When you try to understand credit scores, it can feel like you’re trying to learn a secret language. A lot of myths out there cause people to worry about their money health or make costly mistakes. In this in-depth article, we’ll talk about the Top 5 Myths About Credit Scores, how credit scoring really works, and give you helpful advice on how to build and keep a good credit profile.
Introduction
Your credit score affects almost every part of your money, from getting loans and interest rates to applying for rentals and even getting a job. People still have wrong ideas about how scores are made and how to change them, though. The Consumer Financial Protection Bureau says that 26% of people don’t know what affects their credit score, and 36% have never looked at their report¹. People can make mistakes when they don’t know enough, like paying too much for credit or staying in financial limbo.
This article uses more than ten years of experience in credit counseling, data from FICO®, VantageScore®, and the Consumer Financial Protection Bureau (CFPB) to debunk the Top 5 Myths About Credit Scores. We will talk about:
- What credit scores do and don’t show
- Things that are often said about myths and what they really mean in real life
- Ways that have worked to raise and protect your score
- FAQs from experts to answer any last questions
You’ll have a clear, official plan for how to improve and use your credit profile in the end.
Myth 1: Checking your own credit report will hurt your score.
The Myth: “Every time I check my credit report, my score goes down.” The truth is that checking your own credit report is a soft inquiry and doesn’t change your score.
Why this myth keeps going
Many people confuse hard inquiries with soft inquiries. Hard inquiries happen when a lender checks your credit to see if you can get a loan or credit card. Soft inquiries happen when you check your own credit or when employers check it for background checks. Hard inquiries can drop your FICO® Score by as much as 5 points and stay on your report for two years. But they only have an effect on your score for a year.
Why You Should Read Your Report A lot of the time
- One in five people has a mistake on at least one of their three credit reports, which makes their scores wrong.³
- Finding unauthorized accounts early can save you thousands of dollars in fraud losses.
- How to raise your score: You can focus your efforts better if you know what areas need work, such as payment history and credit utilization.
You can get all three credit reports (Experian, TransUnion, and Equifax) for free once a year at AnnualCreditReport.com.
Myth 2: Having a balance on your credit card will improve your score.
The Myth: “I should keep a small balance on my credit card to improve my score.” The truth is that having a balance on your credit card doesn’t help your score; it can even hurt it by making your credit utilization ratio higher.
How to Use Your Credit
Credit utilization is the percentage of your available revolving credit that you are using. About 30% of your FICO® Score⁴ is made up of this. Most of the time, the best use is less than 30%, and for top scores, it’s best to use less than 10%.
| Balance | Credit Limit | How much you use | How it affects your score |
| $100 | $1,000 | 10% | Good |
| $300 | $1,000 | 30% | Good |
| $600 | $1,000 | 60% | Bad |
Why You Should Pay in Full:
- To Avoid Paying Interest: The average annual percentage rate (APR) for credit cards is between 22% and 30%. You’ll have to pay a lot of interest if you have a balance.
- Less Use: Paying in full before the statement closing dates keeps reported balances low.
- Get Higher Scores More Quickly: Scoring models see low or no use as a strong sign that you are a responsible borrower.
Set up automatic payments for your statement balance so that you never miss a payment or have a balance.
Myth 3: Your credit score goes up when you make more money.
The Myth: “The more money I make, the better my credit score.” The Truth: Credit scoring models don’t look at how much money you make. They only care about how people use credit.
What Credit Scores Look At
- Payment History (35%)
- Amount owed/Credit Utilization (30%)
- Length of Credit History (15%)
- New Credit Requests (10%)
- Mix of Credit (10%)
Source: MyFICO.com and FICO® Score Factors
Why People Don’t Understand Income Stays
People often get confused about the requirements for getting a loan and the scores they get because lenders want proof of income before they will approve a loan. Making more money won’t automatically raise your score, but it might help you get bigger loans.
Myth 4: Closing old accounts will help your score.
The Myth: “If I close my oldest credit card, my score will go up because I won’t be tempted as much.” The Truth: Closing old accounts can make your accounts younger and lower the amount of credit you have available, which could raise your utilization ratio.
The Age of Your Accounts and the Length of Your Credit
- Credit Mix (15%): The average age of accounts.
- Credit Mix (10%): Different types of credit, such as revolving and installment.
Closing an old account shortens your credit history and lowers the amount of credit you have available.
For instance:
- You have two cards: Card A, which you opened 10 years ago and has a $5,000 limit, and Card B, which you opened 2 years ago and has a $1,000 limit.
- They had $500 on each of them.
- The balance is $1,000 and the limit is $6,000, so the utilization is 16.7%.
- Close Card A: The balance is $1,000 and the limit is $1,000. This means that 100% of the credit is used, which is a big drop in score.
Myth 5: You only need to look at one credit score.
