pitfalls of accumulating interest.
3. Closing Old Credit Cards Helps Your Score
🚫 Myth: Closing a credit card will boost your credit score.
✅ Truth: Closing old credit cards can actually lower your score by reducing available credit and shortening your credit history. Keeping those old accounts open, as long as they are in good standing, can be beneficial.
This misconception can lead to costly mistakes. For instance, a credit utilization rate of 30% or lower is generally recommended. If you close an old card that has a high credit limit, your available credit decreases, which could raise your utilization rate.
4. Your Income Determines Your Credit Score
🚫 Myth: The more you earn, the better your credit score.
✅ Truth: Your income doesn’t directly influence your credit score. What matters are your payment history, credit utilization, and overall debt levels.
Many individuals get confused by this. Credit scoring models look solely at your credit usage practices. As reported by the FICO company, up to 35% of your score is based on payment history, while income plays no role in this calculation.
5. You Only Have One Credit Score
🚫 Myth: You have just one credit score.
✅ Truth: There are multiple credit scoring models (like FICO and VantageScore), and different credit bureaus (Experian, Equifax, and TransUnion) may have slightly different data. That means your score might vary depending on where you check it.
This misunderstanding can lead to unexpected challenges when seeking loans together. For example, if one spouse has a poor score due to missed payments, it can affect the approval process for shared loans.
6. Paying Off Debt Instantly Removes It from Your Credit Report
🚫 Myth: A paid debt disappears from your credit report immediately.
✅ Truth: Paid debts can stay on your report for years, impacting your score. Items like late payments can linger for up to seven years, but the impact lessens over time.
This myth can be misleading; many expect immediate improvement after debt settlement. Knowing that changes take time can help you manage expectations and plan your financial recovery strategically.
7. Debit Cards Help Build Credit
🚫 Myth: Regular use of debit cards improves your credit.
✅ Truth: Debit card transactions are not reported to credit bureaus and do not help build credit history.
Relying solely on debit transactions can hinder your credit growth. If you want a robust credit profile, it’s advisable to use a credit card responsibly. In fact, consumers who actively manage their credit accounts can see an increase in their scores by 30 points or more over six months.
8. All Debt is Bad for Your Credit
🚫 Myth: Any kind of debt negatively impacts your credit score.
✅ Truth: Not all debt is harmful. Managed well, such as maintaining low credit utilization and making timely payments, can positively influence your score.
Many view debt as strictly negative, which can hinder beneficial financial practices. For instance, people with a mix of credit types—like installment loans and revolving credit—often have better scores. A healthy balance between different kinds of credit can enhance your credit profile.
9. You Can’t Get Credit with Bad Credit
🚫 Myth: Low scores mean you will be denied credit.
✅ Truth: Securing credit is still possible with a bad score. Some lenders specialize in loans for individuals with low credit, though they may come with higher interest rates.
This myth can be overwhelmingly discouraging. Options like secured credit cards or credit-builder loans can provide avenues for those starting from a low score. A recent survey found that 60% of consumers were unaware of these alternatives.
10. One Late Payment Won’t Matter
🚫 Myth: Being a few days late on a payment won’t affect your score.
✅ Truth: Even a single late payment can damage your credit—especially if it’s more than 30 days late and reported to credit bureaus. Always pay on time to protect your score.
Take Charge of Your Credit Knowledge
Navigating the world of credit can feel overwhelming, especially with so many myths adding to the confusion. By debunking these ten myths, you can take charge of your credit journey. Regularly checking your credit and understanding the effects of financial decisions will empower you to maintain a healthy credit score. Remember, knowledge is the strongest tool you have in building and protecting your financial reputation.
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