The Myth: “I only need to look at one credit score; they’re all the same.” There are many different scoring models, such as FICO® and VantageScore®, and each one has its own versions. The information from each bureau (Equifax, Experian, and TransUnion) may also be a little different.
- There are different models, like FICO® Score 8, FICO® Score 9, and VantageScore 4.0, which is why scores are different.
- Reporting Lags: One bureau might have updated payment information, but another might not have done so in 30 to 60 days.
- Some models have scores that range from 300 to 850, while others have scores that range from 250 to 900.
Best Practices:
- Check all three reports often. Not all reports have the same mistakes.
- Check Your Scores More Than Once: Many services, such as Credit Karma and Experian, show you both your FICO® and VantageScore scores.
- Don’t just look at one score; look at how scores change over time.
Building a Strong Credit Profile: Don’t Believe the Myths; Set Up Automatic Payments
- Your payment history is the most important thing that affects your score. One late payment can drop your score by 60 to 110 points⁵.
- Keep your balances low by using less than 10% of each revolving account.
- Keep Old Accounts: Don’t close cards that you don’t use (unless they have high fees).
- Types of credit: If you have a good mix of credit cards, auto loans, and a mortgage, it means you are borrowing responsibly.
- Limit Hard Inquiries: Don’t apply for more than one major credit card every six months.
Frequently Asked Questions (FAQs)
1. How often should I check my credit report? Answer: You should get a report from each bureau at least once a year through AnnualCreditReport.com. Every three months, you might want to do reviews if you’re rebuilding or looking for fraud.
2. Do collections that have been paid off still hurt my score? Yes, the answer is yes. Major scoring models no longer look at medical collections that are less than $500, but other collections can stay on your report for seven years from the date of the first missed payment.
3. Will my spouse’s debt hurt my credit score? Answer: Only if you let someone else use your account. Separate debts stay separate, but joint accounts affect both people until they are closed.
4. How long will bad information stay on my report? Answer:
- Payments that are late: 7 years
- Depending on the chapter, bankruptcies can last anywhere from 7 to 10 years.
- Hard inquiries last for two years, but they only affect your score for 12 months.
5. Can you talk to your creditors about getting rid of bad marks? Yes, the answer is yes. If you only miss one payment, you can ask for a goodwill adjustment. You can also try to make a pay-for-delete deal with collections, but bureaus don’t like these kinds of deals.
6. Is it worse to apply for more than one card at once? Answer: In newer versions of FICO®, several hard inquiries for the same type of product, like mortgages, within a 14–45 day period often count as one inquiry.
7. Is it worth it to pay for credit repair services? Answer: You can do a lot of things to improve your credit for free, like disputing mistakes, talking to creditors, and keeping good habits. Be wary of companies that want money up front.
8. Will paying my rent and bills help my score? Answer: Some services, such as Experian Boost and UltraFICO®, let you add these payments to your report. This could help your score. Check to see if there are any extra fees every time.
9. What is the difference between a credit report and a credit score? A credit report is a complete record of all the credit you have used. That information is used to come up with a three-digit credit score.
10. Is credit utilization based on each card or all of them? Yes, both. FICO® looks at both how often you use each card and how often you use all of them together. Make sure that each card is used less than 30% of the time and that the total is less than 30%.
The end
The first thing you need to do to get better at managing your credit is to get rid of myths. Knowing how scores are calculated and what doesn’t affect them can help you avoid making common mistakes and use strategies that work. If you know the basics of credit scoring, you can make smart decisions about your money, whether you’re buying a house, refinancing a loan, or just wanting to feel better about your finances.
Remember:
- You don’t have to worry about hurting your score when you check all three credit reports on a regular basis.
- Pay your bills on time and in full to keep your credit utilization low and your payment history clear.
- Keep a mix of different kinds of credit and accounts that have been open for a while.
- Learn from trustworthy sources and the best ways to do things.
Your credit journey is a long one, not a short one. Be proactive and keep an eye on your score.
References
- Consumer Financial Protection Bureau. “CFPB Survey Finds Many Consumers Don’t Understand Credit Scores.” consumerfinance.gov, Jan. 2021. Available: https://www.consumerfinance.gov/about-us/newsroom/cfpb-survey-finds-many-consumers-dont-understand-credit-scores/
- FICO®. “Credit Inquiry Impact.” myfico.com. Available: https://www.myfico.com/credit-education/credit-inquiry
- CFPB. “CFPB Study Finds 1 in 5 Consumers Has Error on Credit Reports.” consumerfinance.gov, Dec. 2018. Available: https://www.consumerfinance.gov/about-us/newsroom/cfpb-study-finds-1-in-5-consumers-has-error-on-credit-reports/
- FICO®. “What’s in Your Credit Score?” myfico.com. Available: https://www.myfico.com/credit-education/whats-in-your-credit-score
- Experian. “How Late Payments Impact Credit Scores.” experian.com, July 2024. Available: https://www.experian.com/blogs/ask-experian/how-late-payments-impact-credit-scores/
